<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): SEPTEMBER 17, 1998
NATIONAL EQUIPMENT SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1-14163 36-4087016
(STATE OR OTHER (COMMISSION FILE NUMBER) (IRS EMPLOYER
JURISDICTION IDENTIFICATION NO.)
OF INCORPORATION)
1800 SHERMAN AVENUE, 60201
EVANSTON, ILLINOIS
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (847) 733-1000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
The financial statements required by Item 7(a) relating to the acquisition of
the business of Shaughnessy Crane Service, Inc. described in Item 2 of Form 8-K
of National Equipment Services, Inc., dated September 29, 1998, are filed as
Exhibit 99.2 and incorporated herein by this reference.
(b) PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information required by Item 7(b) relating
to the acquisition of the business of Shaughnessy Crane Service, Inc. described
in Item 2 of Form 8-K of National Equipment Services, Inc., dated September 29,
1998, is filed as Exhibit 99.3 and incorporated herein by this reference.
(c) EXHIBITS
<TABLE>
<CAPTION>
<C> <S> <C>
2.1 Stock Purchase Agreement, dated as of September 17, 1998,
by and among National Equipment Services, Inc.,
Shaughnessy Crane Service, Inc. and the stockholders of
Shaughnessy Crane Service, Inc.*
4.1 Junior Subordinated Convertible Promissory Note, dated
September 17, 1998, in the principal amount of
$15,000,000.*
4.2 Supplemental Indenture, dated September 24, 1998, by and
between Shaughnessy Crane Service, Inc. and Harris Savings
and Trust Company, as trustee.*
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Wolf & Company, P.C.
99.1 Press Release dated September 23, 1998.*
99.2 Financial Statements of Shaughnessy Crane Service, Inc.
99.3 Unaudited Pro Forma Financial Information.
</TABLE>
- --------
*Previously filed.
2
<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED HEREUNTO DULY AUTHORIZED.
National Equipment Services, Inc.
/s/ Paul R. Ingersoll
By: _________________________________
Paul R. Ingersoll
Vice President and Secretary
Dated: December 1, 1998
3
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form 8-K of our report dated April 1, 1998, except for the
information in Note 13 as to which the date is September 8, 1998, relating to
the financial statements of National Equipment Services, Inc. dated September
16, 1998 and filed with the Securities and Exchange Commission pursuant to
Rule 424(b)(3).
/s/ PricewaterhouseCoopers LLP
Chicago, IL
December 1, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this Form 8-K/A of National Equipment Services,
Inc. of our report dated July 17, 1998 on the balance sheets of Shaughnessy
Crane Service, Inc. as of December 31, 1997 and 1996, and the related
statements of income, changes in stockholders' equity and cash flows for each
of the years in the three year period ended December 31, 1997.
Wolf & Company, P.C.
Boston, Massachusetts
December 1, 1998
<PAGE>
EXHIBIT 99.2
The following financial statements are included herein:
Financial Statements of Shaughnessy Crane Service, Inc.
Independent Auditors' Report
Balance Sheets as of December 31, 1996 and 1997 and August 31, 1998
(unaudited)
Statements of Income for the Years Ended December 31, 1995, 1996 and
1997 and for the Eight Months Ended August 31, 1998 (unaudited)
Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997 and the Eight Months Ended August
31, 1998 (unaudited)
Statements of Cash Flows for the Years Ended December 31, 1995, 1996
and 1997 and for the Eight Months Ended August 31, 1998 (unaudited)
Notes to Financial Statements
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders' of
Shaughnessy Crane Service, Inc.
Boston, Massachusetts
We have audited the accompanying balance sheets of Shaughnessy Crane
Service, Inc., as of December 31, 1997 and 1996 and the related statements of
income, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Shaughnessy Crane Service,
Inc. as of December 31, 1997 and 1996, and the results of its operations and
its cash flows for each of the years in the three-year period ended December
31, 1997 in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, Shaughnessy Crane
Service, Inc. received an offer by an unrelated company to purchase 100% of
the issued and outstanding shares of Shaughnessy Crane Service, Inc.
/s/ Wolf & Company, P.C.
Boston, Massachusetts
July 17, 1998
2
<PAGE>
SHAUGHNESSY CRANE SERVICE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS DECEMBER 31,
------ AUGUST 31, -----------------------
1998 1997 1996
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............... $ 624,121 $ 79,007 $ 703,050
Accounts receivable, net of allowance
for doubtful accounts of $245,010,
$361,858 and $457,000.................. 6,614,724 6,648,627 6,104,464
Accounts receivable, affiliates (Note
3)..................................... 134,823 691,647 840,369
Note receivable, affiliate--current
portion (Note 3)....................... 15,198 15,198 14,034
Due from officers, stockholders and
employees, net (Note 3)................ 120,167 83,942 53,319
Refundable income taxes................. 74,517 29,267 --
Prepaid expenses and other current
assets................................. 30,182 250,647 82,409
----------- ----------- -----------
Total current assets.................. 7,613,732 7,798,335 7,797,645
----------- ----------- -----------
Property and equipment, net (Note 5)...... 30,602,081 26,597,863 24,282,883
----------- ----------- -----------
Other assets:
Cash surrender value of officers' life
insurance, net of policy loans of
$550,328 in 1998 and 1997 and $382,320
in 1996................................ 798,487 798,487 578,661
Investment in affiliate (Note 3)........ 602,993 602,993 505,793
Note receivable, affiliate--net of
current portion (Note 3)............... 13,718 23,715 38,913
Other assets............................ 269,445 276,969 540,855
----------- ----------- -----------
Total other assets.................... 1,684,643 1,702,164 1,664,222
----------- ----------- -----------
$39,900,456 $36,098,362 $33,744,750
=========== =========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Note payable, bank (Note 6)............. $ -- $ -- $ 1,500,000
Note payable, other (Note 7)............ -- 135,580 --
Accounts payable........................ 6,693,172 512,802 193,999
Accounts payable, affiliates (Note 3)... 226,505 908,095 16,933
Accrued expenses and other current
liabilities............................ 1,113,527 630,548 826,069
Income taxes payable.................... -- -- 85,028
Deferred income taxes (Note 8).......... 186,000 186,000 187,000
----------- ----------- -----------
Total current liabilities............. 8,219,204 2,373,025 2,809,029
Deferred income taxes, noncurrent (Note
8)....................................... 464,000 464,000 413,000
----------- ----------- -----------
Total liabilities..................... 8,683,204 2,837,025 3,222,029
----------- ----------- -----------
Commitments and contingencies (Notes 2, 8
and 10)
Stockholders' equity (Note 8):
Common stock, no par value; 88,000
shares authorized; 52,000 shares issued
in 1998 and 1997 (88,000 shares issued
in 1996)............................... 12,700 12,700 12,700
Retained earnings....................... 31,204,552 33,248,637 39,418,244
----------- ----------- -----------
31,217,252 33,261,337 39,430,944
Less cost of 36,000 shares reacquired for
the treasury............................. -- -- (8,908,223)
----------- ----------- -----------
Total stockholders' equity............ 31,217,252 33,261,337 30,522,721
----------- ----------- -----------
$39,900,456 $36,098,362 $33,744,750
=========== =========== ===========
</TABLE>
See independent auditors' report and accompanying notes to financial
statements.
