<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 31, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE
THE SECURITIES ACT OF 1933
------------------------
NATIONSRENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7353 31-1570069
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
450 EAST LAS OLAS BOULEVARD, SUITE 1400
FT. LAUDERDALE, FLORIDA 33301
(954) 760-6550
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOSEPH H. IZHAKOFF
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
NATIONSRENT, INC.
450 EAST LAS OLAS BOULEVARD
FORT LAUDERDALE, FLORIDA 33301
(954) 760-6550
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES OF ALL COMMUNICATIONS TO:
STEPHEN K. RODDENBERRY
AKERMAN, SENTERFITT & EIDSON, P.A.
ONE S.E. THIRD AVENUE, 28TH FLOOR
MIAMI, FLORIDA 33131-1704
(305) 374-5600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time to
time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ---------------------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ---------------------------------------
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per
share.............................. 51,529,357(2) $6.1875 $318,837,897 $26,123.39(2)
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated pursuant to Rule 457(c) under the Securities Act solely for the
purpose of calculating the amount of the registration fee.
(2) Includes 36,342,444 shares previously registered on a Registration Statement
on Form S-1 (Regis. No. 333-60551), which are being carried forward and
included in this Registration Statement pursuant to Rule 429 under the
Securities Act. The registrant paid a registration fee of $124,245.83 on
August 6, 1998 in connection with the original registration of the
36,342,444 shares. Therefore, the registration fee has been calculated on
the registration of 15,186,913 shares.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
PROSPECTUS
51,529,357 SHARES
NATIONSRENT, INC. LOGO
COMMON STOCK
The Selling Stockholders identified in this Prospectus may offer from time
to time 51,529,357 shares of common stock of NationsRent, Inc. The Selling
Stockholders have acquired the shares of common stock offered by this Prospectus
(1) in private placement transactions, (2) in connection with business
acquisitions we have made or (3) as a result of their affiliation with us as
employees or directors. The shares of common stock offered by this Prospectus
include 8,911,332 shares which certain of the Selling Stockholders may acquire
pursuant to the conversion of convertible promissory notes or the exercise of
warrants. Registering these shares of common stock will allow the Selling
Stockholders to publicly sell or otherwise distribute their shares of common
stock.
The Selling Stockholders may offer these shares of common stock in one or
more transactions on the New York Stock Exchange at prices then prevailing, in
negotiated transactions or otherwise. The Selling Stockholders and brokers
through whom the sale of the shares of common stock are made may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act of
1933, as amended. In addition, any profits realized by the Selling Stockholders
or such brokers on the sale of shares of common stock may be deemed to be
underwriting commissions under the Securities Act. The price at which any of the
shares of common stock may be sold and the commissions paid in connection with
any sale may vary from transaction to transaction. We will pay certain expenses
of this offering.
------------------------------
YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 8 OF THIS
PROSPECTUS.
------------------------------
Trading Symbol
New York Stock Exchange -- NRI
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------
The date of this Prospectus is , 1998.
<PAGE> 3
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and our financial statements and the
accompanying notes appearing elsewhere in this Prospectus.
The term "Consolidated Financial Statements" means the consolidated
financial statements and accompanying notes contained in this Prospectus. The
term "Common Stock" means the common stock of NationsRent, Inc., par value $0.01
per share. The term "Selling Stockholders" means the persons listed in this
Prospectus who may offer shares of Common Stock for sale pursuant to this
Prospectus. The term "Shares" means the 51,529,357 shares of Common Stock
offered for sale by the Selling Stockholders pursuant to this Prospectus. The
term "Offering" means the offering of Common Stock pursuant to this Prospectus.
Unless the context otherwise requires, all references to "NationsRent," the
"Company," "we," "us" or "our" include NationsRent, Inc. and its subsidiaries.
Unless otherwise indicated (1) the description of our business reflects all
businesses which we have acquired as of December 21, 1998, which are referred to
collectively as the "Acquisitions" and (2) all historical share information
contained in this Prospectus has been adjusted to reflect a 2,500 for 1 split of
the Common Stock which occurred on June 2, 1998 which we refer to as the "Stock
Split."
THE COMPANY
WHO WE ARE
NationsRent is one of the fastest growing equipment rental companies in the
United States. We have acquired a platform of equipment rental businesses
concentrated in selected markets and are building a network of nationally
branded locations. We have become a leading provider of rental equipment as a
result of our strategy to expand our fleet of rental equipment, acquire core
businesses and open or acquire additional locations concentrated around those
businesses. We believe that this "cluster" strategy enables us to increase
profitability in our acquired stores and achieve profitability in our newly
opened locations more quickly than our competitors. By implementing the cluster
strategy and expanding our fleet of rental equipment, we are able to provide a
full range of rental equipment to customers with a wide variety of equipment
rental needs.
WHAT WE DO
We offer a comprehensive line of equipment for rental primarily to a broad
range of construction and industrial customers, including heavy highway
contractors, general contractors, subcontractors, manufacturing plants and
distribution centers. We also sell used and new equipment, spare parts and
supplies, and provide maintenance and repair services. Our locations offer a
full range of high quality, well-maintained rental equipment, including the
following:
<TABLE>
<S> <C>
- - backhoes - aerial lifts and work platforms
- - bulldozers - compressors and generators
- - skid steer loaders - specialized hand tools
</TABLE>
HOW WE HAVE DONE
Since our formation in August 1997, we have acquired 32 equipment rental
businesses operating in 20 states and we currently operate 135 locations. For
the twelve months ended December 31, 1997, on a pro forma basis assuming
completion of the Acquisitions, we had approximate revenue of $401.0 million and
operating income of $71.5 million.
1
<PAGE> 4
INDUSTRY OVERVIEW
We are capitalizing on the current dynamics in the equipment rental
industry. According to industry sources, the United States equipment rental
industry grew from an estimated $614.0 million in revenue in 1982 to an
estimated $20.0 billion in 1997, which represents a compound annual growth rate
of more than 26%. Construction and industrial companies primarily have driven
this growth by increasingly outsourcing their equipment needs to reduce
investment in non-core assets and convert costs from fixed to variable.
According to industry sources, the United States equipment rental industry is
expected to grow to an estimated $40.0 billion in annual revenue over the next
five years due to the overall growth in the economy and a continuing trend to
rent rather than buy equipment. In addition, the United States equipment rental
industry is highly fragmented, with more than 20,000 companies. According to
industry sources, in 1997 the 100 largest equipment rental companies in the
United States had a combined market share of less than 20%, no single equipment
rental company in the United States had a market share greater than 3% and more
than 90% of equipment rental companies had ten or fewer locations. We believe
that recent consolidation has increased the market share of the ten largest
equipment rental companies in the United States and that the largest equipment
rental company in the United States currently has a market share of
approximately 6%. We are taking advantage of the fragmentation in the equipment
rental industry and the absence of an equipment rental company with significant
market share by creating an integrated network of nationally branded locations
offering broad product selection and superior customer service.
COMPETITIVE STRENGTHS
We believe we have several competitive strengths that will enable us to
continue to increase growth and profitability, including the following:
Strong Market Position. We have achieved a leading market position in
selected markets and expect to continue to increase revenue as a result of
our cluster strategy. We believe this strategy enables us to more
effectively serve our customers, broaden our customer base, pool rental
equipment inventory, offer a broader selection and greater availability of
equipment and maintain a high rental equipment utilization rate. By
offering a full range of rental equipment from each location, we believe
that customers who currently use multiple rental equipment providers will
prefer to fill their rental needs through the NationsRent network of
locations. In addition, we believe that we have other advantages relative
to smaller operators, including greater purchasing power and a lower cost
of capital.
Full Range of Rental Equipment. By offering a full range of rental
equipment, we can serve a diverse customer base and respond to customer
demand across each geographic region in which we operate. We offer a
comprehensive selection of light, medium and heavy rental equipment serving
the short-, medium- and long-term requirements of contractors, commercial
customers and industrial customers. Since January 1, 1998, we have added
approximately $147.0 million of new equipment to our rental equipment
inventory. As a result, in part, of the capital expenditures made at the 25
locations we have owned since January 1, 1998, our rental revenue on a pro
forma basis from these locations has increased more than 40% for the nine
month period ended September 30, 1998 as compared to the same period for
1997.
2
<PAGE> 5
National Brand. We have entered selected markets with the goal of
establishing a nationally recognized brand throughout the United States.
Since our formation in August 1997, we have expanded into 20 states in the
regions set forth below:
<TABLE>
<CAPTION>
NUMBER OF
REGION STATES WITH NATIONSRENT LOCATIONS LOCATIONS
------ --------------------------------- ---------
<S> <C> <C>
Midwest........................ Indiana, Kentucky, Michigan, Ohio, West 45
Virginia
Southeast...................... Alabama, Florida, Georgia, Tennessee 35
Central........................ Louisiana, Texas 33
Northeast...................... Maine, Massachusetts, New Hampshire, New York, 17
Pennsylvania, Rhode Island, Vermont
West........................... California, Nevada 5
-----
TOTAL 135
=====
</TABLE>
The expansion into these regions provides us with a substantial base from
which to roll out our branding strategy. This strategy includes expanding
our fleet of rental equipment, implementing standard operating procedures
and best practices and creating a distinctive store format and marketing
program. We believe that we are able to increase revenue by offering an
extensive inventory of rental equipment in a customer-oriented atmosphere
and a brand name known for consistent quality. We believe this branding
strategy enables us to expand our customer base and attract a broader range
of customers, including large customers with operations in a variety of
geographic markets.
Distinctive Operating Format. We have designed and are implementing a
format for our locations which we believe differentiates us from our
competitors. Distinguishing characteristics of this format include
drive-through lanes, clearly marked equipment aisles and attractive, well
organized and clean store facilities. Our larger locations are typically on
a six to 12 acre site in a heavily trafficked area with a 20,000 to 40,000
square foot facility housing a repair and maintenance center and a broad
selection and extensive inventory of equipment and supplies. Our smaller
locations are typically on a two to six acre site in a high-visibility
commercial area with a 7,500 to 11,000 square foot facility, with
maintenance and delivery capabilities and inventory and supplies targeted
to the customer base in that area.
Focus on Customer Service. We are differentiating ourself from our
competitors with innovations designed to increase customer satisfaction. We
generally offer more convenient access, faster check-in and check-out
procedures and shorter required lead time for rentals than our competitors.
We also offer on-time equipment delivery and pick-up, on-site repair
service, 24-hour customer assistance and written instruction materials for
equipment usage and safety. In addition, as part of our plan to provide
one-stop shopping to customers, each location sells parts and supplies to
complement equipment rentals and sales.
Customized Management Information System. We are installing a
customized management information system (the "System") capable of
monitoring operations at several thousand locations. The System is designed
to track customer purchasing patterns and demographics for use in gaining
market share in new and existing markets, consolidating equipment
purchases, maximizing utilization rates and reducing overhead expenditures.
The System will provide our management with real time revenue, inventory,
financial and customer information, facilitating rapid and well informed
decision making. In addition, the System will be designed to permit our
customers to reserve and rent equipment and access their account
information from their own computer terminals via our Internet website. To
develop our System, we assembled a team of
3
<PAGE> 6
management information specialists who have previously developed systems
for several Fortune 500 companies. The System has been developed to ensure
that it is Year 2000 compliant.
Experienced Management Team. We believe that we have one of the most
experienced and growth-oriented executive management teams among
publicly-traded companies in the equipment rental industry. James L. Kirk,
our Chairman and Chief Executive Officer, founded OHM Corporation ("OHM"),
a New York Stock Exchange ("NYSE") listed company, in 1969 and served in
various senior executive positions with OHM, growing it into a leading
environmental construction company with an inventory of heavy and light
equipment having an original cost of over $100 million. Recently, Don R.
O'Neal joined us as President and Chief Operating Officer. Prior to joining
us, Mr. O'Neal served as President of Ray L. O'Neal, Inc. ("RLOI") and
Arenco, LLC ("ALLC" and operating with RLOI as "A-1 Rentals") in Fort
Worth, Texas, one of the largest independent equipment rental businesses in
the United States, substantially all the assets of which were acquired by
us in October 1998. Mr. O'Neal was a second-generation owner of A-1 Rentals
and has been in the equipment rental business for over 30 years. In
addition, we benefit from the experience of H. Wayne Huizenga, one of our
directors and principal investors, who serves as Chairman and Co-Chief
Executive Officer of Republic Industries, Inc. ("Republic") and who
co-founded and served in various senior executive positions with Waste
Management, Inc. ("Waste Management") and Blockbuster Entertainment
Corporation ("Blockbuster"), each of which is a leading consolidator in its
respective industry. The other members of our senior management team have
previously worked closely with Mr. Kirk in senior management positions at
OHM, and other key employees and consultants have worked with Mr. Huizenga
in various positions at Republic, Waste Management or Blockbuster. The
NationsRent management team is supported by operating, marketing and
business development managers with an average of more than 15 years of
experience in the equipment rental industry.
GROWTH STRATEGY
Our objectives are to increase revenue, profitability, market share and
cash flow by building a nationally branded network of locations that offer a
comprehensive selection of high quality rental equipment in convenient and
accessible locations to customers in the construction and industrial markets.
Key elements of our growth strategy are as follows:
Enhance Operations. We enhance the operations at our locations by:
- increasing the breadth and depth of rental inventory and sharing
rental equipment among locations;
- implementing the NationsRent customer service approach;
- linking locations to the NationsRent management information System;
and
- branding locations and rental inventory with the NationsRent logo,
colors and distinctive store appearance.
Expand National Presence. We expect to continue to acquire leading
companies to implement our cluster strategy and position NationsRent to
achieve significant market share. We target businesses that have one or
more of the following characteristics:
- strong positions in their geographic market;
- experienced local management teams that will continue to work with
us following the acquisition;
- high quality equipment rental inventory; and
4
<PAGE> 7
- physical and operating characteristics that are suited to conversion
to the NationsRent format.
Once we have entered a particular market, we seek to acquire additional
rental businesses in that market or adjacent markets with locations and
equipment selection that complement our existing operations, thus enabling
us to further penetrate that market.
Open New Rental Locations. Once we have established a presence in a
particular market, we seek to open new locations in that geographic area or
adjacent areas to enable us to offer a greater selection and availability
of equipment, maximize our equipment inventory utilization rates and
achieve economies of scale. We believe that this strategy allows our new
locations to achieve profitability at a faster rate than our competitors
because these locations (1) generate revenue more quickly as a result of
the pre-existing market presence, name recognition and referrals from
existing locations and (2) have lower overhead costs due to the sharing of
service, maintenance, administrative functions and personnel with our
already-established locations. Since August 1997, we have opened six new
locations.
Further Penetrate Industrial Rental Market. We believe that the
equipment needs of industrial customers are underserved by the existing
equipment rental market in the United States and that there are significant
opportunities to further penetrate this market segment. We also believe
that by offering a comprehensive selection and available supply of rental
equipment throughout an integrated nationally branded network of locations,
industrial customers will become increasingly aware of the advantages of
equipment rental relative to ownership. Such advantages include reduced
capital investment, reduced storage and maintenance expense and greater
access to the most modern equipment.
RECENT DEVELOPMENTS
In October 1998, we acquired substantially all of the assets of A-1
Rentals, which has 13 locations serving the Dallas/Fort Worth and Austin, Texas
markets. In December 1998, we acquired Logan Equipment Corp. and substantially
all of the assets of certain of its affiliated companies ("Logan"), which have
16 locations throughout the Northeast. We also acquired in December 1998
substantially all of the assets of River City Rentals, Inc. ("River City"),
which has five locations in California and Nevada.
On December 11, 1998, we completed a private placement of 10 3/8% senior
subordinated notes due 2008 in an aggregate amount of $175.0 million (the
"Private Debt Offering"). The Private Debt Offering was made to certain
Qualified Institutional Buyers, as such term is defined in Rule 144A under the
Securities Act. We subsequently registered on a Registration Statement on Form
S-4 a like principal amount of 10 3/8% senior subordinated notes due 2008, which
we will offer in exchange for the 10 3/8% senior subordinated notes offered in
the Private Debt Offering. The Registration Statement on Form S-4 was declared
effective by the Securities and Exchange Commission on December 31, 1998.
NationsRent was incorporated in the State of Delaware in August 1997. Our
principal executive offices are located at 450 East Las Olas Boulevard, Fort
Lauderdale, Florida 33301 and our telephone number is (954) 760-6550.
5
<PAGE> 8
THE OFFERING
<TABLE>
<S> <C>
Common Stock being offered............................... 51,529,357 shares(1)(2)
Common Stock to be outstanding after the offering........ 64,429,356 shares(3)
Listing.................................................. Our Common Stock is listed on
the New York Stock Exchange
under the symbol "NRI".
</TABLE>
- ---------------
(1) The Common Stock being offered by this Prospectus was issued to the Selling
Stockholders identified herein (1) in private placement transactions, (2) in
connection with business acquisitions we have made or (3) as a result of
their affiliation with us as an employee or director.
(2) Includes 8,911,332 shares that are issuable upon the conversion of
convertible promissory notes or the exercise of warrants.
(3) Includes 8,811,332 shares that are issuable upon the conversion of
convertible promissory notes or the exercise of warrants. Does not include
(1) 1,045,380 shares issuable upon the exercise of outstanding options with
exercise prices ranging from $2.96 to $6.69 per share and a weighted average
exercise price of $5.27, (2) 5,000,000 shares reserved for issuance in
connection with options that may be granted under our 1998 Stock Option Plan
and (3) 100,000 shares issuable upon the exercise of outstanding warrants.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Management -- Stock Option Plan," "Certain Relationships
and Transactions," and "Description of Certain Indebtedness -- Promissory
Notes."
RISK FACTORS
You should carefully consider the risk factors set forth under "Risk
Factors" beginning on page 8 and the other information included in this
Prospectus prior to making a decision to invest in the shares of Common Stock
offered by this Prospectus.
6
<PAGE> 9
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL(1) AS ADJUSTED
------------- HISTORICAL(1) -------------
AUGUST 14 PRO FORMA ------------- NINE
(INCEPTION) AS ADJUSTED NINE MONTHS MONTHS
THROUGH YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1997(2) 1998 1998(2)
------------- ------------ ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.............................................. $ 9,305 $400,974 $112,728 $336,767
Gross profit(3)............................................ 3,892 152,028 45,888 137,304
Operating income(3)........................................ 2,527 71,502 20,670 68,697
Interest expense........................................... 760 51,450 9,391 41,985
Income before provision for income taxes................... 1,767 21,222 11,817 27,342
Net income................................................. 1,001 12,309 6,854 15,859
Basic earnings per share................................... 0.04 0.22 0.23 0.28
Diluted earnings per share................................. 0.04 0.22 0.23 0.28
OTHER DATA:
Gross margin............................................... 41.8% 37.9% 40.7% 40.8%
Operating margin........................................... 27.2% 17.8% 18.3% 20.4%
Rental equipment purchases(4).............................. $ 2,461 $170,741 $ 76,816 $175,309
Amortization of goodwill(3)................................ 166 11,597 1,961 8,698
Depreciation and other amortization........................ 1,644 51,295 14,525 41,693
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------ AS ADJUSTED
AS OF AS OF
SEPTEMBER 30, 1998 SEPTEMBER 30, 1998(2)
------------------ ---------------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
SELECTED BALANCE SHEET DATA:
Rental equipment, net....................................... $316,824 $ 420,591
Goodwill, net............................................... 244,935 462,386
Total assets................................................ 662,850 1,036,065
Total debt.................................................. 389,841 654,917
Stockholders' equity........................................ 188,759 275,689
</TABLE>
- ---------------
(1)The Acquisitions have been accounted for as purchases and, accordingly, the
operations of the acquired businesses are included in the statement of
operations data and other data from the date of acquisition.
(2)The pro forma as adjusted statement of operations data for the year ended
December 31, 1997 and the nine months ended September 30, 1998 and the pro
forma as adjusted selected balance sheet data as of September 30, 1998 give
effect to the Acquisitions, an additional equity contribution of $17.4
million from the Company's founders (the "Founders' Additional
Contribution"), a $27.6 million private placement of shares of Common Stock
(the "Common Stock Private Placement"), the Company's $104.0 million initial
public offering of Common Stock (the "Initial Public Offering"), the
conversion to equity of certain subordinated acquisition debt in the original
principal amount of $50.0 million (the "Debt Conversion"), certain borrowings
under the Company's senior credit facilities (the "Senior Borrowings") and
certain senior subordinated supplier debt in the original principal amount of
$25.0 million (the "Equipment Debt", and together with the Debt Conversion
and the Senior Borrowings, "Changes in Outstanding Indebtedness"), the
Private Debt Offering, and the application of the net proceeds of the Private
Debt Offering as described in the "Pro Forma Consolidated Financial
Statements" as if such transactions had occurred on the first day of the
period presented, and in the case of the pro forma as adjusted balance sheet
data, as of September 30, 1998. See "Use of Proceeds," "Risk
Factors -- Substantial Debt," "Capitalization," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Certain
Relationships and Transactions" and the Company's pro forma and historical
financial statements and related notes.
(3)The amortization period for rental equipment depreciation ranges from two to
ten years. The amortization period for goodwill is 40 years.
(4)Rental equipment purchases represent the purchase price of rental equipment
inventory acquired during the period.
7
<PAGE> 10
RISK FACTORS
You should carefully consider the risk factors set forth below, as well as
the other information appearing elsewhere in this Prospectus, before making an
investment in our Common Stock. The risks described below are not the only ones
that we face. Additional risks about which we do not yet know or that we
currently think are immaterial may also impair our business operations. Our
business, operating results or financial condition could be materially adversely
affected by any of the following risks. The trading price of our Common Stock
could decline due to any of these risks, and you may lose all or part of your
investment.
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended, including in particular the statements about our plans,
strategies and prospects under the headings "Summary," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."
Although we believe that our plans, intentions and expectations reflected in or
suggested by such forward-looking statements are reasonable, we cannot assure
you that such plans, intentions or expectations will be achieved. Important
factors that could cause actual results to differ materially from our
forward-looking statements are set forth below and elsewhere in this Prospectus.
All forward-looking statements attributable to us or any persons acting on our
behalf are expressly qualified in their entirety by the cautionary statements
set forth below.