3
<PAGE>
SHAUGHNESSY CRANE SERVICE, INC.
STATEMENTS OF INCOME
(NOTE 3)
<TABLE>
<CAPTION>
EIGHT MONTHS YEARS ENDED DECEMBER 31,
ENDED AUGUST 31, -------------------------------------
1998 1997 1996 1995
---------------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................ $22,360,386 $31,261,394 $26,924,389 $26,814,717
Cost of revenues........ 13,026,673 16,957,003 13,361,525 15,042,337
----------- ----------- ----------- -----------
Gross profit.......... 9,333,713 14,304,391 13,562,864 11,772,380
General and
administrative
expenses............... 3,934,922 6,387,707 5,718,840 10,217,568
----------- ----------- ----------- -----------
Income from
operations........... 5,398,791 7,916,684 7,844,024 1,554,812
Interest and dividend
income, net............ 70,342 84,687 100,773 108,833
Interest expense........ (15,570) (125,045) (372,642) --
Other income (expense),
net.................... (433,148) 202,265 391,380 (24,620)
----------- ----------- ----------- -----------
Income before
provision for state
income taxes......... 5,020,415 8,078,591 7,963,535 1,639,025
Provision for state
income taxes (Note 8).. 225,000 341,975 356,000 129,000
----------- ----------- ----------- -----------
Net income.......... $ 4,795,415 $ 7,736,616 $ 7,607,535 $ 1,510,025
=========== =========== =========== ===========
Pro forma tax provision
(unaudited):
Income before income
taxes................ $ 4,795,415 $ 7,736,616 $ 7,607,535 $ 1,510,025
Pro forma provision
for income taxes..... 1,678,395 2,707,816 2,662,637 528,509
----------- ----------- ----------- -----------
Pro forma net income.. $ 3,117,020 $ 5,028,800 $ 4,944,898 $ 981,516
=========== =========== =========== ===========
</TABLE>
See independent auditors' report and accompanying notes to financial
statements.
4
<PAGE>
SHAUGHNESSY CRANE SERVICE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
AND EIGHT MONTHS ENDED AUGUST 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
NET
UNREALIZED
LOSS ON
SECURITIES TOTAL
COMMON RETAINED AVAILABLE TREASURY STOCKHOLDERS'
STOCK EARNINGS FOR SALE STOCK EQUITY
------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... $12,700 $32,008,684 $(91,488) $ -- $31,929,896
Net income.............. -- 1,510,025 -- -- 1,510,025
Dividend distributions
paid for taxes......... -- (1,500,000) -- -- (1,500,000)
Change in net unrealized
loss on securities
available for sale..... -- -- 91,488 -- 91,488
Purchase of 36,000
shares of treasury
stock.................. -- -- -- (8,908,223) (8,908,223)
------- ----------- -------- ----------- -----------
Balance at December 31,
1995................... 12,700 32,018,709 -- (8,908,223) 23,123,186
Net income.............. -- 7,607,535 -- 7,607,535
Dividend distributions
paid for taxes......... -- (208,000) -- -- (208,000)
------- ----------- -------- ----------- -----------
Balance at December 31,
1996................... 12,700 39,418,244 -- (8,908,223) 30,522,721
Net income.............. -- 7,736,616 -- -- 7,736,616
Cancellation of 36,000
shares held in the
treasury and
restoration to
authorized and unissued
shares................. -- (8,908,223) -- 8,908,223 --
Dividend distributions
paid for taxes......... -- (4,998,000) -- -- (4,998,000)
------- ----------- -------- ----------- -----------
Balance at December 31,
1997................... 12,700 33,248,637 -- -- 33,261,337
Net income.............. -- 4,795,415 -- -- 4,795,415
Dividend distributions
paid for taxes......... -- (6,839,500) -- -- (6,839,500)
------- ----------- -------- ----------- -----------
Balance at August 31,
1998 (unaudited)....... $12,700 $31,204,552 $ -- $ -- $31,217,252
======= =========== ======== =========== ===========
</TABLE>
See independent auditors' report and accompanying notes to financial
statements.
5
<PAGE>
SHAUGHNESSY CRANE SERVICE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
EIGHT MONTHS ENDED --------------------------------------
AUGUST 31, 1998 1997 1996 1995
------------------ ----------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............ $ 4,795,415 $ 7,736,616 $ 7,607,535 $ 1,510,025
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Equity in (income)
loss of affiliate.. -- (97,200) 6,955 (67,202)
Depreciation........ 3,129,799 4,109,118 3,414,915 2,739,866
Accretion of
investment
securities, net.... -- -- -- (8,715)
Amortization of
intangible asset... -- 13,333 13,333 3,889
Gain on sale of
property and
equipment.......... 12,566 (91,028) (470,001) (40,337)
Gain on sale of
investment
securities......... -- -- -- (18,665)
(Increase) decrease
in cash surrender
value of officers'
life insurance..... -- (387,834) (254,403) 47,842
Deferred income
taxes.............. -- 50,000 1,000 70,000
Decrease (increase)
in operating
assets:
Accounts
receivable....... 33,903 (544,163) 1,097,701 (1,076,281)
Accounts
receivable,
affiliates....... 556,824 148,722 (285,022) 1,130,050
Due from officers,
stockholders and
employees, net... (36,225) (30,623) (1,070) (676,496)
Investment in and
advances to joint
venture.......... -- -- (5,944) 40,944
Refundable income
taxes............ (45,250) (29,267) 98,494 (85,215)
Prepaid expenses
and other current
assets........... 220,465 (168,238) 190,546 (37,093)
Other assets...... 7,524 250,553 (7,025) (91,299)
Increase (decrease)
in operating
liabilities:
Accounts payable.. 6,180,370 318,803 (41,898) (28,743)
Accounts payable,
affiliates....... (681,590) 891,162 3,031 (3,243)
Accrued expenses
and other current
liabilities...... 482,979 (195,521) (192,120) (213,732)
Income taxes
payable.......... -- (85,028) 85,028 --
----------- ----------- ------------ -----------
Net cash provided
by operating
activities...... 14,656,780 11,889,405 11,261,055 3,195,595
----------- ----------- ------------ -----------
Cash flows from
investing activities:
Payments to former
stockholders......... -- -- (9,255,464) --
Purchase of investment
securities........... -- -- -- (140,575)
Proceeds from sales
and maturities of
investment
securities........... -- -- -- 3,570,642
Proceeds from sale of
property and
equipment............ 1,832,499 1,357,317 2,724,707 1,123,658
Purchases of property
and equipment........ (8,979,082) (7,690,387) (7,189,111) (7,498,299)
Issuance of note
receivable,
affiliate............ -- -- -- (73,000)
Principal payments
received on note
receivable,
affiliate............ 9,997 14,034 12,958 7,095
Issuance of notes
receivable........... -- -- -- (75,000)
Principal payments
received on notes
receivable........... -- -- 65,000 10,000
Investment in
affiliate............ -- -- -- (212,018)
Increase in borrowings
against cash
surrender value of
life insurance....... -- 168,008 165,640 16,600
----------- ----------- ------------ -----------
Net cash used by
investing
activities...... (7,136,586) (6,151,028) (13,476,270) (3,270,897)
----------- ----------- ------------ -----------
Cash flows from
financing activities:
Proceeds from note
payable, bank........ -- -- 7,500,000 --
Principal payment on
note payable, bank... -- (1,500,000) (6,000,000) --
Dividend distributions
paid for taxes....... (6,839,500) (4,998,000) (208,000) (1,500,000)
Proceeds from note
payable, other....... -- 664,990 -- --
Principal payments on
note payable, other.. (135,580) (529,410) -- --
Acquisition of
treasury stock....... -- -- -- (100,000)
----------- ----------- ------------ -----------
Net cash provided
(used) by financing
activities............ (6,975,080) (6,362,420) 1,292,000 (1,600,000)
----------- ----------- ------------ -----------
Net increase (decrease)
in cash and cash
equivalents........... 545,114 (624,043) (923,215) (1,675,302)
Cash and cash
equivalents at
beginning of year..... 79,007 703,050 1,626,265 3,301,567
----------- ----------- ------------ -----------
Cash and cash
equivalents at end of
period................ $ 624,121 $ 79,007 $ 703,050 $ 1,626,265
=========== =========== ============ ===========
Supplemental cash flow
information:
State income taxes
paid, net of
refunds.............. $ 195,250 $ 406,269 $ 171,479 $ 144,215
Interest paid......... 985 107,725 358,431 --
</TABLE>
See independent auditors' report and accompanying notes to financial
statements.
6
<PAGE>
SHAUGHNESSY CRANE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
Shaughnessy Crane Service, Inc. ("Shaughnessy" or the "Company") is engaged
in the rental of hydraulic cranes and aerial lifts, millwrighting and
warehousing activities for their customers which are primarily located in the
northeast region of the United States. These business activities are conducted
through separate divisions of the Company, the results of which are combined
in the financial statements. All intracompany transactions for the combined
divisions have been eliminated. The Company also has entered into transactions
with affiliated companies, the results of which are included in these
financial statements. (See Note 3.)
INTERIM FINANCIAL INFORMATION
The financial statements include information for the eight months ended
August 31, 1998 which is unaudited and excludes certain information and
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles. The results of operations are
not necessarily indicative of those that might be expected for a full year.
CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and cash equivalents
and trade receivables. The Company's cash and cash equivalents generally
exceed insurance limitations and are placed in high quality financial services
organizations. The Company's concentration of credit risk with respect to
trade receivables is limited due to the credit history and geographic
diversity of its customer base. One customer comprised 12% and 11% of trade
accounts receivable at December 31, 1997 and 1996, respectively.
USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
the balance sheet date and amounts of revenues and expenses recorded during
the reporting period. Actual results could differ from those estimates and it
is at least reasonably possible that a change in estimates will occur in the
near term. Such estimates primarily relate to the allowance for doubtful
accounts, the depreciable lives of property and equipment, deferred income
taxes and accrued expenses.
REVENUE RECOGNITION
The Company recognizes revenues from its rental contracts, its principal
business, ratably over the term of the agreement.
CASH EQUIVALENTS
Cash equivalents amounting to approximately $69,000 and $974,000 at December
31, 1997 and 1996, respectively, consist of Cayman and Nassau Eurodollars
purchased with maturities of ninety days or less. These investments are not
held at federally insured institutions. Cash equivalents are stated at cost
plus accrued interest.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation. For
financial statement purposes, depreciation expense is provided over the
estimated useful lives of the assets using straight-line and accelerated
methods. A summary of the estimated useful lives follows:
<TABLE>
<CAPTION>
CLASSIFICATION ESTIMATED USEFUL LIVES
-------------- ----------------------
<S> <C>
Buildings and improvements......................... 31.5 years
Rental equipment................................... 3 to 10 years
Motor trucks....................................... 4 to 10 years
Furniture and fixtures............................. 10 years
</TABLE>
See independent auditors' report.
7
<PAGE>
SHAUGHNESSY CRANE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
See independent auditors' report.
Expenditures for maintenance, repairs and minor renewals are charged to
expense as incurred. Significant improvements and major renewals are
capitalized.
For income tax purposes, costs of property and equipment are depreciated
utilizing the accelerated cost recovery system and the modified accelerated
cost recovery system.
INVESTMENTS IN AFFILIATE AND JOINT VENTURE
The Company accounts for its investments in affiliate and joint venture
under the equity method of accounting reflecting as other income (expense) in
its financial statements its pro rata share of earnings (losses) of the
affiliate or joint venture.
INCOME TAXES
The Company, with the consent of its stockholders, elected to have its
earnings taxed in accordance with Subchapter S of Chapter 1 of the Internal
Revenue Code of 1986, as amended. Accordingly, for federal income tax
purposes, the Company's earnings are taxed directly to its stockholders and no
provision for federal income taxes is required. The Company's earnings in
Massachusetts are also taxed directly to its stockholders at the state's
individual income tax rate and assessed to the Company at the Massachusetts
Subchapter S income tax rate.