SUBSTANTIAL DEBT
We have a significant amount of debt. After giving pro forma effect to the
Debt Conversion, the Senior Borrowings and the Equipment Debt (collectively, the
"Changes in Outstanding Indebtedness"), the Acquisitions, and the application of
the net proceeds of the Private Debt Offering, we would have had total debt and
stockholders' equity at the date set forth in the table below:
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
1998
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Total debt............................................ $654,167
Stockholders' equity.................................. 275,689
</TABLE>
We and our subsidiaries will be permitted to incur substantial additional
debt in the future. See "Selected Historical and Pro Forma Financial Information
and Operations Data."
Our debt could have important consequences to you, including:
- increasing our vulnerability to adverse general economic and industry
conditions;
- limiting our ability to obtain additional financing to fund future
working capital, capital expenditures, acquisitions and other general
corporate requirements;
- requiring us to dedicate a substantial portion of our cash flow from
operations to payments on our debt, thereby reducing the availability of
our cash flow to fund working capital, capital expenditures, acquisitions
or other general corporate purposes;
- limiting our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate; and
- placing us at a competitive disadvantage compared to our less leveraged
competitors.
In addition, the financial and other restrictive covenants in our debt may
limit our ability to, among other things, borrow additional funds, and any
failure by us to comply with those covenants could result in an event of default
which, if not cured or waived, could have a material adverse effect on us. See
"Description of Certain Indebtedness -- Credit Facilities."
8
<PAGE> 11
ACQUISITION AND INTEGRATION RISKS
Generally. From our inception in August 1997 through December 21, 1998, we
have acquired 32 equipment rental businesses with 132 operating locations. We
intend to continue this growth by making additional acquisitions, opening new
locations and converting acquired locations to the NationsRent format. We cannot
assure you that we will be able to identify suitable acquisition candidates or
suitable new locations or obtain financing for acquisitions or internal
expansion on satisfactory terms, or at all. If suitable acquisition candidates
are not identifiable or if acquisitions are prohibitively expensive, we may be
forced to alter our growth strategy. Our growth strategy presents certain risks
inherent in (1) assessing the value, strengths and weaknesses of acquisition
candidates, (2) evaluating the costs and uncertain returns of expanding our
operations, and (3) integrating acquisitions with existing operations. We expect
our growth strategy may affect short-term cash flow and net income as we
increase our indebtedness and incur expenses to open new locations, make
acquisitions and expand rental inventory. As a result, revenue and operating
results may fluctuate. We cannot assure you that we will successfully expand,
that any acquired businesses will be successfully integrated into our operations
or that any expansion will result in profitability. The failure to successfully
implement our growth strategy may have a material adverse effect on our
business, financial condition, results of operations or prospects.
Demands on NationsRent's Resources Due to Growth. Our anticipated growth
may place significant demands on our management and our operational, financial
and marketing resources. In connection with acquisitions and the opening of new
locations, we anticipate expanding the number of our employees, the scope of our
operating and financial systems and the geographic area of our operations. We
believe this growth will increase the complexity of our operations and the level
of responsibility exercised by both existing and new management personnel. To
manage this expected growth, we intend to invest further in our operating and
financial systems and to continue to expand, train and manage our employee base.
We cannot assure you that we will be able to attract and retain qualified
management and employees. We also cannot assure you that our current operating
and financial systems and controls will continue to be adequate as we grow or
that any steps taken to improve such systems and controls will be sufficient.
Our failure to successfully integrate and manage our growth may have a material
adverse effect on our business, financial condition, results of operations or
prospects.
Liabilities Associated with Acquisitions. There may be liabilities that we
fail or are unable to discover in the course of performing due diligence
investigations on each company or business we have acquired or seek to acquire
in the future. Such liabilities could include those arising from employee
benefits contribution obligations of a prior owner or non-compliance with
applicable federal, state or local environmental requirements by prior owners
for which we, as a successor owner, may be responsible. We try to minimize these
risks by conducting such due diligence, including employee benefit and
environmental reviews, as we deem appropriate under the circumstances. However,
we cannot assure you that we have identified, or in the case of future
acquisitions, will identify, all existing or potential risks. We also generally
require each seller of acquired businesses or properties to indemnify us against
undisclosed liabilities. In some cases this indemnification obligation may be
supported by deferring payment of a portion of the purchase price or other
appropriate security. However, we cannot assure you that the indemnification,
even if obtained, will be enforceable, collectible or sufficient in amount,
scope or duration to fully offset the possible liabilities associated with the
business or property acquired. Any such liabilities, individually or in the
aggregate, could have a material adverse effect on our business, financial
condition, results of operations or prospects.
9
<PAGE> 12
DEPENDENCE ON ADDITIONAL CAPITAL FOR FUTURE GROWTH
Our ability to remain competitive, sustain our growth and expand our
operations through new locations and acquisitions largely depends on our access
to capital. In addition, we must make ongoing capital expenditures to update and
maintain the condition of our rental equipment inventory in order to provide our
customers with high-quality equipment. To date, we have financed capital
expenditures and acquisitions primarily through private equity, bank financing,
financing from equipment suppliers, the proceeds of our $104.0 million initial
public offering of Common Stock (the "Initial Public Offering") and the issuance
of promissory notes. As of the date of this Prospectus, our senior credit
facilities (the "Credit Facilities") consist of a revolving line of credit (the
"Revolving Line of Credit") and a term loan (the "Term Loan") in an aggregate
principal amount of up to $435.0 million, with a minimum of $260.0 million under
our Revolving Line of Credit. See "Description of Certain Indebtedness -- Credit
Facilities." To assist our growth strategy and meet our capital needs, we plan
to issue additional equity securities and incur additional indebtedness in the
future and in particular may request increases to our Credit Facilities from
time to time. We cannot assure you that any of these increases or any additional
capital, if and when required, will be available on terms acceptable to us, or
at all. If we fail to obtain sufficient additional capital in the future, we
could be forced to curtail our growth or delay capital expenditures, which could
have a material adverse effect on our business, financial condition, results of
operations or prospects.
Our ability to finance future acquisitions, new locations and internal
growth is also limited by the covenants contained in the Credit Facilities and
will be limited by the covenants contained in the Indenture. As a result of
these covenants, our ability to respond to changing business and economic
conditions and to secure additional financing may be significantly restricted,
and we may be prevented from engaging in transactions, including acquisitions,
that might be considered important to our growth strategy or otherwise
beneficial to us. Any breach of these covenants could cause a default under
other debt and the Notes. As a result, a substantial portion of our debt then
may become immediately due and payable. We are not certain whether we would
have, or would be able to obtain, sufficient funds to be able to make these
accelerated payments, including payments on the Notes. Such covenants may also
limit our ability to finance future operations and capital needs. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Business -- Growth Strategy"
and "Description of Certain Indebtedness."
COMPETITION
The equipment rental industry is highly competitive. Our competitors
include large national rental companies, equipment manufacturers, regional
corporations, smaller independent businesses and equipment vendors and dealers
who both sell and rent equipment to customers. Some of our competitors have
greater financial resources, are more geographically diverse and have greater
name recognition than we have. We may encounter increased competition from
existing competitors or new market entrants, such as equipment manufacturers,
that may be significantly larger and have greater financial and marketing
resources than we have. See "Business -- Competition."
LIMITED OPERATING HISTORY
We were formed in August 1997 and commenced operations in September 1997
with our acquisition of Sam's Equipment Rental, Inc. and Gabriel Trailer
Manufacturing Company, Inc. (collectively, "Sam's" or the "Predecessor
Company"). Accordingly, you can only evaluate us, our growth strategy and our
prospects based upon our limited operating history. You must evaluate the
Company's prospects in light of the risks, expenses and difficulties frequently
encountered by companies in the early stages of development. Although we have
recently experienced growth in revenue and net income, we cannot assure you that
this growth can or will be sustained or that our
10
<PAGE> 13
strategy of building a network of nationally branded equipment rental locations
will lead to continued growth in revenue and net income.
HOLDING COMPANY STRUCTURE
We are a holding company with no significant assets other than investments
in our subsidiaries. Accordingly, we must rely entirely upon distributions from
our subsidiaries to generate the funds necessary to meet our obligations. The
ability of our subsidiaries to pay dividends or to make other payments or
advances to us will depend upon their operating results and will be subject to
applicable laws and contractual restrictions contained in the instruments
governing the indebtedness of our subsidiaries, including our senior credit
facilities and the indenture governing our senior subordinated notes.
SEASONALITY AND OTHER FLUCTUATIONS IN REVENUE AND OPERATING RESULTS
Our revenue and operating results have varied throughout the year and are
expected to continue to fluctuate in the future due to a number of factors,
including (1) adverse weather conditions, (2) general economic conditions in the
markets where we operate, including changes in national, regional or local
construction or industrial activity or increases in prevailing interest rates,
(3) timing of acquisitions and new location openings and related costs, (4) the
effectiveness of integrating acquired businesses and new locations, (5) rental
patterns of our customers and (6) price changes in response to competitive
factors. In addition, we incur various costs in integrating newly acquired or
opening locations, and the profitability of a new location is generally expected
to be lower in the initial months of operation.
LIABILITY AND INSURANCE
Our business exposes us to possible claims for personal injury or death
resulting from the use of the equipment we rent or sell and from injuries caused
in motor vehicle accidents in which our delivery and service personnel are
involved. We carry comprehensive insurance, subject to deductibles, at levels we
believe are sufficient to cover existing and future claims. Although we have not
experienced any material losses that were not covered by insurance, we cannot
assure you that existing or future claims will not exceed the level of our
insurance or that such insurance will continue to be available on economically
reasonable terms, or at all.
ENVIRONMENTAL AND SAFETY REGULATION
Our equipment, facilities and operations are subject to certain federal,
state and local laws and regulations relating to environmental protection and
occupational health and safety. These include, among other things, laws and
regulations governing 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. Some of our existing and former locations use and have used,
substances, and currently generate or have generated or disposed of wastes,
which are or may be considered hazardous or otherwise are subject to applicable
environmental requirements.
In particular, we store and dispense, or have in the past stored and
dispensed, petroleum products from above-ground storage tanks and, in certain
cases, underground storage tanks at our locations. We also use hazardous
materials, including solvents, to clean and maintain equipment, and generate and
dispose of solid and hazardous wastes, including batteries, used motor oil,
radiator fluid and solvents. In connection with such activities, we have
incurred minimal capital expenditures and other compliance costs which are
expensed on a current basis and which, to date, have not been material to our
financial condition. Based on currently available information, we believe that
it is
11
<PAGE> 14
unlikely that we will have to incur material capital expenditures or other
material compliance or remediation costs for environmental and safety matters in
the foreseeable future. However, we cannot assure you that environmental and
safety requirements will not become more stringent or be interpreted and applied
more stringently in the future, or that we will not identify adverse
environmental conditions that are not currently known to us. Such future changes
or interpretations, or the identification of such adverse environmental
conditions, could result in additional environmental compliance or remediation
costs not currently anticipated by us, which could have a material adverse
effect on our business, financial condition, results of operations or prospects.
See "Business -- Environmental and Safety Regulation."
DEPENDENCE ON EXECUTIVE OFFICERS AND DIRECTORS
Our future success depends to a significant extent on retaining the
services of certain executive officers and directors. We do not maintain key man
insurance. The loss of the services of key employees or directors (whether such
loss is through resignation or other causes) or the inability to attract
additional qualified personnel could have a material adverse effect on our
business, financial condition, results of operations or prospects.
SIGNIFICANT STOCKHOLDERS
As of December 21, 1998, our executive officers and directors, including H.
Wayne Huizenga, beneficially owned approximately 36.5% of our Common Stock. In
addition, H. Family Investments, Inc., a Florida corporation controlled by H.
Wayne Huizenga, Jr., Mr. Huizenga's son, owned approximately 21.5% of our
outstanding Common Stock. As a result, our executive officers and directors are,
together with H. Family Investments, Inc., able to exercise controlling
influence over the outcome of matters submitted to our stockholders for
approval, including the election of directors.
DILUTION
You may experience dilution as a result of shares of Common Stock which may
be issued in connection with future capital raising transactions and business
acquistions and as a result of the issuance and exercise of stock options.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock could be subject to significant
fluctuations due to variation in our operating results, changes in earnings
estimates by investment analysts, the success or failure of our growth strategy,
and changes in business or regulatory conditions affecting us. In addition, the
stock market has from time to time experienced extreme price fluctuations which
have often been unrelated to the operating performance of the affected
companies. Such fluctuations could materially adversely affect the market price
of the Common Stock.
ABSENCE OF DIVIDENDS
Our Credit Facilities and the Indenture governing our 10 3/8% senior
subordinated notes due 2008 issued in the Private Notes Offering restrict us
from paying dividends on our Common Stock. We do not expect to pay dividends on
our Common Stock in the foreseeable future. See "Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
As of December 21, 1998, the Company had 55,618,024 shares of Common Stock
outstanding, of which 13,000,000 shares of Common Stock were freely tradeable
without restriction under the Securities Act unless purchased by "affiliates" of
the Company, as that term is defined in Rule 144 under the Securities Act.
Pursuant to this Prospectus, we are registering the remaining 42,618,024 shares
of Common Stock. Our directors and officers have agreed not to sell any shares
of Common
12
<PAGE> 15
Stock held by them for a period of 180 days from August 7, 1998, without the
consent of Donaldson, Lufkin & Jenrette Securities Corporation, subject to
certain exceptions, including pursuant to loans for which shares of Common Stock
may be pledged as collateral. We have registered under the Securities Act the
5,000,000 shares of Common Stock reserved for issuance under our 1998 Stock
Option Plan. We cannot make any predictions as to the effect, if any, that
market sales of shares of our Common Stock or the availability of the shares of
Common Stock for sale will have on the market price for shares of our Common
Stock prevailing from time to time. Sales of substantial amounts of shares of
our Common Stock in the public market could adversely affect the market price of
the Common Stock and could impair our ability to raise capital through an
offering of equity securities. See "Shares Eligible for Future Sale."
EFFECTS OF YEAR 2000 ISSUE
Our management information System is being developed to ensure that it is
Year 2000 compliant. Although we do not anticipate any material adverse effects
from the Year 2000 issue, we cannot assure you that we, or any business we
acquire, or any of our customers or vendors will not experience interruptions of
operations because of Year 2000 problems. We expect to convert all of the
information systems of the businesses we acquire to our System as soon as
practicable after each acquisition is completed. However, we cannot assure you
that all such systems will be converted prior to December 31, 1999. Although we
do not expect to incur significant expense to address the Year 2000 issue beyond
our capital investment in the System, Year 2000 problems might require us to
incur unanticipated expenses and such expenses could have a material adverse
effect on our business, financial condition, results of operations or prospects.
13
<PAGE> 16
USE OF PROCEEDS
We will not receive any proceeds from the sale of our Common Stock offered
by the Selling Stockholders pursuant to this Prospectus.
DIVIDEND POLICY
We have not paid any dividends in the past and presently anticipate that
earnings, if any, will be retained for the development of our business and that
we will not declare dividends on the Common Stock in the foreseeable future. In
addition, the terms of the our Credit Facilities as well as the terms of the
Indenture restrict our ability to declare or pay dividends. See "Description of
Certain Indebtedness -- Credit Facilities." Any future dividends will be subject
to the discretion of our Board of Directors and will depend upon, among other
things, our future earnings, operating and financial condition, capital
requirements and general business conditions.
14
<PAGE> 17
SELECTED CONSOLIDATED HISTORICAL AND PRO FORMA
FINANCIAL INFORMATION AND OPERATIONS DATA
The following selected consolidated financial information summarizes (i)
the statement of operations data and balance sheet data for the Predecessor
Company as of and for the fiscal years ended March 31, 1994 and 1995, and the
selected balance sheet data as of March 31, 1996, which have been derived from
the unaudited consolidated financial statements of the Predecessor Company not
included herein, (ii) the statement of operations data for the Predecessor
Company for the fiscal years ended March 31, 1996 and 1997 and the five months
ended August 31, 1997 and the selected balance sheet data as of March 31, 1997
and August 31, 1997, which have been derived from the audited consolidated
financial statements of the Predecessor Company included elsewhere in this
Prospectus, (iii) the statement of operations data of the Company for the period
from August 14, 1997 (inception) through December 31, 1997, and selected balance
sheet data as of December 31, 1997, which have been derived from the audited
consolidated financial statements of the Company appearing elsewhere in this
Prospectus, (iv) the consolidated statement of operations data of the Company
for the nine months ended September 30, 1998 and the selected balance sheet data
as of September 30, 1998, which have been derived from the unaudited
consolidated financial statements of the Company included elsewhere in this
Prospectus which, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the Company's results of operations and financial position at such date and for
such period, and (v) the pro forma consolidated statement of operations data for
the twelve months ended December 31, 1997 and the nine months ended September
30, 1998 and selected pro forma balance sheet data as of September 30, 1998,
which has been derived from the unaudited pro forma consolidated financial
statements included elsewhere in this Prospectus. The other data has been
derived from the consolidated financial statements referred to above for the
applicable periods. The selected consolidated historical and pro forma financial
information and operating data presented below should be read in conjunction
with the Company's Consolidated Financial Statements, the unaudited pro forma
consolidated financial statements and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Prospectus.
15
<PAGE> 18
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------------------------
APRIL 1
FISCAL YEAR ENDED MARCH 31, THROUGH
----------------------------------- AUGUST 31,
1994 1995 1996 1997 1997
------ ------ ------- ------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Equipment rentals............................. $5,376 $7,237 $11,871 $15,328 $ 8,515
Sales of equipment, parts and supplies........ 1,768 2,367 4,302 4,177 1,205
------ ------ ------- ------- -------
Total revenue........................... 7,144 9,604 16,173 19,505 9,720
Cost of revenue:
Cost of equipment rentals, excluding
depreciation................................ 2,549 3,442 4,380 6,029 2,193
Rental equipment depreciation(3).............. 598 1,842 2,053 3,465 1,848
Cost of sales of equipment, parts and
supplies.................................... 1,919 1,156 4,491 2,791 984
------ ------ ------- ------- -------
Total cost of revenue................... 5,066 6,440 10,924 12,285 5,025
------ ------ ------- ------- -------
Gross profit................................... 2,078 3,164 5,249 7,220 4,695
Selling, general and administrative expenses... 865 1,634 2,972 3,564 1,683
Non-rental equipment depreciation and
amortization(3)............................... 53 162 180 238 115
------ ------ ------- ------- -------
Operating income............................... 1,160 1,368 2,097 3,418 2,897
------ ------ ------- ------- -------
Other (income)/expense:
Interest expense.............................. 162 239 583 866 580
Other (income)/expense, net................... (96) (353) (196) (203) 62
------ ------ ------- ------- -------
66 (114) 387 663 642
------ ------ ------- ------- -------
Income before provision for income taxes....... 1,094 1,482 1,710 2,755 2,255
Provision for income taxes.................... 438 593 732 1,128 939
------ ------ ------- ------- -------
Net income..................................... $ 656 $ 889 $ 978 $ 1,627 $ 1,316
====== ====== ======= ======= =======
Basic and diluted earnings per share(4)........
OTHER DATA:
Gross margin.................................. $ 29.1% 32.9% 32.5% 37.0% 48.3%
Operating margin.............................. 16.2% 14.2% 13.0% 17.5% 29.8%
Rental equipment purchases(5)................. $ -- $ -- $ 8,799 $ 8,101 $ 1,775
Amortization of goodwill(3)................... -- -- -- -- --
Depreciation and other amortization........... 651 2,004 2,233 3,703 1,963
<CAPTION>
THE COMPANY(1)
------------------------------------------------------------
PRO FORMA
AS ADJUSTED
AUGUST 14 PRO FORMA -------------
(INCEPTION) AS ADJUSTED NINE MONTHS NINE MONTHS
THROUGH YEAR ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1997 1997(2) 1998 1998(2)
------------ ------------ ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Equipment rentals............................. $ 7,410 $242,759 $ 73,644 $218,904
Sales of equipment, parts and supplies........ 1,895 158,215 39,084 117,863
------- -------- -------- --------
Total revenue........................... 9,305 400,974 112,728 336,767
Cost of revenue:
Cost of equipment rentals, excluding
depreciation................................ 2,196 89,055 25,195 79,237
Rental equipment depreciation(3).............. 1,526 47,984 13,555 38,905
Cost of sales of equipment, parts and
supplies.................................... 1,691 111,907 28,090 81,321
------- -------- -------- --------
Total cost of revenue................... 5,413 248,946 66,840 199,463
------- -------- -------- --------
Gross profit................................... 3,892 152,028 45,888 137,304
Selling, general and administrative expenses... 1,081 65,618 22,287 57,121
Non-rental equipment depreciation and
amortization(3)............................... 284 14,908 2,931 11,486
------- -------- -------- --------
Operating income............................... 2,527 71,502 20,670 68,697
------- -------- -------- --------
Other (income)/expense:
Interest expense.............................. 760 51,450 9,391 41,985
Other (income)/expense, net................... -- (1,170) (538) (630)
------- -------- -------- --------
760 50,280 8,853 41,355
------- -------- -------- --------
Income before provision for income taxes....... 1,767 21,222 11,817 27,342
Provision for income taxes.................... 766 8,913 4,963 11,483
------- -------- -------- --------
Net income..................................... $ 1,001 $ 12,309 $ 6,854 $ 15,859
======= ======== ======== ========
Basic and diluted earnings per share(4)........ $ 0.04 $ 0.22 $ 0.23 $ 0.28
======= ======== ======== ========
OTHER DATA:
Gross margin.................................. 41.8% 37.9% 40.7% 40.8%
Operating margin.............................. 27.2% 17.8% 18.3% 20.4%
Rental equipment purchases(5)................. $ 2,461 $170,741 $ 76,816 $175,309
Amortization of goodwill(3)................... 166 11,597 1,961 8,698
Depreciation and other amortization........... 1,644 51,295 14,525 41,693
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY THE COMPANY
------------------------------------------------- --------------------------------------------
PRO FORMA
AS ADJUSTED
AS OF MARCH 31, AS OF AS OF AS OF AS OF
------------------------------------ AUGUST 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1997 1997 1997 1998 1998(2)
------ ------- ------- ------- ---------- ------------ ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Rental equipment, net......... $3,244 $ 8,907 $14,722 $21,789 $21,886 $30,619 $316,824 $ 420,591
Goodwill, net................. -- -- -- -- -- 36,686 244,935 462,386
Total assets.................. 5,888 10,948 17,423 27,614 29,088 79,157 662,850 1,036,065
Total debt.................... 3,595 5,871 9,944 16,100 16,559 42,928 389,841 654,917
Stockholders' equity.......... 1,206 1,862 2,840 4,467 5,768 26,001 188,759 275,689
</TABLE>
- ---------------
(1)The Acquisitions have been accounted for as purchases and, accordingly, the
operations of the acquired businesses are included in the statement of
operations data and other data from the date of acquisition.