The provision for state income taxes is based on the elements of income and
expense as provided in the income statement and also include in the current
period any changes in tax rates from those previously used in determining
deferred tax assets and liabilities.
Deferred state income taxes are provided on temporary differences in the
recording of revenues and expenses in different periods for income tax and
financial statement reporting purposes. The temporary differences result
primarily from using accelerated methods of depreciation on certain fixed
assets for income tax purposes and the straight-line method for financial
reporting purposes and the use of the cash basis of reporting for two of the
Company's divisions for income tax purposes.
The pro forma provisions for income taxes approximate what the Company's tax
provision would be if subject to income taxes as a C Corporation.
2. SUBSEQUENT EVENT
The Company received an offer from an unrelated third party to purchase 100%
of the issued and outstanding shares of the Company. The terms of the proposed
transaction are subject to further negotiations.
If the Company is sold and an automatic termination of the S Corporation
status occurs, the Company may be required to reinstate deferred income taxes
of approximately $6.3 million (see Note 8). Additionally, under the terms of
the offer, the Company would be required to distribute certain assets,
aggregating approximately $5.5 million, prior to the closing of the sale.
Consequently, the Company's net worth would be reduced by both of these
transactions.
3. RELATED PARTY TRANSACTIONS
SHAUGHNESSY AND AHERN COMPANY, INC. AND POWER LIFTS, INC.
The Company has a 22% ownership interest in Shaughnessy and Ahern Company,
Inc. and is affiliated with Power Lifts, Inc. through common ownership and
management. The statement of income includes approximately $1,731,000,
$1,378,000 and $1,238,000 of revenues and $273,000, $213,000 and $2,552,000 of
purchases from the affiliates for the years ended December 31, 1997, 1996 and
1995, respectively. In addition, the Company
8
<PAGE>
SHAUGHNESSY CRANE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
See independent auditors' report.
receives an expense reimbursement in the form of management fees from the
affiliates. The management fees amounted to approximately $1,167,000,
$1,090,000 and $871,000 for the years ended December 31, 1997, 1996 and 1995,
respectively, and have been reported net against general and administrative
expenses in the Company's statement of income.
The Company's investment in Shaughnessy and Ahern Company, Inc. consists of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year................. $505,793 $512,748 $445,546
Equity in earnings (loss)--current year...... 97,200 (6,955) 67,202
-------- -------- --------
Balance at end of year....................... $602,993 $505,793 $512,748
======== ======== ========
</TABLE>
BOSTON CRANE & RIGGING, INC.
The Company also engages in transactions with Boston Crane & Rigging, Inc.
which is owned by family members of an officer/stockholder. The statement of
income includes revenues of approximately $198,000, $436,000 and $285,000 and
sub-contract costs of $72,000, $49,000 and $126,000 with this affiliate for
the years ended December 31, 1997, 1996 and 1995, respectively. In addition,
the Company earned rental income under a tenant-at-will arrangement with
Boston Crane & Rigging, Inc. amounting to $20,000, $36,000 and $36,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
In connection with the acquisition of equipment, Boston Crane & Rigging,
Inc. borrowed $73,000 on June 1, 1995 from the Company. The note requires
monthly payments of $1,480 including principal and interest at 8% through May
31, 2000.
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE, AFFILIATES
Accounts receivable, affiliates and accounts payable, affiliates consists of
the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
ACCOUNTS
RECEIVABLE ACCOUNTS PAYABLE
----------------- ----------------
AFFILIATE 1997 1996 1997 1996
--------- -------- -------- -------- -------
<S> <C> <C> <C> <C>
Shaughnessy and Ahern Company, Inc.... $412,492 $485,458 $863,503 $10,305
Boston Crane & Rigging, Inc........... 279,155 354,911 44,592 6,628
-------- -------- -------- -------
Total............................. $691,647 $840,369 $908,095 $16,933
======== ======== ======== =======
</TABLE>
DUE FROM OFFICERS, STOCKHOLDERS AND EMPLOYEES, NET
Amounts due from and to officers, stockholders and employees generally
require interest at the Applicable Federal Rate (5.88%, 5.74% and 6.38% for
the years ended December 31, 1997, 1996 and 1995, respectively). Interest
income amounted to $32,016, $20,418 and $25,000, and interest expense amounted
to $17,320, $14,211 and $9,530 on these related party borrowings for the years
ended December 31, 1997, 1996 and 1995, respectively.
4. INVESTMENT IN AND ADVANCES TO JOINT VENTURE
In 1992, the Company entered into a joint venture agreement with an
unrelated company to bid and perform construction work as defined in the
agreement. The Company shares 50% of the profits and losses derived from
9
<PAGE>
SHAUGHNESSY CRANE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
See independent auditors' report.
the venture. Reported losses on the joint venture of $84,056 and $165,944 are
included in other income (expense) in the Company's statement of income during
the years ended December 31, 1996 and 1995, respectively.
5. PROPERTY AND EQUIPMENT
At December 31, 1997 and 1996, property and equipment consists of the
following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Land, buildings and improvements.............. $ 4,320,664 $ 4,320,664
Rental equipment.............................. 41,900,988 37,342,655
Motor trucks.................................. 2,852,729 2,525,550
Furniture and fixtures........................ 42,732 42,732
------------ ------------
49,117,113 44,231,601
Less accumulated depreciation................. (22,519,250) (19,948,718)
------------ ------------
Property and equipment, net................... $ 26,597,863 $ 24,282,883
============ ============
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1996 and 1995
amounted to $4,109,118, $3,414,915 and $2,739,866, respectively.
6. PURCHASE AGREEMENT AND NOTE PAYABLE, BANK
On August 31, 1995, the Company entered into a purchase agreement (the
"Agreement") with former stockholders and trusts controlled by certain former
stockholders. Pursuant to the terms of this Agreement, the Company acquired
the former stockholders' legal and beneficial interests in the Company, its
affiliate, Shaughnessy and Ahern Company, Inc., and in certain real estate
used for operations by the Company. The Company also entered into non-
competition agreements with certain of the former stockholders.
In connection with the purchase agreement, a liability to former
stockholders was incurred as follows in 1995 for the following: treasury
stock--$8,908,223, investment in affiliate--$445,546, purchase of real
estate--$800,000, intangible asset and other--$200,003, Accrued interest--
$154,210, and due from stockholders--$(740,500) resulting in a net liability
of $9,767,482, of which $512,018 was paid during 1995.
In January, 1996 the Company paid the remaining amount due to the former
stockholders with the assistance of a $7,500,000 term promissory note with a
bank. The note was secured by substantially all the Company's assets and
guaranteed by certain officer/stockholders. Interest on the note was at the
bank's prime rate (8.25% at December 31, 1996), and the terms of the note
required monthly principal payments of $100,000 beginning in February, 1996
with a scheduled maturity of May 12, 2002. The Company made principal paydowns
on the note of $6,000,000 in 1996 and paid the remaining principal balance of
$1,500,000 during 1997. Interest expense related to the bank promissory note
amounted to $83,103 and $332,130 during the years ended December 31, 1997 and
1996, respectively.
Also, in connection with this Agreement, the Company paid certain of the
former stockholders $4,358,157 representing primarily past compensation as
well as severance and other payments related to the Agreement. These expenses
are included in general and administrative expenses during the year ended
December 31, 1995.
7. NOTE PAYABLE, OTHER
During 1997, the Company financed its insurance premiums through a short
term note payable in the amount of $664,990. The note bears interest at 5.81%
and requires monthly payments of principal and interest in the
10
<PAGE>
SHAUGHNESSY CRANE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
See independent auditors' report.
amount of $68,283. Interest expense related to this note payable amounted to
$24,622 during the year ended December 31, 1997.
8. INCOME TAXES
As described in Note 1, the Company elected to be taxed in accordance with
Subchapter S of the Internal Revenue Code. Accordingly, for both Federal and
state income tax purposes, the Company's earnings are taxed directly to its
stockholders. During 1997, 1996 and 1995 the Company distributed $4,998,000,
$208,000 and $1,500,000, respectively, to its stockholders to cover the taxes
assessed to the stockholders as a result of the Company's income in 1997, 1996
and 1995 that was allocated to them.
The Company's earnings in Massachusetts are also assessed to the Company at
the Massachusetts Subchapter S income tax rate. The provision for state income
taxes for the years ended December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current........................................ $291,975 $355,000 $ 59,000
Deferred....................................... 50,000 1,000 70,000
-------- -------- --------
$341,975 $356,000 $129,000
======== ======== ========
</TABLE>
In 1987 when the Company elected to have its earnings taxed in accordance
with Subchapter S of the Internal Revenue Code, deferred income taxes were
reversed and credited to retained earnings. If the Company lost or revoked its
S Corporation status, deferred federal income taxes and additional deferred
state income taxes would be reinstated and charged against income at that time
for financial reporting purposes. (See Note 2).
9. PENSION PLANS
DEFINED BENEFIT PLANS
The Company participates in various multi-employer union administered
defined benefit pension plans that cover the Company's union employees. Total
contributions by the Company to such plans amounted to $500,707, $373,071 and
$504,399 during 1997, 1996 and 1995, respectively.
The Employee Retirement Income Security Act of 1974, as amended by the
Multi-Employers Pension Plan Amendment Act of 1980, imposes certain
liabilities upon employers who are contributors to multi-employer plans in the
event of such employer's withdrawal from such a plan or upon termination of
such a plan. The share of the plan's unfunded vested liabilities allocable to
the Company, and for which it may be contingently liable, is not ascertainable
at this time.
DEFINED CONTRIBUTION PLAN
The Company also has a defined contribution pension plan that covers all
full time non-union employees meeting certain eligibility requirements.
Contributions are based on a specified percentage of qualifying compensation
as determined by the Board of Directors, not to exceed limits established
under the Internal Revenue Code (15% for 1997 and 1996 and 12% for 1995).
Pension expense amounted to $399,348, $363,968 and $277,392 for the years
ended December 31, 1997, 1996 and 1995, respectively.
401(K) PLAN
Effective September 1, 1997, the Company adopted a 401(k) Plan whereby
employees reaching the age of 21 and having completed at least 11 months of
service become eligible to participate in the Plan. Employees
11
<PAGE>
SHAUGHNESSY CRANE SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
may defer a percentage of their compensation subject to certain limits based on
federal tax laws. The Company matches a specified percentage of employee
deferrals as determined by the Board of Directors (3% for 1997). The Company's
expense related to matching contributions under the 401(k) Plan amounted to
$28,656 for the year ended December 31, 1997.
10. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company has long-term leases for business premises that require minimum
future rental payments of $12,168 through February, 1998 at which time they
will be a tenant-at-will. Rent expense under these leases amounted to $148,851,
$153,176 and $22,500 for the years ended December 31, 1997, 1996 and 1995,
respectively.
The Company also leases property for its own operations from an unrelated
organization under a tenant-at-will agreement. Rent expense under such
arrangements amounted to $3,253, $3,078 and $95,205, for the years ended
December 31, 1997, 1996 and 1995, respectively.
OTHER CONTINGENCIES
The Company is one of the defendants in actions filed by the beneficial
owners of a minority interest in an affiliate. The claims assert, among other
things, that the defendants usurped opportunities of the affiliate. It is not
clear what relief is sought at this time. The Company intends to vigorously
contest these claims and believe they have meritorious defenses.
See independent auditors' report.
12
<PAGE>
EXHIBIT 99.3
NATIONAL EQUIPMENT SERVICES, INC.
INTRODUCTION TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
National Equipment Services, Inc. ("the Company") was founded in June 1996
to acquire and integrate equipment rental companies. In 1997, the Company
acquired the following six businesses in separate transactions: Industrial
Crane Maintenance Systems, Inc., Aerial Platforms, Inc., Lone Star Rentals,
Inc., BAT Rentals, Inc., Sprintank and Sprintank Mobile Storage and Equipco
Rentals & Sales. In 1998, the Company acquired the following eleven businesses
in separate transactions: Genpower Pump and Equipment Co., Eagle Scaffolding
and Equipment Co., Grand Hi-Reach, Inc., Work Safe Supply Co., Inc., Dragon
Rentals (division of The Modern Group, Inc.), Cormier Equipment Corporation,
Albany Ladder Company, Inc., Falconite, Inc. and Subsidiaries, R & R Rentals,
Inc., Traffic Signing & Marking, Inc. and Shaughnessy Crane Service, Inc.
The accompanying unaudited balance sheet of the Company as of September 30,
1998 includes the acquisition of all of the businesses discussed above,
including the acquisition of Shaughnessy Crane Service, Inc., effective
September 1, 1998.