(2)The pro forma as adjusted statement of operations data for the year ended
December 31, 1997 and the nine months ended September 30, 1998 and the pro
forma as adjusted selected balance sheet data as of September 30, 1998 give
effect to the Acquisitions, the Founders' Additional Contribution, the Common
Stock Private Placement, the Initial Public Offering, the Changes in
Outstanding Indebtedness, the Private Debt Offering, and the application of
the net proceeds of such offering as described in the "Pro Forma Consolidated
Financial Statements" as if such transactions had occurred on the first day
of the period presented, and in the case of the pro forma as adjusted balance
sheet data, as of September 30, 1998. See "Use of Proceeds," "Risk
Factors -- Substantial Debt," "Capitalization," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Certain
Relationship and Transactions" and the Company's pro forma and historical
financial statements and related notes.
(3) The amortization period for rental equipment depreciation ranges from two to
ten years. The amortization period for goodwill is 40 years.
(4)Earnings per share data is not included for the Predecessor Company on a
historical basis as such information would not be representative of the
capital structure of the Company after this Offering.
(5)Rental equipment purchases represent the purchase price of rental equipment
inventory acquired during the period.
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<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's consolidated results
of operations and financial condition should be read in conjunction with the
Consolidated Financial Statements, and the unaudited Pro Forma Consolidated
Financial Information and the "Selected Consolidated Historical and Pro Forma
Consolidated Financial Information and Operating Data" included elsewhere in
this Prospectus.
GENERAL
NationsRent is one of the fastest growing equipment rental companies in the
United States. The Company is taking advantage of the fragmentation in the
equipment rental industry and the absence of an equipment rental company with
significant market share to achieve a leading market position by creating an
integrated network of nationally branded locations offering broad product
selection and superior customer service. NationsRent has become a leading
provider of rental equipment in selected markets as a result of its strategy to
acquire core businesses and open or acquire new locations concentrated around
those businesses. The Company believes that this "cluster" strategy enables it
to (i) increase profitability in its acquired stores and (ii) achieve
profitability in its newly opened locations more quickly than its competitors.
By implementing the cluster strategy and branding the equipment fleet offered at
the Company's locations, NationsRent is able to provide a full range of rental
equipment to customers with a wide variety of equipment rental needs.
NationsRent seeks to acquire businesses that have (i) strong positions in
their geographic market, (ii) experienced local management teams that will
continue to work with the Company following the acquisition, (iii) high quality
rental equipment inventory and (iv) physical and operating characteristics that
are suited to conversion to the NationsRent format. Since its formation in
August 1997, NationsRent consummated the acquisition of 32 equipment rental
businesses with 132 locations in Alabama, Florida, Georgia, Indiana, Kentucky,
Louisiana, Michigan, Ohio, Pennsylvania, Tennessee, Texas and West Virginia. The
aggregate consideration paid by the Company in these 32 acquisitions was
approximately $586.2 million and consisted of approximately (i) $365.9 million
in cash, (ii) $5.9 million of future non-contingent contractual cash payments
(iii) $38.6 million of subordinated promissory notes, (iv) $129.6 million of
convertible subordinated promissory notes, (v) 5,553,023 shares of Common Stock
and (vi) warrants to purchase 100,000 shares of Common Stock at the initial
public offering price. In addition, the Company repaid or assumed certain
outstanding indebtedness of the acquired businesses. The cash portion of the
consideration paid has been funded with equity contributions and borrowings
under the Credit Facilities.
After making an acquisition, the Company converts acquired locations to the
NationsRent format. The cost of converting an acquired location to the
NationsRent format varies depending on the physical properties of the acquired
location and the condition, breadth and depth of rental equipment inventory at
such location, which are factors considered in the selection and pricing of
acquisition candidates. Once NationsRent has established a presence in a
particular market, it may open new locations in that geographic area or adjacent
areas. Since August 1997, the Company has opened six new locations. The Company
does not plan to open any additional new locations in 1998. However, the Company
continues to evaluate the need for new locations as it acquires equipment rental
companies in new markets. The cost of opening the Company's six new locations
has varied depending on whether the Company has leased or purchased the
underlying real property, the size of the location and the breadth and depth of
inventory at each location. See "-- Liquidity and Capital Resources." The
average cost incurred by the Company through September 30, 1998 to open new
17
<PAGE> 20
locations was approximately $2.6 million per location. The Company's new
locations have on average achieved profitability within approximately five
months of their opening.
The Company derives its revenue from (i) equipment rental (65% of total
revenue for the nine months ended September 30, 1998), (ii) sale of used
equipment (12%), (iii) sale of new equipment (12%) and (iv) sale of spare parts
and supplies, maintenance and repair services (11% in the aggregate, no single
item of which accounts for more than 10% of total revenue). The growth of rental
revenue is dependent on several factors including demand for rental equipment,
the amount and quality of equipment available for rent, rental rates and general
economic conditions. Revenue generated from the sale of used equipment is
affected by price, general economic conditions and the condition of the
equipment. Revenue from the sale of new equipment is affected by price and
general economic conditions. Revenue from the sale of spare parts and supplies,
maintenance and repair services is primarily affected by equipment rental and
sales volume.
The principal components of the Company's cost of revenue include
depreciation of rental equipment, costs of new and used equipment sold,
personnel costs, occupancy costs, repair and maintenance costs and vehicle
operations. Rental equipment depreciation is calculated using the straight-line
method over the estimated useful life of such equipment. The range of useful
lives estimated by management for rental equipment is two to eight years and is
depreciated to a salvage value of zero to ten percent of original cost. Certain
lift equipment is depreciated over a ten-year period.
Selling, general and administrative expense includes management salaries,
advertising and marketing, travel, administrative and clerical salaries and data
processing.
Non-rental equipment depreciation and amortization includes the
depreciation of fixed assets that are not offered for rent, amortization of
leasehold improvements and amortization of intangible assets related to the
acquired businesses.
The acquisitions completed in 1997 have resulted in a significantly altered
cost structure of the Predecessor Company primarily due to changes to owners'
compensation, depreciation methodologies, interest expense and real estate
costs. The Company believes that the pre-acquisition historical results of the
acquired businesses are not indicative of future results. In addition, since the
Company was only in operation for approximately one month during 1997,
meaningful comparison to prior year can not be made. As such, the following
discussion of the historical and pro forma results of operations does not set
forth any prior year comparisons.
18
<PAGE> 21
The following table sets forth, for the periods indicated, information
derived from the historical and pro forma consolidated statements of operations
of the Company expressed as a percentage of total revenue.
<TABLE>
<CAPTION>
HISTORICAL
AUGUST 14 PRO FORMA NINE MONTHS ENDED
(INCEPTION) YEAR SEPTEMBER 30, 1998
TO ENDED -------------------
DECEMBER 31, DECEMBER 31, PRO
1997 1997 HISTORICAL FORMA
------------ ------------ ---------- -----
<S> <C> <C> <C> <C>
Revenue:
Equipment rentals............................ 79.6% 60.5% 65.3% 65.0%
Sales of equipment, parts and supplies....... 20.4 39.5 34.7 35.0
------ ------ ------ -----
Total revenue........................ 100.0 100.0 100.0 100.0
Cost of revenue:
Cost of equipment rentals, excluding
depreciation.............................. 23.6 22.2 22.4 23.5
Rental equipment depreciation................ 16.4 12.0 12.0 11.6
Cost of sales of equipment, parts and
supplies.................................. 18.2 27.9 24.9 24.1
------ ------ ------ -----
Total cost of revenue................ 58.2 62.1 59.3 59.2
------ ------ ------ -----
Gross profit................................... 41.8 37.9 40.7 40.8
Selling, general and administrative expenses... 11.6 16.4 19.8 17.0
Non-rental equipment depreciation and
amortization................................. 3.0 3.7 2.6 3.4
------ ------ ------ -----
Operating income............................... 27.2% 17.8% 18.3% 20.4%
====== ====== ====== =====
</TABLE>
HISTORICAL RESULTS OF OPERATIONS
Nine Months Ended September 30, 1998
Revenue. The following table sets forth the Company's revenue by type for
the nine months ended September 30, 1998 (in thousands, except percentages):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998
-------------------
<S> <C> <C>
Equipment rentals........................................... $ 73,644 65%
Sales of equipment, parts, and supplies..................... 39,084 35
-------- ---
$112,728 100%
======== ===
</TABLE>
Equipment rental revenue as a percentage of total revenue was 65% for the
nine months ended September 30, 1998. The Company continues to expand its rental
equipment inventory at its current locations and has targeted equipment rental
revenue as a percentage of total revenue to be greater than 60%. Equipment
revenue as a percentage of total revenue exceeded 60% for the nine months ended
September 30, 1998, due to expansion of the rental fleet as well as the deferral
of used equipment sales scheduled for the end of the third quarter to the fourth
quarter of 1998.
Gross Profit. Gross profit for the nine months ended September 30, 1998
was $45.9 million or 40.7% of revenue.
Operating Expenses. Selling, general and administrative expenses for the
nine months ended September 30, 1998 were $22.3 million or 19.8% of revenue.
Non-rental equipment depreciation and amortization for the nine months ended
September 30, 1998 was $2.9 million or 2.6% of revenue.
Other Income and Expense. Interest expense for the nine months ended
September 30, 1998 was $9.4 million or 8.3% of revenue. Interest expense is
primarily attributable to the Company's Credit Facilities and subordinated notes
issued for acquisitions.
19
<PAGE> 22
Income Taxes. The Company's effective income tax rate for the nine months
ended September 30, 1998 was 42%. The amount above statutory income tax rates is
attributable to non-deductible goodwill amortization for federal income tax
purposes.
PRO FORMA RESULTS OF OPERATIONS
Pro Forma Nine Months Ended September 30, 1998
Revenue. Total revenue for the nine months ended September 30, 1998 was
$336.8 million.
Gross Profit. Gross profit for the nine months ended September 30, 1998
was $137.3 million, or 40.8% of total revenue.
Total Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended September 30, 1998 was $57.1
million, or a 17.0% of total revenue.
Operating Income. Operating income for the nine months ended September 30,
1998 was $68.7 million, or 20.4% of total revenue.
Pro Forma Year Ended December 31, 1997
Revenue. Total revenue for the year ended December 31, 1997 was $401.0
million.
Gross Profit. Gross profit for the year ended December 31, 1997 was $152.0
million, or 37.9% of total revenue.
Total Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1997 were $65.6 million,
or 16.4% of total revenue.
Operating Income. Operating income for the year ended December 31, 1997
was $71.5 million, or 17.8% of total revenue.
HISTORICAL RESULTS OF OPERATIONS -- PREDECESSOR COMPANY
Fiscal Year Ended March 31, 1997 ("Fiscal 1997") as Compared to
Fiscal Year Ended March 31, 1996 ("Fiscal 1996")
Revenue. Total revenue for Fiscal 1997 increased 20.6% to $19.5 million
from $16.2 million in Fiscal 1996. This increase was primarily attributable to a
29.1% increase in equipment rental revenue. Equipment rental revenue increased
as a result of the increased selection and availability of rental equipment and
from the opening of two new locations during Fiscal 1997.
Gross Profit. Gross profit for Fiscal 1997 increased 37.6% to $7.2 million
from $5.2 million in Fiscal 1996. Gross margin increased from 32.5% in Fiscal
1996 to 37.0% in Fiscal 1997. This improvement primarily resulted from increased
margins on the sale of used equipment.
Total Selling, General and Administrative Expenses. Selling, general and
administrative expenses for Fiscal 1997 increased 20.6% to $3.8 million from
$3.2 million in Fiscal 1996. As a percentage of total revenue, these costs were
19.5% in Fiscal 1996 compared with 19.5% in Fiscal 1997. The increase in
selling, general and administrative expenses was primarily attributable to
additional administrative staff hired and growth in business volume during
Fiscal 1997. In addition, the Company incurred additional non-rental
depreciation expense attributable to an increase in property, plant and
equipment as a result of the two locations opened during Fiscal 1997.
20
<PAGE> 23
Operating Income. As a result of the foregoing, operating income increased
63.0% from $2.1 million for Fiscal 1996 to $3.4 million in Fiscal 1997.
Operating income margin increased from 13.0% in Fiscal 1996 to 17.5% in Fiscal
1997.
Other Expense. Other expense for Fiscal 1997 increased to $0.7 million
from $0.4 million in Fiscal 1996. This increase was primarily attributable to an
increase in debt and related interest expense which resulted from the Company's
increased financing of rental equipment asset purchases.
Income Tax Expense. Income tax expense was $1.1 million for Fiscal 1997,
compared to $0.7 million in Fiscal 1996. The Company's effective tax rate was
40.9% for Fiscal 1997, compared to 42.8% for the same period in Fiscal 1996.
Net Income. Net income for Fiscal 1997 increased 66.4% to $1.6 million
from $1.0 million for Fiscal 1996 for the aforementioned reasons. Net income as
a percentage of revenue was 8.3% for Fiscal 1997 compared with 6.1% for Fiscal
1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of cash have been the funding of acquisitions
and capital expenditures. To date, the Company has funded its cash requirements
with (i) borrowings under the Credit Facilities, (ii) $48.4 million of equity
contributions from the founders of the Company, (iii) $27.6 million of proceeds
from a private placement of Common Stock, (iv) $95.7 million (after deducting
underwriting discounts and commissions and offering expenses) from its Initial
Public Offering of 13,000,000 shares of Common Stock at $8.00 per share, and (v)
the use of equipment leases.
The Company's net cash provided by operations was $39.3 million for the
nine months ended September 30, 1998. Net cash used in investing activities was
$278.0 million for the nine months ended September 30, 1998. Cash used in
investing activities in the first nine months of 1998 was primarily a result of
cash consideration of $208.0 million for the acquisition of businesses, net of
cash acquired and $76.8 million for purchases of rental equipment. Cash provided
by financing activities during this period was $246.4 million for the nine
months ended September 30, 1998. Cash provided by financing activities was
primarily a result of (i) $23.4 million of additional equity contributions from
the Company's founders, (ii) $27.6 million in proceeds from a private placement
of Common Stock, (iii) $95.7 million (after deducting underwriting discounts and
commissions and offering expenses) from its Initial Public Offering of
13,000,000 shares of Common Stock at $8.00 per share, and (iv) borrowings under
the Company's Credit Facilities.
In September 1998, the Company amended its Credit Facilities to increase
the facilities to include the $175.0 million Term Loan in addition to its
existing $260.0 million Revolving Line of Credit. Recently, the Credit
Facilities were amended further to allow the administrative agent to reallocate
the aggregate dollar amounts of the bank commitments between the Revolving Line
of Credit and the Term Loan, provided that the aggregate commitment may not be
more than $435.0 million and the aggregate commitment under the Revolving Line
of Credit may not be less than $260.0 million. The Revolving Line of Credit has
a three-year term scheduled to expire in June 2001 and the Term Loan has a
six-year term scheduled to expire in September 2004. The Credit Facilities can
be used to complete permitted acquisitions, make capital expenditures, enter
into standby letters of credit, or for working capital and other general
corporate purposes. Borrowings under the Revolving Line of Credit bear interest
at either the BankBoston, N.A. base rate plus a percentage ranging from 0.00% to
0.50% or, at the Company's option, the Eurodollar market rate plus a percentage
ranging from 2.00% to 2.75%. The Term Loan bears interest ranging from 3.00% to
3.25% over the Eurodollar market rate. The percentage over the BankBoston, N.A.
base rate or the Eurodollar market rate is
21
<PAGE> 24
based on the Company's financial performance as measured by the total funded
debt ratio. The Credit Facilities are secured by a security interest in
substantially all of the assets of the Company. The Credit Facilities also
impose, among other covenants, a tangible assets to senior debt covenant, a
restriction on all of the Company's retained earnings including the declaration
and payment of cash dividends, consent requirements on certain acquisitions and
a restriction on the ratio of total funded debt to earnings before interest,
income taxes, depreciation and amortization. On September 30, 1998, $87.5
million and $175.0 million of cash borrowings were outstanding under the
Revolving Line of Credit and Term Loan, respectively.
In December 1998, the Company completed its Private Debt Offering in which
it raised net proceeds of approximately $168.8 million (after the Initial
Purchasers' discounts and commissions and paying other estimated expenses)
through the sale of the Old Notes. The Company used the net proceeds from the
Private Debt Offering to repay certain subordinated acquisition debt and certain
outstanding indebtedness under its Credit Facilities.
The Company's short-term cash requirements for its existing operations
consist of (i) capital expenditures to maintain, modernize and expand its rental
equipment inventory, (ii) working capital requirements, and (iii) operating
activities such as repair and maintenance of rental equipment, purchase of
merchandise inventory and other operating activities. The Company estimates that
equipment expenditures for its existing locations, locations under agreements to
be acquired and for new store openings will be in the range of $150.0 million to
$200.0 million (approximately one-third of which is to replace existing rental
equipment), net of proceeds from used equipment sales, over the next 12 months.
In addition, the Company believes that it will be required to make equipment
expenditures in connection with new acquisitions. The Company believes that it
will be able to finance its short-term cash needs through borrowings under the
Credit Facilities, the use of equipment leases and cash generated from
operations. The Company estimates that such sources will be sufficient to fund
the cash required for the Company's existing operations for at least 12 months.
During the nine months ended September 30, 1998, the Company opened six new
locations within identified "clusters." The Company estimates that the aggregate
capital costs associated with each such new location will be in the range of
$2.0 million to $4.5 million. The Company believes that cash generated from
operations and borrowings under the Credit Facilities will be sufficient to fund
these costs without additional debt or equity financings.
The Company has customized a management information system that became
operational at certain locations in the fourth quarter of 1998. The Company
estimates the total cost of installation of the System at the Company's existing
locations will range between $5.0 million and $7.0 million and believes cash
generated from operations and borrowings under the Credit Facilities will be
sufficient to fund these costs. The Company expects that the incremental costs
of installation of the System at additional locations will not be significant on
a per location basis.
The Company plans to continue its acquisition strategy and expects to
finance future acquisitions using cash, capital stock, notes and/or assumption
of indebtedness. To fully implement its growth strategy and meet the resulting
capital requirements, the Company will be required to increase amounts available
under the Credit Facilities, issue future debt instruments or raise additional
capital through equity financings. There can be no assurance that any such
increase to the Credit Facilities will be available or, if available, will be on
terms satisfactory to the Company, or that the Company will be able to
successfully complete any future debt or equity financings.
SEASONALITY AND FLUCTUATIONS IN OPERATING RESULTS
The Company's revenue and income are dependent upon activity in the
construction industry in the markets served by the Company. Construction
activity is dependent upon weather and other
22
<PAGE> 25
seasonal factors affecting construction in the geographic areas where the
Company has operations. Because of this variability in demand, the Company's
quarterly revenue may fluctuate, and revenue for the first quarter of each year
can be expected to be lower than the remaining quarters. Although the Company
believes that the historical trend in quarterly revenue for the second, third
and fourth quarters of each year is generally higher than the first quarter,
there can be no assurance that this will occur in future periods. Accordingly,
quarterly or other interim results should not be considered indicative of
results to be expected for any other quarter or for a full year.
Operating results may fluctuate due to other factors including, but not
limited to (i) changes in general economic conditions including changes in
national, regional or local construction or industrial activities, (ii) the
timing of acquisitions and opening of new locations, (iii) the timing of
expenditures for new rental equipment and the disposition of used equipment,
(iv) competitive pricing pressures and (v) changes in interest rates.
The Company will incur significant expenses in opening new locations, such
as employee training, marketing and facility set-up costs. Initially, new
locations may generate lower operating margins than established locations and
may operate at a loss. In addition, when the Company purchases new rental
equipment, the depreciation related to such equipment may contribute to near-
term margin decline, because such equipment may not initially generate revenue
at a rate that is sufficient to match such increased depreciation expense. As
such, the opening of new rental locations and the purchase of new equipment to
expand the Company's current rental equipment inventory may reduce the Company's
operating margins during a start-up period.
INFLATION
The Company does not believe that inflation has been a significant factor
to the cost of its operations or the operations of the Predecessor Company.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company adopted SFAS No. 130 during the
quarter ended June 30, 1998. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components in a full set
of financial statements. The objective of SFAS No. 130 is to report a measure
(comprehensive income) of all changes in equity of an enterprise that result
from transactions and other economic events in a period other than transactions
with owners. The adoption of SFAS 130 did not have a material impact on the
Company's consolidated financial statements, as comprehensive income was equal
to net income for all periods presented. The Company is currently evaluating the
reporting formats recommended under this Statement. SFAS No. 131 establishes a
new method by which companies will report operating segment information. This
method requires disclosure of information which is based on the manner in which
management organizes the segments within a company for making operating
decisions and assessing performance. The Company continues to evaluate the
provisions of SFAS No. 131 and, upon adoption, the Company may report operating
segments.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 establishes criteria for determining which costs of
developing or obtaining internal-use computer software should be charged to
expense and which should be capitalized. SOP 98-1 is effective for all
transactions entered into in fiscal years beginning after December 15, 1998. The
Company does not believe that the adoption of SOP 98-1 will have a material
effect on the Company's financial position or results of operations.
23
<PAGE> 26
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5. SOP 98-5 requires that all
non-governmental entities expense costs of start-up activities, including
pre-operating, pre-opening and organization activities, as those costs are
incurred. In the opinion of management, the adoption of this Statement will not
have a material effect on the Company's financial position or results of
operations.
YEAR 2000
Since many computer systems and other equipment with embedded chips or
processors use only two digits to represent the year, these systems may be
unable to process accurately certain data before, during or after the year 2000.
As a result, business and governmental entities are at risk for possible
miscalculations or systems failures causing disruptions in their business
operations. This is commonly known as the "Year 2000" issue.
The Company began developing its own management information System during
the second quarter of 1998. The Company's System has been developed to ensure
that it is Year 2000 compliant. In October 1998, the Company began converting
its operations to the new System and has converted eight of its locations. The
Company expects to have all of its current operations converted to the new
System by the end of the second quarter of 1999.
Although the Company does not believe it will suffer any material effects
from the Year 2000 issue in its current operations, there can be no assurance
that the Company will be able to convert the systems of future acquisitions in a
timely manner to avoid any Year 2000 issues. The Company intends to convert all
of the systems of the businesses it acquires to the Company's System as soon as
practicable after each acquisition is completed. There can be no assurance,
however, that all such systems will be converted prior to December 31, 1999.
The Company relies on third-party suppliers for operating supplies,
merchandise for resale, utilities, transportation, equipment for rent and retail
sales and other key services. Interruption of any such third-party's operations
due to Year 2000 issues could have a material adverse effect on the Company's
operations. The Company has begun efforts to evaluate the progress of the
Company's critical third-party suppliers relative to their Year 2000 issues.
This evaluation process is scheduled for completion by the end of the second
quarter in 1999.
The Company is also dependent upon its customers for revenue and cash flow.
Year 2000 interruptions in the Company's customers' operations could result in
reduced revenue, decreased utilization of rental equipment, increased inventory
levels of merchandise, increased accounts receivable levels and cash flow
reductions. The Company has a very broad customer base which should minimize the
impact of isolated failures of its customers' systems. The Company has begun
efforts to evaluate the progress of its critical customers' relative to their
Year 2000 issues. This evaluation process is scheduled for completion by the end
of the second quarter in 1999.
Contingency plans for Year 2000-related interruptions are being developed
and will include, but not be limited to, the development of emergency backup and
recovery procedures for lost data, development of plans as a result the
Company's assessment of customer Year 2000 issues, identification of alternate
suppliers, acceleration of the time it takes to convert newly acquired locations
from their systems to the Company's System and increasing inventory levels of
critical supplies and rental equipment. All plans are expected to be completed
by the end of the second quarter in 1999. These activities are intended to
provide a means of managing risk, but cannot eliminate the potential for
disruption due to third-party failure.
Although the Company does not expect to incur significant expense to
address the Year 2000 issue beyond its capital investment in its System, Year
2000 problems might require the Company to
24
<PAGE> 27
incur unanticipated expenses which could have a material adverse effect on the
Company's business, financial condition, results of operations or prospects.
The Company's Year 2000 efforts are ongoing and its overall plan, as well
as the consideration of contingency plans, will continue to evolve as new
information becomes available. While the Company anticipates no material
interruption of its business activities, the failure to correct a material Year
2000 problem could result in an interruption in, or a failure of, certain normal
business activities or operations. Such failures could materially and adversely
affect the Company's results of operations, liquidity and financial condition.
Due to the general uncertainty inherent in the Year 2000 problem, resulting in
part from the uncertainty of the Year 2000 readiness of third-party suppliers
and customers, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on the Company's
results of operations, liquidity or financial condition.
25
<PAGE> 28
BUSINESS
GENERAL
NationsRent is one of the fastest growing equipment rental companies in the
United States. We have acquired a platform of equipment rental businesses
concentrated in selected markets and are building a network of nationally
branded locations. We have become a leading provider of rental equipment as a
result of our strategy to expand our rental fleet, acquire core businesses and
open or acquire additional locations concentrated around those businesses. We
believe that this "cluster" strategy enables us to increase profitability in our
acquired stores and achieve profitability in our newly opened locations more
quickly than our competitors. By implementing the cluster strategy and expanding
our fleet of rental equipment, we are able to provide a full range of rental
equipment to customers with a wide variety of equipment rental needs.
We offer a comprehensive line of equipment for rental primarily to a broad
range of construction and industrial customers, including heavy highway
contractors, general contractors, subcontractors, manufacturing plants and
distribution centers. We also sell used and new equipment, spare parts and
supplies, and provide maintenance and repair services. Our locations offer a
full range of high quality, well-maintained rental equipment, including the
following:
<TABLE>
<S> <C>
- - backhoes - aerial lifts and work platforms
- - bulldozers - compressors and generators
- - skid steer loaders - specialized hand tools
</TABLE>
We currently serve over 140,000 active accounts primarily in the
construction and industrial segments of the equipment rental industry.
Construction customers include heavy highway contractors, general contractors,
speciality contractors, subcontractors, excavating contractors and trade
contractors (such as electricians and plumbers). Construction customers rent
equipment for all manner of construction activities, typically on a daily,
weekly or monthly basis, with relatively little lead time due to their need to
react quickly to changes in project scheduling. Industrial customers include
operators of manufacturing plants, petrochemical plants, distribution centers
and transportation facilities. Industrial customers typically rent equipment for
maintenance-oriented purposes on a weekly or monthly basis and are more likely
to place orders for rental equipment in advance of their regularly scheduled
maintenance requirements. In addition to construction and industrial customers,
we rent equipment to homeowners and other general rental customers.
Since our formation in August 1997, we have acquired 32 equipment rental
businesses operating in 20 states, and we currently operate 135 locations. For
the twelve months ended December 31, 1997 on a pro forma basis, assuming
completion of the Acquisitions, we had approximate revenue of $401.0 million and
operating income of $71.5 million.
INDUSTRY OVERVIEW
According to industry sources, the United States equipment rental industry
grew from an estimated $614.0 million in revenue in 1982 to an estimated $20.0
billion in 1997, which represents a compound annual growth rate of more than
26%. Construction and industrial companies primarily have driven this growth by
increasingly outsourcing their equipment needs to reduce investment in non-core
assets and convert costs from fixed to variable. According to industry sources,
the United States equipment rental industry is expected to grow to an estimated
$40.0 billion in annual revenue over the next five years due to the overall
growth in the economy and a continuing trend to rent rather than buy equipment.
We believe that this trend toward rental will accelerate as a result of the
26
<PAGE> 29
many advantages of equipment rental relative to ownership including reduced
capital investment, reduced storage and maintenance expense, increased
flexibility to accept projects due to wide selection of available equipment,
greater access to the most modern equipment without the need to make large
capital expenditures, and improved productivity by having access to equipment
that suits a particular job.
The United States equipment rental industry is highly fragmented, with more
than 20,000 companies. According to industry sources, in 1997 the 100 largest
equipment rental companies in the United States had a combined market share of
less than 20%, no single equipment rental company in the United States had a
market share greater than 3% and more than 90% of equipment rental companies had
ten or fewer locations. We believe that recent consolidation has increased the
market share of the ten largest equipment rental companies in the United States
and that the largest equipment rental company in the United States currently has
a market share of approximately 6%.
We believe the recent trend toward rapid consolidation in the equipment
rental industry should continue as a result of (i) increasing competitive
pressure on small, independent operators from the growing number of regional and
national companies with greater access to, and a lower cost of, capital and
other related operating efficiencies, (ii) increasing demand by customers for a
broader selection and greater availability of rental equipment and (iii) limited
alternative exit strategies for many of the owners and principals of smaller
independent companies. We believe that this consolidation trend, the fragmented
nature of the industry and the absence of an equipment rental company with a
significant market share present substantial opportunities for NationsRent to
achieve a leading market position by creating an integrated network of
nationally branded locations offering broad product selection and superior
customer service.
COMPETITIVE STRENGTHS
We believe we have several competitive strengths that will enable us to
continue to increase growth and profitability, including the following:
Strong Market Position. We have achieved a leading market position in
selected markets and expect to continue to increase revenue as a result of
our cluster strategy. We believe this strategy enables us to more
effectively serve our customers, broaden our customer base, pool rental
equipment inventory, offer a broader selection and greater availability of
equipment and maintain a high rental equipment utilization rate. By
offering a full range of rental equipment from each location, we believe
that customers who currently use multiple rental equipment providers will
prefer to fill their rental needs through the NationsRent network of
locations. In addition, we believe that we have other advantages relative
to smaller operators, including greater purchasing power and a lower cost
of capital.
Full Range of Rental Equipment. By offering a full range of rental
equipment, we can serve a diverse customer base and respond to customer
demand across each geographic region in which we operate. We offer a
comprehensive selection of light, medium and heavy rental equipment serving
the short-, medium- and long-term requirements of contractors, commercial
customers and industrial customers. Since January 1, 1998, we have added
approximately $147.0 million of new equipment to our rental equipment
inventory. As a result, in part, of the capital expenditures made at the 25
locations we have owned since January 1, 1998, our rental revenue from
these locations has increased more than 40% for the nine month period ended
September 30, 1998 on a pro forma basis as compared to the same period for
1997.
27
<PAGE> 30
National Brand. We have entered selected markets with the goal of
establishing a nationally recognized brand throughout the United States.
Since our formation in August 1997, we have expanded into 20 states in the
regions set forth below:
<TABLE>
<CAPTION>
NUMBER OF
REGION STATES WITH NATIONSRENT LOCATIONS LOCATIONS
------ --------------------------------- ---------
<S> <C> <C>
Midwest........................ Indiana, Kentucky, Michigan, Ohio, West 45
Virginia
Southeast...................... Alabama, Florida, Georgia, Tennessee 35
Central........................ Louisiana, Texas 33
Northeast...................... Maine, Massachusetts, New Hampshire, New York, 17
Pennsylvania, Rhode Island, Vermont
West........................... California, Nevada 5
-----
TOTAL 135
=====
</TABLE>
The expansion into these regions provides us with a substantial base from
which to roll out our branding strategy. This strategy includes expanding
our fleet of rental equipment, implementing standard operating procedures
and best practices and creating a distinctive store format and marketing
program. We believe that we are able to increase revenue by offering an
extensive inventory of rental equipment in a customer-oriented atmosphere
and a brand name known for consistent quality. We believe this branding
strategy enables us to expand our customer base and attract a broader range
of customers, including large customers with operations in a variety of
geographic markets.
Distinctive Operating Format. We have designed and are implementing a
format for our locations which we believe differentiates us from our
competitors. Distinguishing characteristics of this format include
drive-through lanes, clearly marked equipment aisles and attractive, well-
organized and clean store facilities. Our larger locations are typically on
a six to 12 acre site in a heavily trafficked area with a 20,000 to 40,000
square foot facility housing a repair and maintenance center and a broad
selection and extensive inventory of equipment and supplies. Our smaller
locations are typically on a two to six acre site in a high-visibility
commercial area with a 7,500 to 11,000 square foot facility, with
maintenance and delivery capabilities and inventory and supplies targeted
to the customer base in that area.
Focus on Customer Service. We are differentiating ourself from our
competitors with innovations designed to increase customer satisfaction. We
generally offer more convenient access, faster check-in and check-out
procedures and shorter required lead time for rentals than our competitors.
We also offer on-time equipment delivery and pick-up, on-site repair
service, 24-hour customer assistance and written instruction materials for
equipment usage and safety. In addition, as part of our plan to provide
one-stop shopping to customers, each location sells parts and supplies to
complement equipment rentals and sales.
Customized Management Information System. We are installing our
customized management information System capable of monitoring operations
at several thousand locations. The System is designed to track customer
purchasing patterns and demographics for use in gaining market share in new
and existing markets, consolidating equipment purchases, maximizing
utilization rates and reducing overhead expenditures. The System will
provide our management with real time revenue, inventory, financial and
customer information, facilitating rapid and well-informed decision making.
In addition, the System will be designed to permit our customers to reserve
and rent equipment and access their account information from their own
computer terminals via our Internet website. To develop our System, we
assembled a team of management
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information specialists who have previously developed systems for several
Fortune 500 companies. The System has been developed to ensure that it is
Year 2000 compliant.
Experienced Management Team. We believe that we have one of the most
experienced and growth-oriented executive management teams among
publicly-traded companies in the equipment rental industry. James L. Kirk,
our Chairman and Chief Executive Officer, founded OHM, a NYSE-listed
Company, in 1969 and served in various senior executive positions with OHM,
growing it into a leading environmental construction company with an
inventory of heavy and light equipment having an original cost of over $100
million. Recently, Don R. O'Neal joined us as President and Chief Operating
Officer. Prior to joining us, Mr. O'Neal served as President of A-1 Rentals
in Fort Worth, Texas, one of the largest independent equipment rental
businesses in the United States, substantially all the assets of which were
acquired by us in October 1998. Mr. O'Neal was a second-generation owner of
A-1 Rentals and has been in the equipment rental business for over 30
years. In addition, we benefit from the experience of H. Wayne Huizenga,
one of our directors and principal investors, who serves as Chairman and
Co-Chief Executive Officer of Republic and who co-founded and served in
various senior executive positions with Waste Management and Blockbuster,
each of which is a leading consolidator in its respective industry. The
other members of our senior management team have previously worked closely
with Mr. Kirk in senior management positions at OHM, and other key
employees and consultants have worked with Mr. Huizenga in various
positions at Republic, Waste Management or Blockbuster. The NationsRent
management team is supported by operating, marketing and business
development managers with an average of more than 15 years of experience in
the equipment rental industry.
GROWTH STRATEGY
Our objectives are to increase revenue, profitability, market share and
cash flow by building a nationally branded network of locations that offer a
comprehensive selection of high quality rental equipment in convenient and
accessible locations to customers in the construction and industrial markets.
Key elements of our growth strategy are as follows:
Enhance Operations. We enhance the operations at our locations by:
- increasing the breadth and depth of rental inventory and sharing
rental equipment among locations;
- implementing the NationsRent customer service approach;
- linking locations to the NationsRent management information System;
and
- branding locations and rental inventory with the NationsRent logo,
colors and distinctive store appearance.
Expand National Presence. We expect to continue to acquire leading
companies to implement our cluster strategy and position NationsRent to
achieve significant market share. We target businesses that have one or
more of the following characteristics:
- strong positions in their geographic market;
- experienced local management teams that will continue to work with
us following the acquisition;
- high quality equipment rental inventory; and
- physical and operating characteristics that are suited to
conversion to the NationsRent format.
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Once we have entered a particular market, we seek to acquire additional
rental businesses in that market or adjacent markets with locations and
equipment selection that complement our existing operations, thus enabling
us to further penetrate that market.
Open New Rental Locations. Once we have established a presence in a
particular market, we seek to open new locations in that geographic area or
adjacent areas to enable us to offer a greater selection and availability
of equipment, maximize our equipment inventory utilization rates and
achieve economies of scale. We believe that this strategy allows our new
locations to achieve profitability at a faster rate than our competitors
because these locations (1) generate revenue more quickly as a result of
the pre-existing market presence, name recognition and referrals from
existing locations and (2) have lower overhead costs due to the sharing of
service, maintenance, administrative functions and personnel with our
already-established locations. Since August 1997, we have opened six new
locations.
Further Penetrate Industrial Rental Market. We believe that the
equipment needs of industrial customers are underserved by the existing
equipment rental market in the United States and that there are significant
opportunities to further penetrate this market segment. We also believe
that by offering a comprehensive selection and available supply of rental
equipment throughout an integrated nationally branded network of locations,
industrial customers will become increasingly aware of the advantages of
equipment rental relative to ownership. Such advantages include reduced
capital investment, reduced storage and maintenance expense and greater
access to the most modern equipment.
ACQUISITIONS
In furtherance of our growth strategy, as of December 21, 1998 we have
acquired 32 equipment rental businesses with 132 locations. These locations are
concentrated in the following five geographic regions: Midwest Region, the
Southeast Region, the Central Region, the Northeast Region, and the West Region.
We believe that each of the equipment rental businesses which we have acquired
or contracted to acquire meets our acquisition criteria and promotes our cluster
strategy. Furthermore, each of these acquired businesses allows us to better
meet the needs of the broad range of construction and industrial customers to
whom we primarily market our products and services. To this end, many of the
businesses we have acquired have been doing business in their respective markets
for more than 35 years.
In October 1998, we acquired substantially all of the assets of A-1
Rentals. A-1 Rentals has 13 locations serving the Dallas/Fort Worth and Austin,
Texas markets and, as one of the largest independent equipment rental companies
in the United States, has operated in these markets for approximately 35 years.
Don R. O'Neal, President and Chief Operating Officer of the Company, previously
served as President of A-1 Rentals. See "Certain Relationships and
Transactions." In December 1998, we acquired Logan, which has 16 locations
throughout the Northeast. In December 1998, we also acquired substantially all
of the assets of River City, which has five locations in California and Nevada.
OPERATIONS
NationsRent is one of the fastest growing equipment rental companies in the
United States, currently operating 135 locations. Our operations primarily
consist of (1) renting a full range of equipment to construction and industrial
customers, (2) selling our used equipment inventory, (3) selling new equipment
as a distributor or dealer on behalf of several nationally known equipment
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<PAGE> 33
manufacturers and (4) selling parts, supplies and merchandise and providing
repair and maintenance services to complement our equipment rentals and sales.
Equipment Rentals. We rent on a daily, weekly and monthly basis a broad
variety of light, medium and heavy equipment serving the long-term requirements
of contractors, the short and medium-term requirements of commercial customers,
and short through long-term requirements of industrial customers. Our rental
inventory includes such equipment as aerial lifts and work platforms, air
compressors, backhoes, boom lifts, bulldozers, ditching equipment, forklifts,
generators, high reach equipment, pumps and scissor lifts. The mix of equipment
offered from each of our locations varies based on the needs of the local
market.
We are implementing a program to make ongoing capital investments in new
equipment, engage in periodic sales of used equipment and conduct preventive
maintenance. This program is designed to increase equipment utilization, enhance
resale values and extend the useful life of equipment. As of September 30, 1998,
on a pro forma basis for the Acquisitions, our equipment rental inventory had an
original cost of over $540.0 million and an average age of approximately 26
months.
We have developed operating initiatives that we are in the process of
introducing at all of our locations to offer our rental customers more
convenient access, faster check-in and check-out procedures, reduced equipment
downtime and shorter lead times for rentals than its competitors. For example,
all of our new locations are being designed with drive-through lanes to speed up
equipment loading and unloading. In addition, our rental equipment is being
outfitted with universal trailer hitches designed to accept a broad range of
towing mechanisms to ease customer transport of equipment. To reduce the
downtime associated with flat tires, we fill the tires of equipment used in
areas prone to flats with foam instead of air. Our rental locations also offer
equipment delivery and pick-up, on-site repair service within two hours of
customer request, 24-hour customer assistance, and a library of audio, video and
written instructional materials for equipment usage and safety.
Used Equipment Sales. We periodically sell used equipment to adjust the
size and composition of our rental equipment inventory in response to changing
market conditions and to maintain the quality and low average age of our rental
equipment. We attempt to balance the revenue obtainable from used equipment
sales with the revenue obtainable from continued equipment rentals. We are
generally able to achieve favorable resale prices for our used equipment due to
a preventive maintenance program and practice of selling used equipment before
it becomes obsolete or irreparable. We believe that the proactive management of
new equipment purchases and used equipment sales allows us to maximize
utilization rates and respond to changing economic conditions.
New Equipment Sales. We are a distributor of new equipment on behalf of
several nationally known equipment manufacturers. We have dealership
arrangements in certain geographic areas with various equipment manufacturers as
a result of the Acquisitions. Typically, dealership agreements do not have a
specific term and may be terminated by either party upon specific events and/or
written notice. In the future we may continue, amend or terminate dealership
arrangements, if any, of businesses we acquire or we may enter into new
dealership agreements or arrangements, depending on market conditions in the
area and other factors.
Parts, Supplies and Service. We sell a full complement of parts, supplies
and merchandise to our customers in conjunction with our equipment rental and
sales business. We provide repair service to rental customers and, as part of
our focus on customer service, we generally respond to rental equipment service
requests within two hours. We also offer maintenance service to customers who
own equipment and generate revenue from damage waiver charges, delivery charges
and warranty income. The Company believes that revenue from parts and service is
more stable than equipment sales revenue because of the recurring nature of the
parts and service business. We also believe that
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<PAGE> 34
during economic downturns the parts and service business may increase as
customers postpone new equipment purchases and instead attempt to maintain their
existing equipment.
MANAGEMENT INFORMATION SYSTEM
We are installing a customized management information system capable of
monitoring operations at several thousand locations. Our System is designed to
track customer purchasing patterns and demographics for use in gaining market
share in new and existing markets, consolidating equipment purchases, maximizing
utilization rates and reducing overhead expenditures. The System will provide
our management with real time revenue, inventory, financial and customer
information, facilitating rapid and well-informed decision making. In addition,
the System will be designed to permit customers to reserve and rent equipment
and access their account information from their own computer terminals via our
Internet website. To develop our System, we assembled a team of management
information specialists who have previously developed systems for several
Fortune 500 companies. The System has been developed to ensure that it is Year
2000 compliant.
CUSTOMERS
We currently serve over 140,000 active accounts primarily in the
construction and industrial segments of the equipment rental industry. On a pro
forma basis after giving effect to the Acquisitions, our top ten customers
represented approximately 3% of our 1997 revenue and no single customer
accounted for more than 1% of the Company's 1997 revenue. Our customers vary in
size from large Fortune 500 companies to small construction contractors,
subcontractors, machine operators and homeowners.
We do not provide purchase financing to customers. We rent equipment, sell
parts and provide repair services on account to customers who are screened
through a credit application process. Customers can arrange financing of
purchases of large equipment through a variety of creditors including
manufacturers, banks, finance companies and other financial institutions.
SALES AND MARKETING
We maintain a strong marketing and sales orientation throughout our
organization in order to better understand and serve our customers and increase
our customer base. We undertake sales and marketing initiatives designed to
increase revenue and market share and build brand awareness. We prepare
marketing analyses which address key business issues such as market/industry
history, opportunities, company philosophy, sales trends, consumer behavior
trends, distribution channels, pricing issues, target markets, advertising and
media analysis, competitive situations and selling strategies. Based on the
results of our analyses, we develop marketing and sales strategies. To assist us
in implementing our marketing and sales strategies, we have retained a store
design and merchandising firm and a national advertising agency.
Our regional managers are responsible for training, supervising and
directing the selling activities of the NationsRent salesforce in their markets.
In addition, regional managers are also responsible for overseeing the mix of
equipment at their locations, keeping abreast of local construction and
industrial activity and monitoring competitors in their respective markets.
We employ approximately 200 equipment rental salespeople who utilize
targeted local marketing strategies to address specific customer needs and
respond to competitive pressures. To remain informed of local market activity,
salespeople track construction projects and new equipment sales in their area
through Equipment Data Reports, F.W. Dodge Reports and PEC Reports (Planning,
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Engineering and Construction), follow up on referrals and visit construction
sites and potential equipment users who are new to the area.