The accompanying unaudited pro forma consolidated statements of operations
of the Company give effect to all of the above acquisitions and the financing
thereof, as if all such transactions had occurred at the beginning of the
period.
The unaudited pro forma combined financial statements have been prepared for
comparative purposes only and do not purport to be indicative of the results
which would have been achieved had the acquisitions been purchased as of the
assumed dates, nor are the results indicative of the Company's future results.
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC.
BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents........................................... $ 662
Accounts receivables, net........................................... 50,191
Inventory........................................................... 13,888
Rental equipment, net............................................... 334,141
Property and equipment, net......................................... 25,025
Intangible assets, net.............................................. 204,773
Loan origination costs, net......................................... 6,164
Prepaids and other assets, net...................................... 5,157
--------
Total assets........................................................ $640,001
========
LIABILITIES
Accounts payable.................................................... $ 18,627
Accrued interest.................................................... 3,896
Accrued expenses and other liabilities.............................. 26,065
Debt................................................................ 459,574
--------
Total liabilities................................................... 508,162
STOCKHOLDERS' EQUITY
Common stock........................................................ 241
Additional paid-in capital.......................................... 123,511
Retained earnings................................................... 8,189
Stock subscriptions receivable...................................... (102)
--------
Stockholders' equity.............................................. 131,839
--------
Total liabilities and stockholders' equity........................ $640,001
========
</TABLE>
2
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS (A)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------------------------------------------
GRAND
THE LONE WORK GEN- HI- ALBANY
COMPANY AERIAL STAR BAT SPRINTANK EQUIPCO SAFE POWER EAGLE CEC DRAGON REACH LADDER
------- ------ ------ ------ --------- ------- ------ ------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Rental revenues... $26,398 $ 406 $1,455 $1,457 $5,715 $2,180 $6,385 $7,110 $1,067 $12,107 $8,907 $5,568 $18,410
Rental equipment
sales............. 4,186 51 188 995 -- 332 891 161 -- 960 -- 953 1,885
New equipment
sales and other... 10,704 237 -- 1,350 327 877 88 4,830 612 2,685 1,657 1,108 13,909
------- ----- ------ ------ ------ ------ ------ ------ ------ ------- ------ ------ -------
Total revenues.. 41,288 694 1,643 3,802 6,042 3,389 7,364 12,101 1,679 15,752 10,564 7,629 34,204
------- ----- ------ ------ ------ ------ ------ ------ ------ ------- ------ ------ -------
Rental equipment
expenses
Rental equipment
depreciation...... 5,009 47 242 707 1,109 710 835 560 80 2,742 844 885 3,445
Cost of rental
equipment sales... 2,935 34 119 352 -- 97 588 111 -- 339 -- 636 721
Cost of new
equipment sales... 4,872 180 -- 1,010 -- 570 -- 3,108 23 391 -- 334 7,725
Direct operating
expenses.......... 12,899 277 1,010 462 643 641 2,517 2,863 776 6,925 5,222 3,125 10,738
------- ----- ------ ------ ------ ------ ------ ------ ------ ------- ------ ------ -------
Cost of revenues... 25,715 538 1,371 2,531 1,752 2,018 3,940 6,642 879 10,397 6,066 4,980 22,629
------- ----- ------ ------ ------ ------ ------ ------ ------ ------- ------ ------ -------
Gross profit....... 15,573 156 272 1,271 4,290 1,371 3,424 5,459 800 5,355 4,498 2,649 11,575
------- ----- ------ ------ ------ ------ ------ ------ ------ ------- ------ ------ -------
Selling, general
and administrative
expense............ 7,910 249 475 489 2,028 684 1,237 2,797 327 3,241 2,166 1,534 7,796
Non-rental
depreciation....... 1,476 8 26 25 83 33 80 37 -- 250 59 107 640
------- ----- ------ ------ ------ ------ ------ ------ ------ ------- ------ ------ -------
Operating income... 6,187 (101) (229) 757 2,179 654 2,107 2,625 473 1,864 2,273 1,008 3,139
------- ----- ------ ------ ------ ------ ------ ------ ------ ------- ------ ------ -------
Other income
(expense), net..... 72 -- 139 (1) (10) 20 8 13 8 -- (670) 14 117
Interest income
(expense), net..... (4,336) (16) (164) (46) (553) (73) (22) (103) (33) (302) (675) (462) (846)
------- ----- ------ ------ ------ ------ ------ ------ ------ ------- ------ ------ -------
Income before
income taxes....... 1,923 (117) (254) 710 1,616 601 2,093 2,535 448 1,562 928 560 2,410
Income taxes....... 818 (6) -- -- -- 240 -- 859 -- 8 212 -- --
------- ----- ------ ------ ------ ------ ------ ------ ------ ------- ------ ------ -------
Net income......... $ 1,105 $(111) $ (254) $ 710 $1,616 $ 361 $2,093 $1,676 $ 448 $ 1,554 $ 716 $ 560 $ 2,410
======= ===== ====== ====== ====== ====== ====== ====== ====== ======= ====== ====== =======
<CAPTION>
R&R
FALCONITE RENTALS SHAUGHNESSY SUBTOTAL
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues
Rental revenues... $44,911 $6,811 $18,681 $167,568
Rental equipment
sales............. 9,222 212 830 20,866
New equipment
sales and other... 9,513 1,556 11,751 61,204
--------- -------- ----------- ---------
Total revenues.. 63,646 8,579 31,262 249,638
--------- -------- ----------- ---------
Rental equipment
expenses
Rental equipment
depreciation...... 11,114 2,208 3,675 34,212
Cost of rental
equipment sales... 7,582 128 419 14,061
Cost of new
equipment sales... 4,103 -- 647 22,963
Direct operating
expenses.......... 11,395 4,054 12,084 75,631
--------- -------- ----------- ---------
Cost of revenues... 34,194 6,390 16,825 146,867
--------- -------- ----------- ---------
Gross profit....... 29,452 2,189 14,437 102,771
--------- -------- ----------- ---------
Selling, general
and administrative
expense............ 15,065 1,937 6,070 54,005
Non-rental
depreciation....... 2,428 128 435 5,815
--------- -------- ----------- ---------
Operating income... 11,959 124 7,932 42,951
--------- -------- ----------- ---------
Other income
(expense), net..... (815) 87 188 (830)
Interest income
(expense), net..... (7,327) (1,171) (41) (16,170)
--------- -------- ----------- ---------
Income before
income taxes....... 3,817 (960) 8,079 25,951
Income taxes....... 1,859 -- 342 4,332
--------- -------- ----------- ---------
Net income......... $ 1,958 $ (960) $ 7,737 $ 21,619
========= ======== =========== =========
</TABLE>