TRADEMARKS
The Company has applied to the United States Patent and Trademark Office to
register the service mark "NationsRent."
STORE LAYOUT AND DESIGN
Many of our locations are situated in high-visibility commercial areas and
are designed to offer easy and convenient access to customers. Our larger
locations are typically on a six to 12 acre site in a heavily-trafficked area
with a 20,000 to 40,000 square foot facility housing a repair and maintenance
center and a broad selection and extensive inventory of equipment and supplies.
Our smaller locations are typically on a two to six acre lot in a
high-visibility commercial area with a 7,500 to 11,000 square foot facility with
maintenance and delivery capabilities and inventory and supplies that are
targeted to the customer base in that area. Depending on the type of equipment
rented at a particular location and the needs of the local market, our locations
may include (1) sales and administrative offices, (2) a customer showroom
displaying equipment and parts, (3) an equipment service area and (4) outdoor
and indoor equipment storage facilities.
PURCHASING
We acquire equipment from vendors with reputations for product quality and
reliability. Our size and the quantity of equipment we acquire enable us to
purchase most equipment directly from manufacturers pursuant to national
purchasing agreements at lower prices and on more favorable terms than many
smaller competitors. We maintain close relationships with our vendors to ensure
the timely delivery of new equipment. We believe that we have sufficient
alternative sources of supply for the equipment we purchase in each of our
principal product categories. We acquire our rental equipment inventory through
a combination of purchase and lease arrangements.
We select the type and quantity of rental equipment to be purchased for
each of our locations based on the expected needs of the local market. We
determine rental rates for each type of equipment based on the cost and expected
utilization of the equipment, and adjust rental rates at each location for
demand, length of rental, volume of equipment rented and other competitive
considerations. The following table summarizes the primary suppliers of certain
of our rental equipment:
<TABLE>
<CAPTION>
PRODUCT CATEGORY PRIMARY SUPPLIERS
---------------- -----------------
<S> <C>
HEAVY
Articulated Trucks Volvo/Moxy/Caterpillar
Bulldozers Komatsu/John Deere/Caterpillar
Excavators Komatsu/John Deere/Caterpillar
Scrapers John Deere/Caterpillar
Track Loaders John Deere/Caterpillar
MEDIUM
Aerial Work Platforms JLG/Genie/Snorkel
Backhoes New Holland/Caterpillar/Case/John Deere
Compaction Equipment Ingersoll Rand/BOMAG
Forklifts JCB/Ingersoll Rand/Lull
Knuckle Boom Lifts JLG/Genie/Snorkel
Semi-Pneumatic Forklifts Komatsu/Mitsubishi
Wheel Loaders Volvo/Komatsu/Caterpillar
</TABLE>
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<PAGE> 36
<TABLE>
<CAPTION>
PRODUCT CATEGORY PRIMARY SUPPLIERS
---------------- -----------------
<S> <C>
LIGHT
Air Compressors Ingersoll Rand/Multiquip
Concrete Buggies Miller/Whiteman
Concrete Mixers Whiteman/Essick
Concrete Saws Pardener/Stihl/Olympic
Electric Hammers Bosch/Harper
Light Towers Ingersoll Rand/Coleman/Specialty
Plate Compactors Multiquip/BOMAG
Power Generators MQ Power/Ingersoll Rand
Skid-Steer Loaders New Holland/Bobcat/Case
Submersible Pumps Surumi/Multiquip
Trenchers Vermeer/Ditch Witch
Welders Lincoln/Miller
</TABLE>
COMPETITION
The equipment rental industry is highly fragmented and competitive. We
compete with independent third parties in all of the markets in which we
operate. Most of our competitors in the rental business tend to operate in
specific, limited geographic areas, although some larger competitors compete on
a national basis. We also compete with equipment manufacturers which sell and
rent equipment directly to customers. Some of the Company's competitors have
greater financial resources and name recognition than the Company.
ENVIRONMENTAL AND SAFETY REGULATION
Our equipment, facilities and operations are subject to certain federal,
state and local laws and regulations relating to environmental protection and
occupational health and safety, including those governing 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. For example, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, provides for,
among other things, the remediation of sites from which there is a release or
threatened release of a hazardous substance into the environment and may impose
liability for the costs of cleanup and for damages to natural resources upon
past and current owners and operators of such sites. In addition, the Federal
Water Pollution Control Act of 1972 regulates the discharge of pollutants into
streams, rivers and other waters and may require the issuance of discharge
permits to us. The Occupational Safety and Health Act of 1970 authorizes the
promulgation of occupational safety and health standards which apply to the
Company's facilities and operations. In addition to federal environmental and
safety regulations, the states and certain localities in which we operate have
their own laws and regulations governing solid waste disposal, water pollution
and, in most cases, releases and cleanup of hazardous substances as well as
liability for such matters, which may be applicable to our facilities and
operations. Certain of our existing and former locations use and have used
substances, and currently generate or have generated or disposed of wastes,
which are or may be considered hazardous or otherwise are subject to applicable
environmental requirements.
In particular, we store and dispense, or in the past we have stored or
dispensed or the facilities at which we operated in the past stored or
dispensed, petroleum products from above-ground storage tanks and, in certain
cases, underground storage tanks. We also operate locations which in the past
used hazardous materials, including solvents, to clean and maintain equipment,
and generate and dispose of solid and hazardous wastes, including batteries,
used motor oil, radiator fluid and solvents. In connection with such activities,
we have incurred certain capital expenditures and other compliance costs which
are expensed on a current basis and which, to date, have not been material to
the Company's financial condition.
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Additionally, in connection with acquisitions of equipment rental
businesses, we undertake environmental assessments of substantially all
locations that we will continue to operate following the acquisitions and expect
to continue to do so before acquiring any additional sites. We do not currently
maintain comprehensive insurance covering environmental liabilities at our
sites. However, the sellers of each of the equipment rental businesses which we
have acquired have indemnified us with respect to environmental liabilities
associated with such businesses. Based on currently available information, we
believe that it is unlikely that we will have to incur material capital
expenditures or other material compliance or remediation costs for environmental
and safety matters in the foreseeable future. We cannot assure you, however,
that federal, state or local environmental and safety requirements will not
become more stringent or be interpreted and applied more stringently in the
future, or that we will identify adverse environmental conditions that are not
currently known to us. Such future changes or interpretations, or the
identification of such adverse environmental conditions, could result in
additional environmental compliance or remediation costs which we do not
currently anticipate, which could be material to the Company's financial
condition or results of operations. See "Risk Factors -- Environmental and
Safety Regulation."
EMPLOYEES
As of September 30, 1998, NationsRent employed approximately 2,250 persons,
approximately 35 of which are covered by a collective bargaining agreement. We
believe our relations with our employees are good.
PROPERTIES
Our corporate headquarters are located in Ft. Lauderdale, Florida in leased
premises. Certain of our property and equipment are subject to liens securing
payment of portions of our indebtedness. We lease the real estate for all but
two of our locations and also lease certain of our equipment. We believe that
all of our facilities are sufficient for our current needs.
LEGAL PROCEEDINGS
We are party to pending legal proceedings arising in the ordinary course of
business. While the results of such proceedings cannot be predicted with
certainty, we do not believe that any of these matters are material to our
financial condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth the names and ages of the executive officers and
directors of the Company as well as the positions and offices held by such
persons.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James L. Kirk............................. 49 Chairman of the Board and Chief Executive Officer
Don R. O'Neal............................. 51 President and Chief Operating Officer
Gene J. Ostrow............................ 44 Executive Vice President and Chief Financial
Officer
Philip V. Petrocelli...................... 39 Executive Vice President
Kris E. Hansel............................ 41 Vice President and Controller
Pamela K.M. Beall......................... 42 Vice President, Treasurer and Assistant Secretary
Joseph H. Izhakoff........................ 32 Vice President, General Counsel and Secretary
H. Wayne Huizenga......................... 60 Director
Harris W. Hudson.......................... 56 Director
Gary L. Gabriel........................... 55 Director
Thomas H. Bruinooge....................... 54 Director
</TABLE>
JAMES L. KIRK is a co-founder of the Company, together with H. Family
Investments, Inc. and Mr. Ostrow, and has served as the Chairman of the Board of
the Company since August 1997 and as Chief Executive Officer of the Company
since April 1998. Mr. Kirk also served as President of the Company from April
1998 though September 1998. From 1985 to February 1998, Mr. Kirk was Chairman of
the Board, President and Chief Executive Officer of OHM, a NYSE listed company.
DON R. O'NEAL joined the Company as President and Chief Operating Officer
in October 1998. From 1985 to October 1998, Mr. O'Neal served as President of
A-1 Rentals, which was acquired by the Company in October 1998. Mr. O'Neal has
served on the Board of Directors of the American Rental Association and has
served as President of the Texas Rental Association. Mr. O'Neal has been in the
equipment rental business for over 30 years.
GENE J. OSTROW is a co-founder of the Company, together with H. Family
Investments, Inc. and Mr. Kirk, and has served as its Executive Vice President
and Chief Financial Officer since August 1997. From August 1997 to April 1998,
Mr. Ostrow served as Secretary and Treasurer of the Company. From March 1997 to
October 1997, Mr. Ostrow was Vice President of Corporate Development of OHM.
From November 1994 to March 1997, Mr. Ostrow was a Senior Vice President,
Corporate Finance with Raymond James and Associates and from July 1996 to March
1997, Mr. Ostrow was co-head of that firm's mergers and acquisitions practice.
From October 1993 to November 1994, Mr. Ostrow was Vice President and Chief
Financial Officer of Ecoscience Corporation. Mr. Ostrow was employed by OHM and
its affiliates from February 1986 to October 1993 in various positions,
including Vice President and Chief Financial Officer of OHM from February 1986
through September 1991, and as Executive Vice President and Chief Financial
Officer of NSC Corporation (an affiliate of OHM) from July 1988 through October
1993. Mr. Ostrow is also a Certified Public Accountant.
PHILIP V. PETROCELLI joined the Company as Executive Vice President in
February 1998. From August 1993 to February 1998, Mr. Petrocelli was Vice
President -- Western Region of OHM. Before joining OHM, Mr. Petrocelli was a
Regional Director and acting Vice President-Analytical Labs with IT Corporation,
a provider of engineering services, since September 1988.
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<PAGE> 39
KRIS E. HANSEL joined the Company as Vice President and Controller in March
1998. Prior to joining the Company, Mr. Hansel served in various positions of
increasing responsibility at OHM since 1988, most recently as Vice President and
Controller. Prior to joining OHM, Mr. Hansel was General Accounting Manager of
WearEver-Proctor Silex, Inc.
PAMELA K.M. BEALL joined the Company as Vice President and Treasurer in
April 1998. Ms. Beall also served as Secretary from April to October 1998 and
currently serves as Assistant Secretary. From June 1985 to April 1998, Ms. Beall
served as Treasurer of OHM and in various positions of increasing responsibility
at OHM, most recently as Vice President and Assistant Secretary. Before joining
OHM, Ms. Beall was General Manager, Treasury Services for USX Corporation, and
previous to that she was with Marathon Oil Company. From November 1996 to
February 1998, Ms. Beall served as a director of NSC Corporation, an affiliate
of OHM. Since May 1996, Ms. Beall has served as a director of System One
Services, Inc.
JOSEPH H. IZHAKOFF joined the Company as Vice President and General Counsel
in September 1998. Commencing October 1998, Mr. Izhakoff also began serving as
Secretary. Prior to joining the Company, Mr. Izhakoff was an attorney at
Akerman, Senterfitt & Eidson, P.A. since August 1995, most recently as a
shareholder, where his practice focused on corporate and securities matters and
mergers and acquisitions. From September 1990 to July 1993, Mr. Izhakoff was an
attorney at Paul, Weiss, Rifkind, Wharton & Garrison and from September 1993 to
July 1995, Mr. Izhakoff was an attorney at Thomson Muraro Razook & Hart, P.A.
H. WAYNE HUIZENGA joined the Company as a director in June 1998. Since July
1998, Mr. Huizenga has served as a director of theglobe.com, an on-line
interactive communication business. Since May 1998, Mr. Huizenga has served as
Chairman of the Board and Chief Executive Officer of Republic Services, Inc.
("Republic Services"), a leading provider of non-hazardous solid waste
collection and disposal services. Since August 1995, Mr. Huizenga has served as
Chairman of the Board of Republic, which owns the nation's largest chain of
franchised automotive dealerships, is building a chain of used vehicle
megastores and owns National Car Rental and Alamo Rent-A-Car. Since October
1996, Mr. Huizenga has served as Co-Chief Executive Officer of Republic and from
August 1995 until October 1996, Mr. Huizenga served as Chief Executive Officer
of Republic. Since September 1996, Mr. Huizenga has served as the Chairman of
the Board of Florida Panthers Holdings, Inc. ("Panthers Holdings"), a leisure,
recreation and entertainment company which owns and operates certain luxury
resort hotels and the Florida Panthers professional sports franchise. Since
January 1995, Mr. Huizenga also has served as the Chairman of the Board of
Extended Stay America, Inc. ("Extended Stay"), an operator of extended stay
lodging facilities. From September 1994 until October 1995, Mr. Huizenga served
as the Vice Chairman of Viacom Inc. ("Viacom"), a diversified entertainment and
communications company. During the same period, Mr. Huizenga also served as the
Chairman of the Board of Blockbuster Entertainment Group, a division of Viacom.
From April 1987 through September 1995, Mr. Huizenga served as the Chairman of
the Board and Chief Executive Officer of Blockbuster, during which time he
helped build Blockbuster from a 19-store chain into the world's largest video
rental company. In September 1994, Blockbuster merged into Viacom. In 1971, Mr.
Huizenga co-founded Waste Management, which he helped build into the world's
largest integrated solid waste services company, and he served in various
capacities, including President, Chief Operating Officer and a director from its
inception until 1984. Mr. Huizenga is the brother-in-law of Mr. Hudson.
HARRIS W. HUDSON joined the Company as a director in June 1998. Since May
1998, Mr. Hudson has served as Vice Chairman and a director of Republic
Services. Mr. Hudson has served as a director of Republic since August 1995 and
as Vice Chairman of Republic and Chairman
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of Republic's Solid Waste Group since October 1996. From August 1995 until
October 1996, Mr. Hudson served as President of Republic. From May 1995 until
August 1995, Mr. Hudson served as a consultant to Republic. From 1983 until
August 1995, Mr. Hudson founded and served as Chairman of the Board, Chief
Executive Officer and President of Hudson Management Corporation, a solid waste
collection company, which was acquired by Republic in August 1995. From 1964 to
1982, Mr. Hudson served as Vice President of Waste Management of Florida, Inc.,
a subsidiary of Waste Management and its predecessor. Mr. Hudson also serves as
a director of Panthers Holdings. Mr. Hudson is the brother-in-law of Mr.
Huizenga.
GARY L. GABRIEL joined the Company as a director in June 1998. Since
September 1997, Mr. Gabriel has provided consulting services to the Company on
operational and business development matters. From January 1978 to September
1997, Mr. Gabriel served as President of Sam's, which was acquired by the
Company in September 1997. In 1961, Mr. Gabriel co-founded a predecessor company
of Sam's.
THOMAS H. BRUINOOGE joined the Company as a director in June 1998. Mr.
Bruinooge is an attorney who has been in private practice since 1968 and has
practiced with the firm of Bruinooge & Associates since 1987.
The executive officers of the Company are selected by and serve at the
discretion of the Board. The directors of the Company hold office until the next
annual meeting of stockholders and until their successors have been duly elected
and qualified.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has established an Executive Committee which has the same
powers and authority as the Board of Directors of the Company (the "Board"),
subject to the limitations of the Delaware General Corporation Law (the "DGCL")
and the Company's Certificate of Incorporation, as amended (the "Certificate"),
and Bylaws, as amended (the "Bylaws"). Messrs. Kirk and Huizenga are the members
of the Executive Committee.
The Company has established an Audit Committee and a Compensation
Committee, each composed of two independent directors. The Audit Committee,
comprised of Gary L. Gabriel and Thomas H. Bruinooge, recommends the annual
appointment of the Company's auditors, with whom the Audit Committee reviews the
scope of audit and non-audit assignments and related fees, accounting principles
used by the Company in financial reporting, internal auditing procedures and the
adequacy of the Company's internal control procedures. The Compensation
Committee, comprised of Harris W. Hudson and Thomas H. Bruinooge, administers
the 1998 Stock Option Plan and makes recommendations to the Board regarding
compensation for the Company's executive officers.
COMPENSATION OF DIRECTORS
The 1998 Stock Option Plan provides for an automatic grant of options to
purchase 50,000 shares of Common Stock to each member of the Board who joins the
Board as a non-employee director. In addition, the 1998 Stock Option Plan
provides for an additional automatic grant of options to purchase 10,000 shares
of Common Stock at the beginning of each fiscal year to each non-employee
director continuing to serve on the Board at such time. The 1998 Stock Option
Plan also provided for the automatic grant of options to purchase 50,000 shares
of Common Stock to each member of the Board who was a non-employee director at
the time of the Initial Public Offering. All options granted automatically to a
non-employee director will be fully vested and immediately exercisable. In
addition, each automatic grant of options to a non-employee director will remain
exercisable for a term of ten years from the date of grant so long as such
person remains a member
38
<PAGE> 41
of the Board. Each automatic grant of options to a non-employee director serving
on the Board at the time of the Initial Public Offering has an exercise price
per share equal to the Initial Public Offering price of $8.00, and each
automatic grant thereafter is exercisable at a price per share equal to the
closing price of a share of Common Stock on the NYSE, on the date immediately
prior to the automatic grant date. In addition to such automatic option grant,
the Company expects to reimburse directors for their reasonable expenses
incurred in connection with their attendance at Board and Committee meetings.
In September 1997, in connection with the acquisition of Sam's, the Company
entered into an agreement with Gary L. Gabriel pursuant to which Mr. Gabriel
provides certain consulting services to the Company. See "Certain Relationships
and Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year ended December 31, 1997, the Company had no Compensation
Committee or other committee of the Board performing similar functions.
Decisions concerning compensation of executive officers were made by certain
executive officers of the Company. Since the Initial Public Offering the Board
established a Compensation Committee consisting of non-employee directors. See
"-- Committees of the Board of Directors."
EXECUTIVE COMPENSATION
The Company was formed in August 1997 and did not pay any compensation to
its Chief Executive Officer and did not pay salary and bonus in excess of
$100,000 to any of its executive officers for the period from August 14, 1997
(inception) to December 31, 1997. The following table sets forth the annual base
salaries that the Company expects to pay for the year ending December 31, 1998
to the named executive officers below (the "Named Officers") and certain options
to purchase Common Stock which the Company has granted to the Named Officers:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON STOCK
UNDERLYING
NAME ANNUAL BASE SALARY OPTIONS
---- ------------------ ------------
<S> <C> <C>
James L. Kirk................................ $ 250,000 250,000(1)
Don R. O'Neal................................ 250,000 100,000(2)
Gene J. Ostrow............................... 200,000 100,000(1)
Philip V. Petrocelli......................... 200,000 346,472(3)
Joseph H. Izhakoff........................... 185,000 150,000(4)
</TABLE>
- ---------------
(1) These options have an exercise price of $8.00 per share and vest over a
four-year period at the rate of 25% per year commencing August 6, 1999.
These options become immediately exercisable upon a change of control of the
Company (as defined in the 1998 Stock Option Plan).
(2) These options have an exercise price of $5.50 per share and vest over a
four-year period at a rate of 25% per year commencing October 23, 1999.
These options become immediately exercisable upon a change of control of the
Company (as defined in the 1998 Stock Option Plan).
(3) These options have an exercise price of $5.77 per share and vest over a
four-year period at the rate of 25% per year commencing on February 24,
1999. These options become immediately exercisable upon a change of control
of the Company (as defined in the option agreement related to such options).
(4) These options have an exercise price of $7.00 per share and vest over a
four-year period at a rate of 25% per year commencing September 1, 1999.
These options become immediately exercisable upon a change of control of the
Company (as defined in the 1998 Stock Option Plan).
39
<PAGE> 42
The executive officers of the Company receive health benefits which do not
exceed 10% of their respective salaries. These benefits are also provided to
other employees of the Company. The Company may pay bonuses and issue additional
stock options to the Named Officers during 1998. See "-- Stock Option Plan." In
October 1998, in connection with the acquisition by the Company of A-1 Rentals,
Don R. O'Neal entered into an employment agreement to serve as President and
Chief Operating Officer of the Company. See "Certain Relationships and
Transactions."
STOCK OPTION PLAN
The Company's Board of Directors and stockholders adopted the 1998 Stock
Option Plan (the "Plan"), effective August 6, 1998. Pursuant to the Plan,
options to acquire a maximum of 5,000,000 shares of Common Stock may be granted
to employees, directors (including employee and non-employee directors) and
certain independent contractors and consultants of the Company or any Subsidiary
(as defined in the Plan). As of September 30, 1998, there were outstanding
options to purchase 2,188,795 shares at exercise prices ranging from $6.25 per
share to $8.00 per share granted under the Plan, 200,000 of which are
immediately exercisable.
The Compensation Committee administers the Plan. The Compensation Committee
determines which persons will receive options and the number of options to be
granted to such persons. The Plan also provides for annual mandatory grants of
options to non-employee directors. See " -- Compensation of Directors." The
Board of Directors or the Compensation Committee, as the case may be, will make
all determinations that it may deem necessary or advisable for the
administration of the Plan.
Pursuant to the Plan, the Company may grant Incentive Stock Options
("ISOs") as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), and Non-Qualified Stock Options ("NQSOs"), not intended to
qualify under Section 422 of the Code. The price at which the Company's Common
Stock may be purchased upon the exercise of options granted under the Plan will
be required to be not less than the per share fair market value of the Common
Stock on the date the particular options are granted. Options granted under the
Plan may have maximum terms of not more than ten years and are not transferable,
except by will or the laws of descent and distribution. None of the ISOs under
the Plan may be granted to an individual owning more than 10% of the total
combined voting power of all classes of stock issued by the Company unless the
purchase price of the Common Stock under such option is at least 110% of the
fair market value of the shares issuable on exercise of the option determined as
of the date the option is granted, and such option is not exercisable more than
five years after the grant date.
Generally, options granted under the Plan terminate upon the date the
person to whom such options were granted is no longer employed or retained by
the Company or serving on the Company's Board of Directors other than by reason
of permanent and total disability as that term is defined in the Plan.
Pursuant to the Plan, except with respect to non-employee directors subject
to the termination of employment, death or disability provisions of the Plan and
unless otherwise determined by the Board of Directors, one-fourth of the options
granted to an optionee are exercisable on the first anniversary of such grant
and an additional one-fourth of such options are exercisable on each of the next
three succeeding anniversaries of the initial vesting date. However, options
granted under the Plan shall become immediately exercisable if the holder of
such options is terminated by the Company or is no longer a director of the
Company, as the case may be, subsequent to certain events which are deemed to be
a "change in control"' of the Company. A "change in control" of the Company
generally is
40
<PAGE> 43
deemed to occur when, subject to certain conditions, any person becomes the
beneficial owner of or acquires voting control with respect to more than 50% of
the Common Stock.
ISOs granted under the Plan are subject to the restriction that the
aggregate fair market value (determined as of the date of grant) of options
which first become exercisable in any calendar year cannot exceed $100,000.
The Plan provides for appropriate adjustments in the number and type of
shares covered by the Plan and options granted thereunder in the event of any
reorganization, dissolution, liquidation, recapitalization or certain other
transactions involving the Company.
401(K) PLAN
The Company has adopted a 401(k) Retirement Savings Plan (the "401(k)
Plan") to provide retirement and other benefits to employees of the Company and
to permit employees a means to save for their retirement. The 401(k) Plan is
intended to be a tax-qualified plan under Section 401(a) of the Internal Revenue
Code of 1986, as amended.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
The DGCL authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of the directors' fiduciary duty of care. The Certificate
limits the liability of directors of the Company to the Company or its
stockholders to the fullest extent permitted by Delaware law. Specifically,
directors of the Company will not be personally liable for monetary damages for
breach of a director's fiduciary duty as a director, except for liability (1)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law, (3) under Section 174 of
the DGCL or (4) for any transaction from which the director derived an improper
personal benefit. The inclusion of this provision in the Certificate may have
the effect of reducing the likelihood of derivative litigation against
directors, and may discourage or deter stockholders or management from bringing
a lawsuit against directors for breach of their duty of care, even though such
an action, if successful, might otherwise have benefited the Company and its
stockholders. This provision has no effect on any non-monetary remedies that may
be available to the Company or its stockholders, nor does it relieve the Company
or its directors from compliance with federal or state securities laws.
The Bylaws provide that the Company shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit (each, a "Proceeding") by reason of the fact that he is
or was a director or officer of the Company, or is or was serving at the request
of the Company as a director, officer, employee or agent of another entity,
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with such Proceeding. In addition, the Company has
obtained director and officer liability insurance that insures the Company's
directors and officers against certain liabilities.
41
<PAGE> 44
CERTAIN RELATIONSHIPS AND TRANSACTIONS
In August 1997, the Company was founded by H. Family Investments, Inc. and
Messrs. Kirk and Ostrow (collectively, the "Founders"). H. Family Investments,
Inc. is a Florida corporation controlled by H. Wayne Huizenga, Jr., the son of
Mr. Huizenga. The Founders committed an aggregate of $48.4 million in equity
capital to the Company which was funded at various times from September 1997
through June 2, 1998 as required to complete acquisitions. The Founders have
entered into certain lock-up agreements with the underwriters of the Initial
Public Offering (the "Founders' Lock-up Agreements") pursuant to which they have
agreed not to offer, sell or otherwise dispose of any shares of Common Stock or
any security, convertible into, exercisable for or exchangeable for shares of
Common Stock for a period of 180 days commencing August 7, 1998 without the
prior written consent of Bear, Stearns & Co. Inc., with the exception of certain
specified transfers. In August 1998, the Company registered with the SEC for
resale, subject to the Founders' Lock-up Agreements, under the Securities Act
and applicable state securities laws the shares of Common Stock held by the
Founders. The Company paid registration expenses incidental to such
registration, excluding underwriters' commissions and deductions.
In September 1997, the Company acquired Sam's for $23.4 million from Gary
L. Gabriel, Troy L. Gabriel and certain trusts controlled by them. A portion of
the purchase price was paid by the Company to Gary L. Gabriel and certain trusts
controlled by him in the form of (1) unsecured promissory notes in the aggregate
principal amount of approximately $2.6 million which bear interest at the rate
of 8.5% per annum, (2) an unsecured convertible promissory note, as amended, in
the principal amount of approximately $0.7 million which bears interest at the
rate of 8.0% per annum, and (3) unsecured contingent convertible promissory
notes, as amended, in the aggregate principal amount of $3.0 million which bear
interest at the rate of 8.0% per annum. As of September 30, 1998, the aggregate
principal amount remaining outstanding under such notes was $3.29 million. For a
description of certain of the terms of these promissory notes, see "Description
of Certain Indebtedness -- Promissory Notes." As part of the Sam's acquisition,
the Company entered into certain leases, as amended, on four properties used in
its operations from TTG Properties, an Ohio general partnership ("TTG"), of
which Gary L. Gabriel and Troy L. Gabriel are general partners. Each of the four
leases to which the Company and TTG are a party commenced on October 1, 1997,
provides for an initial term of 10 years, with three automatic five-year
extensions. Under the leases, the Company has the option to purchase the leased
premises at any time within the last five years of the initial lease term at a
fixed price. The aggregate monthly rental payment to TTG under the leases on the
four properties is $57,000. Also, in connection with the Sam's acquisition,
Sam's entered into an agreement with Gary L. Gabriel pursuant to which Mr.
Gabriel provides certain consulting services to the Company. This agreement has
a three year term which automatically renews for an additional one year term.
This agreement provides for an annual salary of $100,000, and use of a leased
vehicle and up to $30,000 of rental equipment per year. The agreement provides
that if Mr. Gabriel's services are terminated at any time without cause, he will
be entitled to receive one year's annual salary as severance. In addition, the
Company has entered into ten year leases for certain facilities in Findlay and
Mansfield, Ohio, from TTG.
In May 1998, the Company received an unsecured subordinated loan in the
amount of $17.4 million from HILP. This loan represented bridge financing to
complete certain acquisitions until the Founders could fund the final portion of
their original capital commitments. The principal amount of the loan was repaid
on June 3, 1998 from an additional equity contribution of $17.4 million from the
Company's founders. Interest in the amount of approximately $124,000 accrued on
this loan and was paid by the Company on June 3, 1998.
42
<PAGE> 45
On June 2, 1998, the Company sold an aggregate of 5,118,694 shares of
Common Stock in a private placement for aggregate proceeds of $27.6 million. The
table below sets forth the officers and directors of the Company who
participated in such private placement and the number of shares of Common Stock
acquired in such transaction:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
NAME COMMON STOCK
- ---- ------------
<S> <C>
H. Wayne Huizenga........................................... 1,632,047(1)
Harris W. Hudson............................................ 463,650
Philip V. Petrocelli........................................ 111,276
Pamela K.M. Beall........................................... 92,730
Kris E. Hansel.............................................. 37,092
Thomas H. Bruinooge......................................... 37,092
</TABLE>
--------------------
(1) These shares are held by HILP.
The holders of the shares of Common Stock issued in the June 1998 private
placement entered into certain lock-up agreements with underwriters of the
Initial Public Offering similar to the Founders' Lock-up Agreements, described
above. The Company registered with the SEC for resale, subject to the lock-up
agreements, under the Securities Act and applicable state securities laws the
shares of Common Stock issued in the June 1998 private placement. The Company
paid the registration expenses incidental to such registration, excluding
underwriters' commissions and discounts.
In October 1998, the Company acquired substantially all of the assets of
A-1 Rentals for approximately $178.8 million, $100.7 million of which was paid
in cash and $78.1 million which was paid in the form of unsecured subordinated
convertible and non-convertible promissory notes. In December 1998, the Company
converted the entire $50.0 million of the unsecured subordinated convertible
promissory notes held by Mr. O'Neal, certain trusts controlled by him, members
of Mr. O'Neal's family and certain trusts controlled by them into an aggregate
of 6,956,517 shares of Common Stock, at a price of $7 3/16 per share. Each of
these convertible promissory notes had a six-year term and bore interest at
6.00% per year. Approximately $28.1 million of the proceeds of the Private Debt
Offering was used to repay the entire outstanding principal amount of the non-
convertible promissory notes. Each of the non-convertible promissory notes had a
four-year term and bore interest at 8.00% per year. Upon the satisfaction of
certain earnings targets, the Company may pay to A-1 Rentals additional
consideration of $10.0 million in cash and $10.0 million in shares of Common
Stock.
In connection with the acquisition of A-1 Rentals, Mr. O'Neal entered into
a two-year employment agreement to serve as President and Chief Operating
Officer of the Company for a minimum annual salary of approximately $250,000.
Also, in connection with the acquisition of A-1 Rentals, the Company entered
into leases with entities affiliated with Mr. O'Neal for 15 properties used in
connection with the business of A-1 Rentals. The lease agreements, which have
initial terms ranging from one to five years, require aggregate monthly rental
payments of approximately $120,000.
The Company has entered into certain contracts for building construction
with Alvada Construction, Inc., an entity controlled by Mr. Kirk's brother. As
of September 30, 1998, the aggregate amount payable under these contracts was
approximately $1.2 million.
The Company currently leases the office space and parking for its corporate
headquarters from Panthers Holdings. The monthly lease amount payable by the
Company is approximately $44,000, which amount includes a share of the operating
expenses for this location based upon estimated usage. In addition, the Company
licenses from Panthers Holdings the use of an executive suite at the
43
<PAGE> 46
Broward County Arena, which is operated by Panthers Holdings, for a fee of
$95,000 per annum for a term of seven years. The Company may also enter into a
sponsorship agreement with Panthers Holdings for certain sponsorship, marketing
and advertising services. Mr. Huizenga is Chairman of the Board of Panthers
Holdings and controls a majority of the voting interests of Panthers Holdings.
Mr. Hudson is also a director of Panthers Holdings.
In addition, the Company has entered into a license agreement with South
Florida Stadium Corporation at Pro Player Stadium, a professional sports stadium
in South Florida which is owned by Mr. Huizenga, for the use of an executive
suite at Pro Player Stadium for a fee of approximately $166,000 per year for a
term of seven years.
With respect to transactions discussed in this section, no independent
determination has been made as to the fairness or reasonableness of the terms
thereof. The Company believes, however, based on its prior experience, that the
terms of each transaction were as favorable to the Company as it could have
obtained from an unaffiliated party.
44
<PAGE> 47
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of December 21, 1998, information with
respect to the beneficial ownership of the Common Stock by (1) each person or
entity known to the Company to beneficially own more than 5% of the outstanding
shares of Common Stock, (2) each director of the Company and each Named Officer,
and (3) all directors and executive officers of the Company as a group. Unless
otherwise indicated, each such stockholder has sole voting and investment power
with respect to the shares beneficially owned by such stockholder. Percentages
of shares beneficially owned are based upon 55,618,024 shares of Common Stock
outstanding as of the date first set forth above in this paragraph, plus for
each person named below any shares of Common Stock that may be acquired by such
person within 60 days of such date upon exercise of outstanding options or other
rights.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT OF
NAME BENEFICIALLY OWNED COMMON STOCK
---- ------------------ ------------
<S> <C> <C>
H. Family Investments, Inc.(1).............................. 12,000,000 21.5%
450 East Las Olas Blvd.
Ft. Lauderdale, Florida 33301
James L. Kirk............................................... 12,000,100(2) 21.5
Don R. O'Neal............................................... 4,024,302(3) 7.2
Gene J. Ostrow.............................................. 1,000,000 1.8
Philip V. Petrocelli........................................ 123,776 *
Joseph H. Izhakoff.......................................... -- --
H. Wayne Huizenga........................................... 1,682,047(4)(5) 3.0
Harris W. Hudson............................................ 1,013,650(5)(6) 1.8
Gary L. Gabriel............................................. 461,250(5)(7) *
Thomas H. Bruinooge......................................... 87,092(5) *
All executive officers and directors as a group (11
persons).................................................. 20,522,039(3)(7)(8) 36.8
</TABLE>
- ---------------
* Less than 1%
(1) H. Family Investments, Inc. is a Florida corporation controlled by H. Wayne
Huizenga, Jr., the son of Mr. Huizenga.
(2) These shares are held by Kirk Holdings Limited Partnership, a Nevada limited
partnership controlled by Mr. Kirk.
(3) Includes 621,392 shares of Common Stock owned by Mr. O'Neal's spouse, as to
which Mr. O'Neal disclaims beneficial ownership. Also includes 1,966,000
shares of Common Stock in the name of the 1997 Ray L. O'Neal and Ellen M.
O'Neal irrevocable trust for Don R. O'Neal of which Don R. O'Neal is a
trustee.
(4) These shares are held by Huizenga Investments Limited Partnership, a Nevada
limited partnership controlled by Mr. Huizenga ("HILP"). The number of
shares of Common Stock beneficially owned by Mr. Huizenga does not include
the 12,000,000 shares of Common Stock held by H. Family Investments, Inc.
because Mr. Huizenga does not share voting or dispositive control of such
shares and disclaims beneficial ownership of such shares.
(5) Includes 50,000 shares of Common Stock issuable upon exercise of options,
which are immediately exercisable at a price of $8.00 per share of Common
Stock.
(6) Includes 250,000 shares of Common Stock owned by Mr. Hudson's spouse, as to
which Mr. Hudson disclaims beneficial ownership.
(7) Includes 411,250 shares of Common Stock issuable upon conversion of
convertible promissory notes in an aggregate principal amount of $3.29
million, which are convertible at a price of $8.00 per share of Common
Stock. See "Description of Certain Indebtedness -- Promissory Notes."
(8) Includes an aggregate of 200,000 shares of Common Stock issuable upon
exercise of options held by Messrs. Huizenga, Hudson, Gabriel and Bruinooge,
which are immediately exercisable at a price of $8.00 per share of Common
Stock.
45
<PAGE> 48
SELLING STOCKHOLDERS
The following table sets forth the name of each Selling Stockholder, the
aggregate number of shares of Common Stock beneficially owned by each Selling
Stockholder as of the date hereof and the aggregate number of shares of Common
Stock registered hereby that each Selling Stockholder may offer and sell
pursuant to this Prospectus. Because the Selling Stockholders may offer all or a
portion of the Shares at any time and from time to time after the date hereof,
no estimate can be made of the number of Shares that each Selling Stockholder
may retain upon completion of the Offering. However, if all of the Shares
offered hereunder are sold by the Selling Stockholders, then unless otherwise
noted, after completion of the Offering, none of the Selling Stockholders will
own more than one percent of the shares of Common Stock outstanding. Of the
51,529,357 Shares offered hereby, 42,618,025 Shares are issued and outstanding
as of the date hereof and 8,911,332 shares have been reserved for issuance by
the Company to certain Selling Stockholders upon the conversion of outstanding
convertible promissory notes and upon the exercise of outstanding warrants as
set forth in the endnotes to the following table. To the knowledge of the
Company, none of the Selling Stockholders has had within the past three years
any material relationship with the Company or any of its predecessors or
affiliates except as set forth in the endnotes to the following table.
<TABLE>
<CAPTION>
NUMBER OF
SHARES BENEFICIALLY SHARES TO BE OFFERED
OWNED PRIOR TO FOR THE ACCOUNT OF
SELLING STOCKHOLDERS THE OFFERING(1) SELLING STOCKHOLDERS
-------------------- ------------------- --------------------
<S> <C> <C>
1997 Ray L. and Ellen M. O'Neal Irrevocable Trust for Don R.
O'Neal(2)................................................. 1,966,000 1,966,000
1997 Ray L. and Ellen M. O'Neal Irrevocable Trust for Linda
O. Moore(2)............................................... 1,966,000 1,966,000
Action Equipment Company, Inc.(3)........................... 653,020 653,020
Action Supply Company, Inc.(4).............................. 28,420 28,420
Kenneth D. Acton(5)......................................... 5,965(6) 5,965(6)
Tiffany O. Alvarez(2)....................................... 104,347 104,347
Pamela K.M. Beall & John M. Beall, Tenants by the
Entireties(7)............................................. 46,365 46,365
Pamela K.M. Beall, Trustee Pamela K.M. Beall Trust dated
February 20, 1998(7)...................................... 46,365 46,365
Berrard Holdings Limited Partnership........................ 463,650 463,650
Robert V. Berthold, Jr.(8).................................. 22,581(6) 22,581(6)
Byron H. Black(8)........................................... 28,226(6) 28,226(6)
Bode-Finn Limited Partnership(9)............................ 1,090,800(10) 1,090,800(10)
Gary A. Bonds(11)........................................... 76,250 76,250
Cris V. Branden............................................. 185,460 185,460
Thomas H. Bruinooge(12)..................................... 37,092 37,092
Randy Burden(13)............................................ 41,108 41,108
C&E Rental and Service, Inc.(14)............................ 250,000(6) 250,000(6)
J. Ronald Castell........................................... 92,730 92,730
Charleigh R. Davis(15)...................................... 119,047 119,047
Finally Limited Partnership................................. 463,650 463,650
GDJ, Jr. Investments Limited Partnership.................... 463,650 463,650
Gary L. Gabriel(16)......................................... 325,000(6) 325,000(6)
Gary L. Gabriel as Trustee of the Gary L. Gabriel Grantor
Retained Annuity Trust Theta(16).......................... 86,250(6) 86,250(6)
Troy L. Gabriel as Trustee of the Gary L. Gabriel Grantor
Retained Annuity Trust Alpha(16).......................... 250,000(6) 250,000(6)
H. Family Investments, Inc.(17)............................. 12,000,000 12,000,000
Richard L. Handley.......................................... 92,730 92,730
Kris E. Hansel(18).......................................... 37,092 37,092
Harris W. Hudson(19)........................................ 463,650 463,650
Huizenga Investments Limited Partnership(20)................ 1,632,047 1,632,047
Kent E. Jackfert(8)......................................... 22,581(6) 22,581(6)
Kady Investment Group....................................... 74,184 74,184
James E. Kelly and Virginia M. Kelly(21).................... 312,500(6) 312,500(6)
Kirk Holdings Limited Partnership(22)....................... 12,000,100 12,000,000
M. Steven Langman........................................... 37,092 37,092
James B. Lathrop(5)......................................... 69,534(6) 69,534(6)
Bill Lewis(23).............................................. 206,957 206,957
Gary Lewis(23).............................................. 285,067 285,067
</TABLE>
46
<PAGE> 49
<TABLE>
<CAPTION>
NUMBER OF
SHARES BENEFICIALLY SHARES TO BE OFFERED
OWNED PRIOR TO FOR THE ACCOUNT OF
SELLING STOCKHOLDERS THE OFFERING(1) SELLING STOCKHOLDERS
-------------------- ------------------- --------------------
<S> <C> <C>
Steven Lewis(23)............................................ 128,813 128,813
Tim Lewis(23)............................................... 206,990 206,990
Linda S. Moore(2)........................................... 323,632 323,632
Alex Muxo Jr. & Bonnie Muxo................................. 92,730 92,730
Naples Rent -- All and Sales Company, Inc.(24).............. 125,000(6) 125,000(6)
Michael O'Brien(5).......................................... 189,228(6) 189,228(6)
O'Neal Revocable Trust(2)................................... 436,889 436,889
Don R. O'Neal(2)............................................ 1,436,910 1,433,910
Elizabeth M. O'Neal(2)...................................... 621,392 621,392
Michael R. O'Neal(2)........................................ 104,347 104,347
Robert Orders(8)............................................ 11,290(6) 11,290(6)
Gene J. Ostrow(25).......................................... 1,000,000 1,000,000
Kenneth D. Petty and Ted L. Petty(26)....................... 376,762 376,762
Philip Vincent Petrocelli & Emilie Cohen Petrocelli (or
their successor(s)), Trustees, Emilie and Philip
Petrocelli, 1998 Family Trust dated February 18,
1998(27).................................................. 111,276 111,276
William M. Pierce........................................... 278,190 278,190
Linda Raymond(5)............................................ 343,690(6) 343,690(6)
Oliver Raymond(5)........................................... 883,470(6) 883,470(6)
Raymond E. Mason Foundation(9).............................. 259,200(10) 259,200(10)
Reliable Rental and Supply Co., Inc.(28).................... 265,111 265,111
Revco Equipment Rentals, Inc.(29)........................... 112,500(6) 112,500(6)
River City Rentals(30)...................................... 1,147,572 1,147,572
Thomas Richardson as Trustee of the Gary L. Gabriel Grantor
Retained Annuity Trust Beta(16)........................... 250,000(6) 250,000(6)
Bryan T. Rich(31)........................................... 3,156,337 3,156,337
Mary Sue Rozum(32).......................................... 1,938(6) 1,938(6)
John C. Scherer(33)......................................... 27,819 27,819
Joseph R. Scherzinger(34)................................... 125,899 125,899
Francis E. Scozio, Sr.(32).................................. 1,938(6) 1,938(6)
Sheffield Equipment Co., Inc.(35)........................... 109,536 109,536
Lynda Short(36)............................................. 128,282 128,282
Fred Silhanek(32)........................................... 55,412(6) 55,412(6)
Rose Silhanek(32)........................................... 65,712(6) 65,712(6)
Douglas M. Suliman(37)...................................... 789,084 789,084
Andrew W. Sweet............................................. 9,273 9,273
Andrew Teeter(8)............................................ 11,290(6) 11,290(6)
Donald P. Tewell(5)......................................... 8,112(6) 8,112(6)
William O. Tracy, III(8).................................... 45,161(6) 45,161(6)
Gary Tripp(13).............................................. 41,108 41,108
Fred W. Truman(8)........................................... 22,581(6) 22,581(6)
U-Rent It Company, Inc.(38)................................. 62,500(6) 62,500(6)
Frank Villella(36).......................................... 173,802 173,802
Thomas Villella(36)......................................... 111,730 111,730
Thomas J. Watts, Sr.(39).................................... 1,250,000(6) 1,250,000(6)
Weezor I Limited Partnership................................ 463,650 463,650
Robert M. Yager(40)......................................... 109,501 109,501
Samuel Yerrid(8)............................................ 11,290(6) 11,290(6)
</TABLE>
- ---------------
* Less than one percent
(1) As used herein, beneficial ownership means the sole power to vote, or
direct the voting of, a security, or the sole or shared power to dispose,
or direct the disposition of, a security. Except as otherwise indicated,
the Selling Shareholders have (i) sole voting power and investment power
with respect to his shares of Common Stock, except to the extent that
authority is shared by his spouse under applicable law, and (ii) record and
beneficial ownership with respect to his/her shares of Common Stock.