(See Notes to Unaudited Pro Forma Financial Statements)
3
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS (A)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------
SHAUGHNESSY OTHER
PRO FORMA PRO FORMA
SUBTOTAL TSM ADJUSTMENTS(J) ADJUSTMENTS(B) COMBINED
-------- ------ -------------- -------------- --------
<S> <C> <C> <C> <C> <C>
Revenues
Rental revenues........ $167,568 $5,629 $ -- $ 5,144 $178,341
Rental equipment
sales.................. 20,866 1,596 -- 2,910 25,372
New equipment sales
and other.............. 61,204 130 (213) 2,394 63,515
-------- ------ ------- -------- --------
Total revenues....... 249,638 7,355 (213) 10,448 267,228
-------- ------ ------- -------- --------
Rental equipment
expenses
Rental equipment
depreciation........... 34,212 838 669 (c) 569 (c) 36,288
Cost of rental
equipment sales........ 14,061 902 -- 2,561 17,524
Cost of new equipment
sales.................. 22,963 -- -- 1,580 24,543
Direct operating
expenses............... 75,631 3,217 293 (d) (330)(d) 78,811
-------- ------ ------- -------- --------
Cost of revenues........ 146,867 4,957 962 4,380 157,166
-------- ------ ------- -------- --------
Gross profit............ 102,771 2,398 (1,175) 6,068 110,062
-------- ------ ------- -------- --------
Selling, general and
administrative expense.. 54,005 981 (576)(e) (4,605)(e) 49,805
Non-rental
depreciation............ 5,815 11 1,188 (f) 5,348 (f) 12,362
-------- ------ ------- -------- --------
Operating income........ 42,951 1,406 (1,787) 5,325 47,895
-------- ------ ------- -------- --------
Other income (expense),
net..................... (830) (1) (97)(g) 1,371 (g) 443
Interest income
(expense), net.......... (16,170) (201) (6,197)(h) (14,896)(h) (37,464)
-------- ------ ------- -------- --------
Income before income
taxes................... 25,951 1,204 (8,081) (8,200) 10,874
Income taxes............ 4,332 -- -- 231 (i) 4,563
-------- ------ ------- -------- --------
Net income........... $ 21,619 $1,204 $(8,081) $ (8,431) $ 6,311
======== ====== ======= ======== ========
</TABLE>
(See Notes to Unaudited Pro Forma Financial Statements)
4
<PAGE>
NATIONAL EQUIPMENT SERVICES, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS (A)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
-----------------------------------------------------------------------------------------------------------
GRAND SHAUGHNESSY
THE WORK HI- ALBANY R&R PRO FORMA
COMPANY SAFE EAGLE CEC DRAGON REACH LADDER FALCONITE RENTALS SHAUGHNESSY TSM ADJUSTMENTS(J)
-------- ----- ----- ------ ------ ----- ------ --------- ------- ----------- ------ --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Rental revenue.... $100,251 $ 24 $54 $1,770 $1,871 $ 336 $4,612 $28,495 $4,832 $19,407 $3,273 $ --
Rental equipment
sales............. 8,197 -- -- 257 -- 30 449 2,992 -- -- 720 --
New equipment
sales and other... 28,986 23 30 900 125 28 3,537 7,941 758 2,953 72 (100)
-------- ----- --- ------ ------ ----- ------ ------- ------ ------- ------ -------
Total revenues.. $137,434 47 84 2,927 1,996 394 8,598 39,428 5,590 22,360 4,065 (100)
-------- ----- --- ------ ------ ----- ------ ------- ------ ------- ------ -------
Rental equipment
expense:
Rental equipment
depreciation...... 17,581 23 5 376 160 47 877 7,390 1,192 2,805 525 91 (c)
Cost of rental
equipment sales... 5,123 -- -- 52 -- 21 146 2,351 -- -- 389 --
Cost of new
equipment sales... 15,358 13 1 441 -- -- 1,918 4,606 -- -- -- --
Direct operating
expenses.......... 38,766 61 29 1,170 989 282 2,816 7,332 2,468 9,639 2,223 294 (d)
-------- ----- --- ------ ------ ----- ------ ------- ------ ------- ------ -------
Cost of revenues... 76,828 97 35 2,039 1,149 350 5,757 21,679 3,660 12,444 3,137 385
-------- ----- --- ------ ------ ----- ------ ------- ------ ------- ------ -------
Gross profit....... 60,606 (50) 49 888 847 44 2,841 17,749 1,930 9,916 928 (485)
-------- ----- --- ------ ------ ----- ------ ------- ------ ------- ------ -------
Selling, general
and administrative
expense............ 25,619 60 12 429 410 129 2,486 9,492 1,015 4,232 262 (500)(e)
Non-rental
depreciation....... 4,557 28 -- 39 11 7 160 1,504 69 325 5 757 (f)
-------- ----- --- ------ ------ ----- ------ ------- ------ ------- ------ -------
Operating income... 30,430 (138) 37 420 426 (92) 195 6,753 846 5,359 661 (742)
-------- ----- --- ------ ------ ----- ------ ------- ------ ------- ------ -------
Other income
(expense), net..... 255 -- 12 -- (126) 2 58 24 -- (12) 15 25 (g)
Interest income
(expense), net..... (16,001) (46) (3) (90) (127) (19) (216) (4,997) (669) 55 (123) (3,413)(h)
-------- ----- --- ------ ------ ----- ------ ------- ------ ------- ------ -------
Income before
income taxes....... 14,684 (184) 46 330 173 (109) 37 1,780 177 5,402 553 (4,130)
Income taxes....... 5,981 -- -- -- -- -- -- -- -- 225 224 290(i)
-------- ----- --- ------ ------ ----- ------ ------- ------ ------- ------ -------
Net income...... $ 8,703 $(184) $46 $ 330 $ 173 $(109) $ 37 $ 1,780 $ 177 $ 5,177 $ 329 $(4,420)
======== ===== === ====== ====== ===== ====== ======= ====== ======= ====== =======
<CAPTION>
PRO FORMA
ADJUSTMENTS(B) COMBINED
--------------- ---------
<S> <C> <C>
Revenues:
Rental revenue.... $ 807 $165,732
Rental equipment
sales............. -- 12,645
New equipment
sales and other... 366 45,619
--------------- ---------
Total revenues.. 1,173 223,996
--------------- ---------
Rental equipment
expense:
Rental equipment
depreciation...... (663)(c) 30,409
Cost of rental
equipment sales... -- 8,082
Cost of new
equipment sales... -- 22,337
Direct operating
expenses.......... (334)(d) 65,735
--------------- ---------
Cost of revenues... (997) 126,563
--------------- ---------
Gross profit....... 2,170 97,433
--------------- ---------
Selling, general
and administrative
expense............ (1,821)(e) 41,825
Non-rental
depreciation....... 1,801 (f) 9,263
--------------- ---------
Operating income... 2,190 46,345
--------------- ---------
Other income
(expense), net..... 33 (g) 286
Interest income
(expense), net..... (2,449)(h) (28,098)
--------------- ---------
Income before
income taxes....... (226) 18,533
Income taxes....... 786 (i) 7,506
--------------- ---------
Net income...... $(1,012) $ 11,027
=============== =========
</TABLE>
(See Notes to Unaudited Pro Forma Financial Statements)
5
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(IN THOUSANDS)
(a) Results for the year ended December 31, 1997 represent actual historical
1997 results for the Company, including results for the Acquired
Businesses purchased in the related 1997 period from the date of
acquisition. Results for the nine months ended September 30, 1998
represent actual historical results for the Company, including results for
the Acquired Businesses purchased in the first three quarters of 1998 from
the date of acquisition.