(2) Held an ownership interest in Ray L. O'Neal, Inc. and Arenco, LLC prior to
the Company's acquisition of the ownership interests therein.
(3) Includes 237,520 shares of Common Stock issuable upon conversion of
promissory notes which are convertible at $12.50 per share.
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<PAGE> 50
(4) Includes 10,320 shares of Common Stock issuable upon conversion of
promissory notes which are convertible at $12.50 per share.
(5) Served as an officer and/or director of and/or held an equity interest in
Jobs prior to the Company's acquisition of Jobs.
(6) Consists of shares of Common Stock issuable upon conversion of promissory
notes which are convertible at $8.00 per share which is the initial public
offering price of the Common Stock in the Initial Public Offering.
(7) Ms. Beall currently serves as Vice President, Assistant Secretary and
Treasurer of the Company.
(8) Served as an officer and/or director of and/or held an equity interest in
Titan prior to the Company's acquisition of Titan. Mr. Tracy currently
serves as a Manager, District Operations of the Company.
(9) Held an equity interest in Bode-Finn prior to the Company's acquisition of
Bode-Finn.
(10) Consists of shares of Common Stock issuable upon conversion of promissory
notes and upon exercise of warrants which are convertible or exercisable,
as the case may be, at $8.00 per share which is the initial public offering
price of the Common Stock in the Initial Public Offering.
(11) Consists of shares of Common Stock issuable upon conversion of promissory
notes which are convertible at $8.00 per share. Held an ownership interest
in Advanced Construction Equipment, Inc. prior to the Company's acquisition
of the ownership interests therein.
(12) Mr. Bruinooge currently serves as a director of the Company.
(13) Consists of shares of Common Stock issuable upon conversion of promissory
notes which are convertible at $8.21 per share. Held an ownership interest
in Southeast Rental and Leasing, Inc. prior to the Company's acquisition of
the ownership interests therein.
(14) The Company has acquired all of the assets of C&E.
(15) Consists of shares of Common Stock issuable upon conversion of promissory
notes which are convertible at $8.40 per share. Held an ownership interest
in EP Company, Inc. prior to the Company's acquisition of the ownership
interests therein.
(16) Served as an officer and/or director of and/or held an equity interest in
Sam's prior to the Company's acquisition of Sam's. Gary L. Gabriel
currently serves as director of the Company and provides certain consulting
services to the Company. Troy L. Gabriel currently serves as a Manager,
Business Development of the Company. Mr. Richardson currently serves as a
Manager, District Operations of the Company.
(17) H. Family Investments is one of the co-founders of the Company and is
controlled by H. Wayne Huizenga, Jr. who served as a director of the
Company until June 1998.
(18) Mr. Hansel currently serves as Vice President and Controller of the
Company.
(19) Mr. Hudson currently serves as a director of the Company.
(20) Huizenga Investments Limited Partnership is a Nevada limited partnership
controlled by H. Wayne Huizenga who currently serves as a director of the
Company.
(21) Served as an officer and/or director of and/or held an equity interest in
J. Kelly prior to the Company's acquisition of J. Kelly.
(22) Kirk Holdings Limited Partnership is affiliated with James L. Kirk, one of
the co-founders of the Company who currently serves as the Chairman and
Chief Executive Officer of the Company.
(23) Held ownership interests in Agstar, Inc. and Lightnin' Truck Rental, Inc.
prior to the Company's acquisition of the ownership interests therein.
(24) The Company has acquired all of the assets of Naples.
(25) Mr. Ostrow is one of the co-founders of the Company and currently serves as
an Executive Vice President and Chief Financial Officer of the Company.
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<PAGE> 51
(26) Consists of shares of Common Stock issuable upon conversion of promissory
notes which are convertible at $8.23 per share. Held an ownership interest
in Tennessee Tool and Supply, Inc. prior to the Company's acquisition of
the ownership interests therein.
(27) Mr. Petrocelli currently serves as an Executive Vice President of the
Company.
(28) Consists of shares of Common Stock issuable upon conversion of promissory
notes which are convertible at $9.43 per share.
(29) The Company has acquired all of the assets of Revco.
(30) Includes 550,000 shares of Common Stock issuable upon conversion of
promissory notes which are convertible at $10.00 per share.
(31) Includes 540,337 shares of Common Stock issuable upon conversion of
promissory notes which are convertible at $12.50 per share. Held an
ownership interest in Logan prior to the Company's acquisition of the
ownership interests therein.
(32) Served as an officer and/or director of and/or held an equity interest in
A-Action prior to the Company's acquisition of A-Action.
(33) Mr. Scherer currently serves as an officer of the Company.
(34) Consists of shares of Common Stock issuable upon conversion of promissory
notes which are convertible at $8.34 per share. Held an ownership interest
in Prime Enterprises, Inc. prior to the Company's acquisition of the
ownership interests therein.
(35) Consists of shares of Common Stock issuable upon conversion of promissory
notes which are convertible at $7.76 per share.
(36) Held an ownership interest in Villella Holding Company and Gold Coast
Aerial Lift, Inc.
(37) Includes 135,084 shares of Common Stock issuable upon conversion of
promissory notes which are convertible at $12.50 per share. Held an
ownership interest in Logan prior to the Company's acquisition of the
ownership interests therein.
(38) The Company acquired all of the assets of U-Rent-It.
(39) Served as an officer and director of and held all of the equity interests
in Associated prior to the Company's acquisition of Associated.
(40) Consists of shares of Common Stock issuable upon conversion of promissory
notes which are convertible at $10.00 per share. Held an ownership interest
in Acme Rental, Inc. prior to the Company's acquisition of the ownership
interests therein.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summary description of the Credit Facilities, certain
promissory notes and related registration rights is qualified in its entirety by
reference to the Credit Facilities, the promissory notes and the registration
rights agreements, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part and which may be
obtained from the Company upon written request.
CREDIT FACILITIES
The Company has recently amended and restated its credit facilities with a
syndicate of lenders and BankBoston, N.A., as administrative agent. Under the
new Credit Facilities, the Company may borrow up to $260.0 million under the
Revolving Line of Credit and has borrowed $175.0 million under the Term Loan.
Recently, the Credit Facilities were amended further to allow the administrative
agent to reallocate the aggregate dollar amounts of the bank commitments between
the Revolving Line of Credit and the Term Loan, provided that the aggregate
commitment may not be more than $435.0 million and the aggregate commitment
under the Revolving Line of Credit may not be less than $260.0 million.
Borrowings under the Credit Facilities can be used to complete permitted
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<PAGE> 52
acquisitions, make capital expenditures, enter into stand-by letters of credit
and for working capital and other general corporate purposes. Borrowings under
the Credit Facilities may be in the form of base rate loans or at the option of
the Company, Eurodollar loans. Borrowings under the Credit Facilities bear
interest at either the BankBoston base rate plus a percentage ranging from 0.00%
to 0.50% or, at the Company's option, the Eurodollar market rate plus a
percentage ranging from 2.00% to 2.75%, with respect to the Revolving Line of
Credit, or 3.00% to 3.25%, with respect to the Term Loan. The percentage over
the BankBoston base rate or the Eurodollar market rate is based on the Company's
financial performance as measured by the total funded debt ratio (the "Pricing
Ratio"). Interest on the BankBoston base rate loans is payable quarterly in
arrears. Interest on the Eurodollar loans is payable on the last day of the
applicable interest period which may be a one, two, three or six month period at
the option of the Company, or quarterly in arrears, whichever is earlier. The
Credit Facilities are secured by a first priority security interest in
substantially all of assets of the Company. Borrowings under the Revolving Line
of Credit and the Term Loan mature and must be repaid, in full, in June 2001 and
September 2004, respectively.
PROMISSORY NOTES
In connection with certain of the Acquisitions, the Company has issued
unsecured subordinated promissory notes in an aggregate principal amount of
approximately $168.2 million. An aggregate principal amount of approximately
$129.6 million of such promissory notes are convertible (the "Convertible
Notes") into shares of Common Stock at conversion prices ranging from $7.76 to
$9.43 per share of Common Stock and bear interest at rates ranging between 6.00%
and 8.50%. Certain of these convertible promissory notes are pre-payable by the
Company based on the achievement of certain target trading prices of the Common
Stock over specified periods. Effective December 1998, the Company converted the
entire $50.0 million of the unsecured subordinated convertible promissory notes
into an aggregate of 6,956,517 shares of Common Stock, at a price of $7 3/16 per
share.
In connection with certain of the Convertible Notes issued prior to the
consummation of the Initial Public Offering, the Company granted certain
registration rights for the Common Stock into which the Convertible Notes are
convertible and registered such Common Stock with the SEC under the Securities
Act contemporaneously with the Initial Public Offering in August 1998 in
accordance with such registration rights. In connection with certain of the
Convertible Notes granted after the Initial Public Offering, the Company has
agreed to register the Common Stock into which the Convertible Notes are
convertible with the SEC under the Securities Act within 90 days of the issuance
of such Notes.
The holders of all Convertible Notes issued prior to the Initial Public
Offering have entered into lock-up agreements with the underwriters of such
offering pursuant to which stockholders have agreed not to offer, sell, agree to
sell, or otherwise dispose of, directly or indirectly, any shares of Common
Stock into which such notes are convertible for a period of 180 days following
August 7, 1998 without the prior written consent of the underwriters with the
exception of certain specified transfers. The holders of certain of the
Convertible Notes issued after the Initial Public Offering have entered into
certain lock-up agreements with the Company pursuant to which such noteholders
have agreed not to offer, sell or otherwise dispose of any shares of Common
Stock or any security convertible into, exercisable for or exchangeable for
shares of Common Stock for a period of generally 12 months following the date of
issuance without the Company's prior written consent, with the exception of
certain specified transfers.
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<PAGE> 53
10 3/8% SENIOR SUBORDINATED NOTES DUE 2008
In connection with the Private Debt Offering, the Company sold an aggregate
principal amount of $175.0 million in 10 3/8% senior subordinated notes due 2008
(the "Old Notes"). Pursuant to a purchase agreement between the initial
purchasers of the Old Notes and the Company dated December 8, 1998, the Company
has offered for exchange up to $175.0 million aggregate principal amount of
10 3/8% senior subordinated notes due 2008 which the Company registered under
the Securities Act (the "New Notes"). The terms of the New Notes and the Old
Notes are substantially identical in all material respects, except that: the New
Notes have been registered under the Securities Act; the Old Notes have certain
transfer restrictions and registration rights; and the New Notes will not
contain certain provisions relating to additional interest to be paid to the
holders of Old Notes under certain circumstances relating to the timing of the
Exchange Offer (as defined below). The Old Notes and the New Notes are
collectively referred to as the "Notes."
The New Notes will evidence the same debt as the Old Notes and will be
entitled to the benefits of the Indenture. The Notes will mature on December 15,
2008. The Company will pay interest on the Notes at an annual rate of 10 3/8%.
The Company will pay the interest due on the Notes every six months on June 15
and December 15. The Company will make the first payment on June 15, 1999. The
Notes are guaranteed. If the Company cannot make payments on the Notes when they
are due, our existing subsidiaries have guaranteed the Notes and must make such
payments instead. Certain of our future subsidiaries will also guarantee the
Notes.
The Notes are unsecured senior subordinated debt of the Company, and as
such, the Notes will rank behind all of our existing and future debts that do
not expressly provide that they rank equally with, or are subordinated to, the
Notes. The Notes will also rank ahead of all of our existing and future debts
that expressly provide that they are subordinated to the Notes. The Guarantees
are unsecured senior subordinated debts of the Company's subsidiary guarantors
(the "Guarantors"), and a such, the Guarantees will rank behind all of each
Guarantor's existing and future debts that do not expressly provide that they
rank equally with, or are subordinated to, the Guarantees. The Guarantees will
also rank ahead of all of each Guarantor's existing and future debts that
expressly provide that they are subordinated to the Guarantees. As of September
30, 1998, on a pro forma basis after giving effect to the Acquisitions, certain
borrowings under the Credit Facilities, certain senior subordinated supplier
debt, the conversion to equity of certain subordinated acquisition debt, the
Private Debt Offering and the application of the proceeds from such offering,
there would be approximately: $272.2 million of outstanding debt ranking ahead
of the Notes; $96.0 million of outstanding debt ranking ahead of the Guarantees;
$26.5 million of outstanding debt ranking equally with the Notes; and $85.2
million of outstanding debt ranking behind the Notes.
The Company also has the option of redeeming the Notes. At any time on or
after December 15, 2003, the Company may redeem some or all of the Notes at
various redemption prices plus any interest that is due and unpaid on the date
the Company redeems the Notes. At any time on or prior to December 15, 2001, the
Company may redeem up to 35% of the principal amount of the Notes and of any
additional notes issued under the Indenture governing the Notes with the
proceeds from certain equity offerings by the Company at a redemption price
equal to 110 3/8% of the face amount of the Notes, plus any interest that is due
and unpaid on the date we redeem the Notes. Following certain asset sales or
changes of control, we must also offer to repurchase the New Notes at various
purchase prices.
The Notes are issued under an Indenture with The Bank of New York as
trustee. The Indenture, among other things, restricts the Company's ability and
the ability of the Guarantors to borrow money, pay dividends on stock or make
certain other restricted payments, use assets as
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<PAGE> 54
security in other transactions, make investments and sell certain assets or
merge with other companies. Holders of Old Notes are entitled to registration
rights with respect to the New Notes. Pursuant to the Registration Rights
Agreement among the Company, the Guarantors and the initial purchasers of the
Old Notes, the Company agreed to file an exchange offer registration statement
with respect to an offer to exchange the Old Notes for the New Notes (the
"Exchange Offer"). Finally, under certain circumstances, certain holders of Old
Notes (including holders of Old Notes who may not participate in the Exchange
Offer) may in certain circumstances require the Company to file, and cause to
become effective, a shelf registration statement under the Securities Act which
would cover resales of Old Notes by such holders.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The Certificate authorizes capital stock consisting of 5,000,000 shares of
preferred stock, par value $0.01 per share (the "Preferred Stock"), and
250,000,000 shares of Common Stock. As of December 21, 1998, the Company had
55,618,024 shares of Common Stock and no shares of Preferred Stock outstanding.
The following summary description of the capital stock of the Company, including
certain warrants, options and convertible promissory notes and related
registration rights, is qualified in its entirety by reference to the
Certificate, the Bylaws and the agreements governing such instruments, copies of
which will be filed as exhibits to the Registration Statement of which this
Prospectus is a part.
COMMON STOCK
The holders of the Common Stock are entitled to one vote for each share on
all matters voted on by stockholders, including elections of directors, and,
except as otherwise required by law or the Certificate, the holders of such
shares will possess all voting power. The Certificate will not provide for
cumulative voting in the election of directors. Subject to any preferential
rights of any outstanding series of Preferred Stock created by the Board of
Directors from time to time, the holders of the Common Stock will be entitled to
such dividends as may be declared from time to time by the Board of Directors
from funds available therefor, and upon liquidation will be entitled to receive
pro rata all assets of the Company available for distribution to such holders.
See "Dividend Policy."
PREFERRED STOCK
The Certificate authorizes the Board of Directors to establish one or more
series of Preferred Stock and to determine, with respect to any series of
Preferred Stock, the terms and rights of such series, including (i) the
designation of the series, (ii) the number of shares of the series, which number
the Board of Directors may thereafter (except where otherwise provided in the
applicable certificate of designation) increase or decrease (but not below the
number of shares thereof then outstanding), (iii) whether dividends, if any,
will be cumulative or noncumulative, and, in the case of shares of any series
having cumulative dividend rights, the date or dates or method of determining
the date or dates from which dividends on the shares of such series shall be
cumulative, (iv) the rate of any dividends (or method of determining such
dividends) payable to the holders of the shares of such series, any conditions
upon which such dividends will be paid and the date or dates or the method for
determining the date or dates upon which such dividends will be payable, (v) the
redemption rights and price or prices, if any, for shares of the series, (vi)
the amount, terms, conditions and manner of operation of any purchase,
retirement or sinking fund to be provided for the shares of the series, (vii)
the rights and the preferences, if any, of shares of the series in the event of
any voluntary or
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<PAGE> 55
involuntary liquidation, dissolution or winding up of the affairs of the
Company, (viii) whether the shares of the series will be convertible or
exchangeable into shares of any other class or series, prices or rates of
conversion or exchange and all other terms and conditions upon which such
conversion or exchange may be made, (ix) restrictions on the issuance of shares
of the same series or of any other class or series, (x) the voting rights, if
any, of the holders of the shares of the series and (xi) any other relative
rights, preferences and limitations of such series.
The Company believes that the ability of the Board of Directors to issue
one or more series of Preferred Stock will provide the Company with flexibility
in structuring possible future financings and acquisitions, and in meeting other
corporate needs which might arise. The authorized shares of Preferred Stock, as
well as shares of Common Stock, will be available for issuance without further
action by the Company's stockholders, unless such action is required by
applicable law or the rules of any stock exchange or automated quotation system
on which the Company's securities may be listed or traded. Subject to certain
exceptions, the NYSE currently requires stockholder approval as a prerequisite
to listing shares in several instances, including where the present or potential
issuance of shares could result in an increase in the number of shares of common
stock or voting securities outstanding by at least 20%. If the approval of the
Company's stockholders is not required for the issuance of shares of Preferred
Stock or Common Stock, the Board of Directors may determine not to seek
stockholder approval.
Although the Board of Directors has no intention at the present time of
doing so, it could issue a series of Preferred Stock that could, depending on
the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. The Board of Directors will make any determination to
issue such shares based on its judgment as to the best interests of the Company
and its stockholders. The Board, in so acting, could issue Preferred Stock
having terms that could discourage an acquisition attempt through which an
acquirer may be able to change the composition of the Board of Directors,
including a tender offer or other transaction that some, or a majority, of the
Company's stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then current
market price of such stock.
WARRANTS AND OPTIONS
In May 1998, in connection with the acquisition of Bode-Finn, the Company
issued warrants (the "Warrants") to the Bode-Finn Holders to acquire a number of
shares of Common Stock equal to $800,000 divided by the initial public offering
price at an exercise price equal to the initial public offering price. The
Warrants are exercisable for the period commencing 18 months after the closing
of the Initial Public Offering and ending on the fifth anniversary of the
closing of the Initial Public Offering. In addition, in connection with the
acquisition of Bode-Finn, the Company issued 990,800 Convertible Notes and
entered into a registration rights agreement (the "Bode-Finn Agreement") with
the Bode-Finn Holders pursuant to which the Company has agreed to register for
resale under the Securities Act and applicable state securities laws the shares
of Common Stock issuable to the Bode-Finn Holders upon exercise of the Warrants
and conversion of the Convertible Notes held by them (the "Registrable
Securities"). The Company is registering the Registrable Securities hereby, the
Company is obligated to pay any registration expenses incidental to such
registration, excluding underwriters' commissions and discounts. The Bode-Finn
Holders have entered into Lock-up Agreements with the Underwriters.
The Company has granted to certain employees of the Company options to
purchase an aggregate of 1,087,571 shares of Common Stock, at exercise prices
ranging from $2.96 to $6.69 per share and a weighted average exercise price of
$5.33, which were granted outside of the 1998 Stock Option Plan. These options
vest over a four year period at the rate of 25% per year commencing on
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<PAGE> 56
the first anniversary of the date of grant. These options become immediately
exercisable upon a change of the control of the Company (as defined in the
Option Agreements related to such options).
INDEMNIFICATION
The Certificate provides that the Company shall indemnify each director,
officer, employee or agent of the Company to the fullest extent permitted by
law. The Certificate limits the liability of the Company's directors for
monetary damages in certain circumstances. The Bylaws also provide that the
Company may purchase insurance on behalf of the directors, officers, employees
and agents of the Company against certain liabilities asserted against or
incurred by them in such capacity, whether or not the Company would have the
power to indemnify against such liabilities.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Boston EquiServe.
PLAN OF DISTRIBUTION
The Selling Stockholders or pledgees may sell or distribute some or all of
the Shares from time to time through dealers or brokers or other agents or
directly to one or more purchasers, including pledgees, in transactions (which
may involve crosses and block transactions) on the NYSE or other exchanges on
which the Common Stock may be listed for trading, in privately negotiated
transactions (including sales pursuant to pledges) or in the over-the-counter
market, or in brokerage transactions, or in a combination of such transactions.
Such transactions may be effected by the Selling Stockholders at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices, or at fixed prices, which may be changed. Brokers,
dealers, or other agents participating in such transactions as agent may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders (and, if they act as agent for the purchaser of such
shares, from such purchaser). Such discounts, concessions or commissions as to a
particular broker, dealer, or other agent might be in excess of those customary
in the type of transaction involved. This Prospectus also may be used, with the
Company's consent, by donees of the Selling Stockholders, or by other persons
acquiring Shares and who wish to offer and sell such Shares under circumstances
requiring or making desirable its use. To the extent required, the Company will
file, during any period in which offers or sales are being made, one or more
supplements to this Prospectus to set forth the names of donees of Selling
Stockholders and any other material information with respect to the plan of
distribution not previously disclosed.
The Selling Stockholders and ay such brokers, dealers or other agents that
participate in such distribution may be deemed to be "underwriters" within the
meaning of the Securities Act, and any discounts, commissions or concessions
received by any such brokers, dealers or other agents might be deemed to be
underwriting discounts and commissions under the Securities Act. Neither the
Company nor the Selling Stockholders can presently estimate the amount of such
compensation. The Company knows of no existing arrangements between any Selling
Stockholder and any other Selling Stockholder, broker, dealer or other agent
relating to the sale or distribution of the Shares.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of any of the Shares may not simultaneously engage in
market activities with respect to the Common Stock for the applicable period
under Regulation M prior to the commencement of such distribution. In addition
and without limiting the foregoing, the Selling Stockholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation Rule 10b-5 and Regulation M, which
provisions may limit the timing of
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<PAGE> 57
purchases and sales of any of the Shares by the Selling Stockholders. All of the
foregoing may affect the marketability of the Common Stock.