(b) Reflects the elimination of a location not purchased from Cormier
Equipment, the acquisition of GenEquip, Inc., a business acquired by
Falconite in January 1998, and the acquisition of Aerial Equipment
Rental, Inc., a business acquired by Falconite in May 1998.
(c) Pursuant to SEC reporting requirements, rental equipment depreciation has
been derived utilizing the rental equipment asset values of each of the
Acquired Businesses at the time of their acquisition rather than utilizing
values of rental equipment assets actually held by each of the Acquired
Businesses in the period presented. Reflects the impact on rental
equipment depreciation resulting from the application of the Company's
depreciation policy rather than those of the former owners of the Acquired
Businesses. In addition, reflects the change in rental equipment
depreciation resulting from the write-up or write-down of rental equipment
assets to fair value arising from purchase accounting. In addition,
reflects the increase in rental equipment depreciation resulting from the
purchase of equipment referred to in note (d) below.
(d) Reflects the elimination of lease expense resulting from the termination
of certain rental equipment leases which occurred with the purchase of the
underlying equipment. Also reflects the rent expense resulting from the
Company's current lease terms as compared to lease terms entered into by
former owners. In addition, reflects the increase in rent expense and
corresponding decrease in depreciation expense and real estate tax expense
resulting from the Company leasing rather than owning certain related
facilities and, conversely, the decrease in rent expense and corresponding
increase in depreciation expense and real estate tax expense resulting
from the termination of certain facility leases which occurred with the
purchase of the underlying facility by the Company. Also, reflects the
decrease in rent expense resulting from the termination of certain
facility leases.
(e) Reflects the decrease resulting from differentials between the
compensation levels of former owners of the Acquired Businesses and the
terms of the employment agreements entered into between certain of the
former owners and the Company. The employment agreements provide for
bonuses to be paid based on increased future earnings. Compensation
amounts presented reflect bonuses due based on current operating results.
Additional bonuses would be due if increased earnings levels are achieved.
(f) Pursuant to SEC reporting requirements, non-rental depreciation has been
derived utilizing the property, plant and equipment values of each of the
Acquired Businesses at the time of their acquisition, rather than
utilizing values of property, plant and equipment actually held by each of
the Acquired Businesses in the period presented. Reflects the decrease in
non-rental depreciation resulting from the application of the Company's
depreciation policy rather than those of the former owners of the Acquired
Businesses. In addition, reflects the increase in non-rental depreciation
resulting from the write-up of property, plant and equipment to fair value
arising from purchase accounting. Also reflects amortization of goodwill
calculated on a goodwill life of 40 years and amortization of non-compete
agreements calculated on their contract terms of two to five years, in
each case specifically related to the purchases of the Acquired
Businesses. The pro forma adjustments consist of the following:
(g) Reflects discontinuation and elimination of unrelated businesses
previously operated and related charges incurred by the former owners of
certain of the Acquired Businesses.
(h) Reflects increased interest expense at the Company's borrowing rate on the
indebtedness resulting from (i) the purchase of the Acquired Businesses
after giving effect to the partial repayment of indebtedness with cash on
hand at the Acquired Businesses and (ii) borrowings to fund certain
potential purchase price adjustments in connection with the Acquired
Businesses.
6
<PAGE>
(i) Reflects the income tax rate that would have been in effect if the
Acquired Businesses had been combined and subject to a federal statutory
rate of 34% and the applicable state statutory rate for each of the
Acquired Businesses throughout the period presented.
(j) Reflects the elimination of a location not acquired in the Shaughnessy
Crane Service, Inc. transaction including $100, $39, $92 and $12 of other
revenues, direct operating expenses, selling, general and administrative
expense and income taxes, respectively, for the nine months ended
September 30, 1998 and $213, $207 and $23 of other revenues, direct
operating expenses and selling, general and administrative expense,
respectively, for the year ended December 31, 1997.
EARNINGS PER SHARE
The Company's pro forma earnings per share is calculated as follows:
<TABLE>
<CAPTION>
FOR THE FOR THE NINE
TWELVE MONTHS MONTHS ENDED
ENDED SEPTEMBER
DECEMBER 31, 30,
1997 1998
------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net income........................................ $ 6,311 $ 11,027
Plus interest on 8% convertible debentures........ 714 536
=========== ===========
Income available to common stockholders........... $ 7,025 $ 11,563
=========== ===========
Basic weighted average shares:
Total Common Shares............................. 24,121,805 24,121,805
Effect of dilutive securities
Unvested stock.................................. 1,442,994 1,184,975
Convertible debt................................ 1,153,846 1,153,846
----------- -----------
Diluted weighted average shares................... 26,718,645 26,460,626
=========== ===========
Basic EPS......................................... $ 0.29 $ 0.48
=========== ===========
Diluted EPS....................................... $ 0.26 $ 0.44
=========== ===========
</TABLE>
7