The Company will pay substantially all of the expenses incident to this
Offering of the Shares by the Selling Stockholders to the public other than
commissions, concessions and discounts of brokers, dealers or other agents. Each
Selling Stockholder may indemnify any broker, dealer, or other agent that
participates in transactions involving sales of the Shares against certain
liabilities, including liabilities arising under the Securities Act. The Company
may agree to indemnify the Selling Stockholders and any such statutory
"underwriters" and controlling persons of such "underwriters" against certain
liabilities, including certain liabilities under the Securities Act.
In order to comply with certain states' securities laws, if applicable, the
Shares will be sold in such jurisdictions only through registered or licensed
brokers or dealers.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Akerman, Senterfitt & Eidson, P.A., Miami, Florida. Certain attorneys
at Akerman, Senterfitt & Eidson, P.A. currently own shares of Common Stock.
EXPERTS
The financial statements of the Company, Gabriel Trailer Manufacturing
Company, Inc., R. and R. Rental, Inc., C & E Rental and Service, Inc., Titan
Rentals, Inc., The Bode-Finn Company, RFL Enterprises, Inc., Naples Rent-All &
Sales Company, Inc., Raymond Equipment Company, Inc., The Florida Panhandle and
Southeast Texas Divisions of General Rental, Inc., Associated Rental Equipment
Management Company, Inc., Revco Equipment Rentals, Inc., High Reach Company,
Inc. and High Reach Leasing Company, Reliable Rental & Supply Co., Inc., Ray L.
O'Neal, Inc. and Arenco, LLC, and Action Equipment Company, Inc. and Action
Supply Co., Inc., included in this Prospectus and Registration Statement and the
Schedule of the Company included elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent certified public accountants,
as indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
The financial statements of Logan Equipment Corporation as of December 31,
1997 and for the year then ended, appearing in this Prospectus and Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and in accordance therewith files reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information may be inspected and copied, without charge, at
the the Public Reference Room located at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices located at Seven World
Trade Center, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. The public may obtain
information on the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Such materials can also be inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005 or on the Commission's site on the Internet at
http://www.sec.gov.
55
<PAGE> 58
NATIONSRENT, INC.
INDEX TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
NATIONSRENT, INC.
Introduction to Pro Forma Consolidated Financial
Statements............................................. PF-2
Pro Forma Consolidated Balance Sheet at September 30,
1998................................................... PF-3
Pro Forma Consolidated Statements of Operations for the
year ended December 31, 1997........................... PF-4
Predecessor Pro Forma Consolidated Statements of
Operations for the year ended December 31, 1997........ PF-5
Acquisitions Consolidated Statements of Operations for the
year ended December 31, 1997........................... PF-6
Pro Forma Consolidated Statements of Operations for the
nine months ended September 30, 1998................... PF-7
Notes to Unaudited Pro Forma Consolidated Financial
Statements............................................. PF-8
</TABLE>
PF-1
<PAGE> 59
NATIONSRENT, INC.
INTRODUCTION TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma consolidated financial statements of the Company
present the pro forma consolidated balance sheet at September 30, 1998 and the
pro forma consolidated statements of operations for the year ended December 31,
1997 and the nine months ended September 30, 1998. The pro forma consolidated
financial statements give effect to the Acquisitions, the Founders' Additional
Contribution, the Private Placement, certain borrowings under the Credit
Facilities, conversion to equity of certain subordinated acquisition debt,
incurrance of certain senior subordinated supplier debt and the Private Debt
Offering. The pro forma consolidated balance sheet at September 30, 1998 gives
effect to the transactions and events described above as if they occurred on
September 30, 1998. The pro forma consolidated statements of operations for the
year ended December 31, 1997 reflect the Acquisitions as if they occurred on
January 1, 1997. The pro forma consolidated statements of operations for the
nine months ended September 30, 1998 are comprised of the historical results of
the Company, which include the results of operations of all businesses acquired
during 1997 and the first nine months of 1998 (consisting of Sam's Equipment
Rental, Inc. ("Sam's"), Ashland Rental and Sales, Inc. ("Ashland"), R. and R.
Rental, Inc. ("R&R"), C&E Rental and Service, Inc. ("C&E"), Titan Rentals, Inc.
("Titan"), Central Rent-All, Inc. ("Central"), Revco Equipment Rentals, Inc.
("Revco"), RFL Enterprises, Inc. ("RFL"), Naples Rent-All and Sales Company,
Inc. ("Naples"), The Bode-Finn Company ("Bode-Finn"), U-Rent-It Company, Inc.
("U-Rent-It"), A-Action Rental, Inc. ("A-Action"), Raymond Equipment Company,
Inc, ("Jobs"), The J. Kelly Co., Inc. ("J. Kelly"), General Rental, Inc.
("General"), Associated Rental Equipment Management Company, Inc.
("Associated"), A to Z Rents It, Inc. ("A to Z"), Big "R" Rents Corporation
("Big R"), High Reach Company, Inc. and High Reach Leasing Company ("High
Reach"), Agstar, Inc. and Lightnin' Truck Rental, Inc. ("Lightnin"'), Reliable
Rental & Supply Co., Inc. ("Reliable"), Witt Equipment Company ("Witt"),
Louisiana Rentals of Houma, Inc. ("Louisiana"), Sheffield Equipment Co., Inc.
("Sheffield"), Gold Coast Aerial Lift, Inc. ("Gold Coast"), Central Alabama
Rental Center, Inc. ("Central Alabama"), Tennessee Tool and Supply, Inc.
("Tennessee")), and reflect the results of operations of all businesses acquired
in the Acquisitions subsequent to September 30, 1998 as if they occurred on
January 1, 1998.
The pro forma consolidated financial statements are based upon available
information and certain assumptions considered reasonable by management. The pro
forma consolidated financial statements do not reflect the potential cost
savings the Company may have achieved had the Company owned the acquired
businesses for the full period. Accordingly, these statements are not
necessarily indicative of the actual results of operations that might have
occurred, nor are they necessarily indicative of expected results in the future.
The pro forma consolidated financial statements should be read in
conjunction with the Company's Consolidated Financial Statements and
management's discussion thereof contained elsewhere in this Prospectus.
PF-2
<PAGE> 60
NATIONSRENT, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
UNAUDITED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL OTHER PRO FORMA
COMPANY A-1 LOGAN ACTION ACQUISITIONS ADJUSTMENTS PRO FORMA
---------- --------- ------- ------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents........ $ 9,231 $ 252 $ 1,760 $ 266 $ 100 $ -- $ 11,609
Accounts receivable, net......... 48,115 7,010 8,169 2,833 3,979 -- 70,106
Inventories...................... 12,406 2,231 5,871 1,558 650 (1,031)(a) 21,685
Due from related party........... -- -- -- 461 -- (461)(b) --
Prepaid expenses and other
assets......................... 11,424 1,920 785 404 1,327 -- 15,860
Rental equipment, net............ 316,824 38,278 35,343 8,650 12,736 8,760(b) 420,591
Property and equipment, net...... 19,416 2,971 2,396 857 1,439 -- 27,079
Intangible assets related to
acquired business, net......... 245,434 -- 1,831 -- -- 215,620(c) 462,885
-------- ------- ------- ------- ------- -------- ----------
Total assets............... $662,850 $52,662 $56,155 $15,029 $20,231 $222,888 $1,029,815
======== ======= ======= ======= ======= ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable................. $ 44,117 $ 920 $ 8,882 $ 4,163 $ 1,606 $ -- $ 59,688
Accrued expenses and other
liabilities.................... 32,053 3,019 -- 511 662 -- 36,245
Debt............................. 389,841 14,683 42,359 10,906 16,502 174,376(d) 648,667
Income taxes payable............. 638 -- -- -- (5) -- 633
Deferred taxes................... 7,442 -- -- -- -- 1,451(e) 8,893
-------- ------- ------- ------- ------- -------- ----------
Total liabilities.......... 474,091 18,622 51,241 15,580 18,765 175,827 754,126
Put Warrants..................... -- -- -- 1,875 -- (1,875) --
Stockholders' equity
Treasury stock................... -- (95) -- -- (792) 887(f) --
Common stock..................... 444 62 5 10 135 (100)(g) 556
Additional paid-in capital....... 180,460 200 507 1,624 473 84,014(h) 267,278
Retained earnings................ 7,855 33,873 4,402 (4,060) 1,650 (35,865)(f) 7,855
-------- ------- ------- ------- ------- -------- ----------
Total stockholders'
equity................... 188,759 34,040 4,914 (2,426) 1,466 48,936 275,689
-------- ------- ------- ------- ------- -------- ----------
Total liabilities and
stockholders' equity..... $662,850 $52,662 $56,155 $15,029 $20,231 $222,888 $1,029,815
======== ======= ======= ======= ======= ======== ==========
<CAPTION>
OFFERING PRO FORMA
ADJUSTMENTS AS ADJUSTED
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents........ $ -- $ 11,609
Accounts receivable, net......... -- 70,106
Inventories...................... -- 21,685
Due from related party........... -- --
Prepaid expenses and other
assets......................... 6,250(i) 22,110
Rental equipment, net............ -- 420,591
Property and equipment, net...... -- 27,079
Intangible assets related to
acquired business, net......... -- 462,885
-------- ----------
Total assets............... $ 6,250 $1,036,065
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUIT
Accounts payable................. $ -- $ 59,688
Accrued expenses and other
liabilities.................... -- 36,245
Debt............................. 6,250(j) 654,917
Income taxes payable............. -- 633
Deferred taxes................... -- 8,893
-------- ----------
Total liabilities.......... 6,250 760,376
Put Warrants..................... -- --
Stockholders' equity
Treasury stock................... -- --
Common stock..................... -- 556
Additional paid-in capital....... -- 267,278
Retained earnings................ -- 7,855
-------- ----------
Total stockholders'
equity................... -- 275,689
-------- ----------
Total liabilities and
stockholders' equity..... $ 6,250 $1,036,065
======== ==========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
PF-3
<PAGE> 61
NATIONSRENT, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ACQUISITION PRO FORMA OFFERING PRO FORMA
COMPANY ACQUISITIONS ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
---------- ------------ ----------- --------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Equipment rentals........................ $18,367 $225,324 $ (932)(1) $242,759 $ -- $242,759
Sales of equipment, merchandise, parts
and supplies........................... 4,622 153,593 -- 158,215 -- 158,215
------- -------- ------- -------- -------- --------
Total revenue...................... 22,989 378,917 (932) 400,974 -- 400,974
Cost of revenue:
Cost of equipment rentals, excluding
depreciation........................... 5,669 86,432 (2,617)(a) 89,055 -- 89,055
(429)(1)
Rental equipment depreciation............ 3,705 64,014 (19,558)(b) 47,984 -- 47,984
(177)(1)
Sales of equipment, merchandise, parts
and supplies........................... 3,538 108,351 18(c) 111,907 -- 111,907
------- -------- ------- -------- -------- --------
Total cost of revenue.............. 12,912 258,797 (22,763) 248,946 -- 248,946
------- -------- ------- -------- -------- --------
Gross profit............................... 10,077 120,120 21,831 152,028 -- 152,028
Operating expenses:
Selling, general and administrative
expenses............................... 3,391 74,921 (12,880)(d) 65,618 -- 65,618
(520)(l)
706(e)
Depreciation and amortization of
non-rental property and equipment...... 675 4,222 (863)(f) 14,908 -- 14,908
10,874(g)
------- -------- ------- -------- -------- --------
Total operating expenses........... 4,066 79,143 (2,683) 80,526 -- 80,526
------- -------- ------- -------- -------- --------
Operating income........................... 6,011 40,977 24,514 71,502 -- 71,502
Other (income)/expense
Interest expense......................... 2,469 18,145 25,774(h) 46,310 5,140(k) 51,450
(78)(l)
Other (income)/expense, net.............. 12 (1,482) 300(i) (1,170) -- (1,170)
------- -------- ------- -------- -------- --------
Total other (income)/expense....... 2,481 16,663 25,996 45,140 5,140 50,280
------- -------- ------- -------- -------- --------
Income before provision for income taxes... 3,530 24,314 (1,482) 26,362 (5,140) 21,222
Provision for income taxes............... 1,482 10,471 (881)(j) 11,072 (2,159)(j) 8,913
------- -------- ------- -------- -------- --------
Net income......................... $ 2,048 $ 13,843 $ (601) $ 15,290 $ (2,981) $ 12,309
======= ======== ======= ======== ======== ========
Basic and diluted net income per
share............................ $ 0.08 $ 0.27 $ 0.22
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
PF-4
<PAGE> 62
NATIONSRENT, INC.
PREDECESSOR PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
PREDECESSOR COMPANY ADJUSTMENTS PRO FORMA
JANUARY 1, 1997 TO INCEPTION TO TO PREDECESSOR HISTORICAL
AUGUST 31, 1997 DECEMBER 31, 1997 AND COMPANY COMPANY
------------------ ----------------- -------------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Equipment rentals................................... $10,957 $7,410 $ -- $18,367
Sales of equipment, merchandise, parts and
supplies.......................................... 2,727 1,895 -- 4,622
------- ------ ----- -------
Total revenue................................. 13,684 9,305 -- 22,989
Cost of revenue:
Cost of equipment rentals, excluding depreciation... 3,473 2,196 -- 5,669
Rental equipment depreciation....................... 2,642 1,526 (463)(b) 3,705
Sales of equipment, merchandise, parts and supplies
sold.............................................. 1,847 1,691 -- 3,538
------- ------ ----- -------
Total cost of revenue......................... 7,962 5,413 (463) 12,912
------- ------ ----- -------
Gross profit.......................................... 5,722 3,892 463 10,077
Operating expenses:
Selling, general and administrative expenses........ 2,653 1,081 (343)(d) 3,391
Depreciation and amortization of non-rental property
and equipment..................................... 140 284 (62)(f) 675
313(g)
------- ------ ----- -------
Total operating expenses...................... 2,793 1,365 (92) 4,066
------- ------ ----- -------
Operating income...................................... 2,929 2,527 555 6,011
Other (income)/expense
Interest expense.................................... 809 760 900(h) 2,469
Other (income)/expense, net......................... 12 -- -- 12
------- ------ ----- -------
Total other (income)/expense.................. 821 760 900 2,481
------- ------ ----- -------
Income before provision for income taxes.............. 2,108 1,767 (345) 3,530
Provision for income taxes.......................... 880 766 (164)(j) 1,482
------- ------ ----- -------
Net income (loss)............................. $ 1,228 $1,001 $(181) $ 2,048
======= ====== ===== =======
Basic and diluted net income per share........ $ 0.04 $ 0.08
====== =======
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
PF-5
<PAGE> 63
NATIONSRENT, INC.
ACQUISITIONS CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
R & R C & E TITAN RFL BODE-FINN NAPLES JOBS REVCO
------ ------ ------ ------ --------- ------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Equipment rentals................................... $2,409 $4,506 $1,927 $ 966 $20,212 $2,262 $12,651 $2,129
Sales of equipment, merchandise, parts and
supplies.......................................... 2,107 2,768 3,042 2,077 41,038 3,805 8,307 495
------ ------ ------ ------ ------- ------ ------- ------
Total revenue.................................. 4,516 7,274 4,969 3,043 61,250 6,067 20,958 2,624
Cost of revenue:
Cost of equipment rentals, excluding depreciation... 1,398 1,846 1,303 463 4,978 1,707 2,423 1,004
Rental equipment depreciation....................... 631 766 302 261 7,266 440 4,520 613
Sales of equipment, merchandise, parts and supplies
sold.............................................. 1,808 1,791 2,043 1,472 28,584 2,967 6,150 223
------ ------ ------ ------ ------- ------ ------- ------
Total cost of revenue.......................... 3,837 4,403 3,648 2,196 40,828 5,114 13,093 1,840
------ ------ ------ ------ ------- ------ ------- ------
Gross profit......................................... 679 2,871 1,321 847 20,422 953 7,865 784
Operating expenses:
Selling, general and administrative expenses........ 715 1,417 824 209 16,597 518 2,373 312
Depreciation and amortization of non-rental property
and equipment..................................... 76 157 16 23 257 45 212 25
------ ------ ------ ------ ------- ------ ------- ------
Total operating expenses....................... 791 1,574 840 232 16,854 563 2,585 337
------ ------ ------ ------ ------- ------ ------- ------
Operating income..................................... (112) 1,297 481 615 3,568 390 5,280 447
Other (income)/expense
Interest expense.................................... 80 101 34 92 1,602 23 1,846 122
Other (income)/expense, net......................... (30) (61) 7 (15) (348) (52) -- (3)
------ ------ ------ ------ ------- ------ ------- ------
Total other (income)/expense................... 50 40 41 77 1,254 (29) 1,846 119
------ ------ ------ ------ ------- ------ ------- ------
Income before provision for income taxes............. (162) 1,257 440 538 2,314 419 3,434 328
Provision for income taxes.......................... -- 503 168 215 929 167 1,374 131
------ ------ ------ ------ ------- ------ ------- ------
Net income (loss).............................. $(162) $ 754 $ 272 $ 323 $ 1,385 $ 252 $ 2,060 $ 197
====== ====== ====== ====== ======= ====== ======= ======
<CAPTION>
GENERAL ASSOCIATED HIGH REACH RELIABLE A-1 LOGAN ACTION
------- ---------- ---------- -------- ------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Equipment rentals................................... $7,238 $24,261 $15,138 $8,315 $40,691 $ 5,882 $6,114
Sales of equipment, merchandise, parts and
supplies.......................................... 1,876 16,527 3,085 1,151 7,549 9,632 7,732
------ ------- ------- ------ ------- ------- ------
Total revenue.................................. 9,114 40,788 18,223 9,466 48,240 15,514 13,846
Cost of revenue:
Cost of equipment rentals, excluding depreciation... 4,018 4,973 6,007 4,183 14,514 1,197 3,187
Rental equipment depreciation....................... 942 8,626 3,153 1,291 14,741 1,297 661
Sales of equipment, merchandise, parts and supplies
sold.............................................. 1,204 13,464 1,703 626 3,608 7,218 6,315
------ ------- ------- ------ ------- ------- ------
Total cost of revenue.......................... 6,164 27,063 10,863 6,100 32,863 9,712 10,163
------ ------- ------- ------ ------- ------- ------
Gross profit......................................... 2,950 13,725 7,360 3,366 15,377 5,802 3,683
Operating expenses:
Selling, general and administrative expenses........ 1,495 6,143 2,739 2,041 11,241 3,466 3,432
Depreciation and amortization of non-rental property
and equipment..................................... 407 466 344 297 372 74 190
------ ------- ------- ------ ------- ------- ------
Total operating expenses....................... 1,902 6,609 3,083 2,338 11,613 3,540 3,622
------ ------- ------- ------ ------- ------- ------
Operating income..................................... 1,048 7,116 4,277 1,028 3,764 2,262 61
Other (income)/expense
Interest expense.................................... 704 3,748 2,185 419 698 922 780
Other (income)/expense, net......................... -- (358) (13) (15) (328) -- (28)
------ ------- ------- ------ ------- ------- ------
Total other (income)/expense................... 704 3,390 2,172 404 370 922 752
------ ------- ------- ------ ------- ------- ------
Income before provision for income taxes............. 344 3,726 2,105 624 3,394 1,340 (691)
Provision for income taxes.......................... 138 1,490 942 250 1,358 -- --
------ ------- ------- ------ ------- ------- ------
Net income (loss).............................. $ 206 $ 2,236 $ 1,163 $ 374 $ 2,036 $ 1,340 $(691)
====== ======= ======= ====== ======= ======= ======
<CAPTION>
OTHER TOTAL
------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revenue:
Equipment rentals................................... $70,623 $225,324
Sales of equipment, merchandise, parts and
supplies.......................................... 42,402 153,593
------- --------
Total revenue.................................. 113,025 378,917
Cost of revenue:
Cost of equipment rentals, excluding depreciation... 33,231 86,432
Rental equipment depreciation....................... 18,504 64,014
Sales of equipment, merchandise, parts and supplies
sold.............................................. 29,175 108,351
------- --------
Total cost of revenue.......................... 80,910 258,797
------- --------
Gross profit......................................... 32,115 120,120
Operating expenses:
Selling, general and administrative expenses........ 21,399 74,921
Depreciation and amortization of non-rental property
and equipment..................................... 1,261 4,222
------- --------
Total operating expenses....................... 22,660 79,143
------- --------
Operating income..................................... 9,455 40,977
Other (income)/expense
Interest expense.................................... 4,789 18,145
Other (income)/expense, net......................... (238) (1,482)
------- --------
Total other (income)/expense................... 4,551 16,663
------- --------
Income before provision for income taxes............. 4,904 24,314
Provision for income taxes.......................... 2,806 10,471
------- --------
Net income (loss).............................. 2,098 $ 13,843
======= ========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
PF-6
<PAGE> 64
NATIONSRENT, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL BODE HIGH
COMPANY RFL FINN NAPLES JOBS REVCO GENERAL ASSOCIATED REACH
---------- ---- --------- ------ ------ ------ ------- ---------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Equipment rentals................ $73,644 $228 $ 6,336 $ 513 $4,086 $ 493 $4,494 $15,172 $13,434
Sales of equipment, merchandise,
parts and supplies............. 39,084 481 16,971 892 4,258 40 657 7,502 1,982
------- ---- ------- ------ ------ ------ ------ ------- -------
Total revenue............... 112,728 709 23,307 1,405 8,344 533 5,151 22,674 15,416
Cost of revenue:
Cost of equipment rentals,
excluding depreciation......... 25,195 129 1,088 395 1,073 189 2,519 4,999 5,396
Rental equipment
depreciation................... 13,555 73 2,493 94 2,022 140 589 5,876 2,825
Sales of equipment,
merchandise, parts and supplies
sold........................... 28,090 328 11,940 687 3,342 27 204 5,483 1,473
------- ---- ------- ------ ------ ------ ------ ------- -------
Total cost of revenue....... 66,840 530 15,521 1,176 6,437 356 3,312 16,358 9,694
------- ---- ------- ------ ------ ------ ------ ------- -------
Gross profit...................... 45,888 179 7,786 229 1,907 177 1,839 6,316 5,722
Operating expenses:
Selling, general and
administrative expenses........ 22,287 26 6,315 120 1,473 79 640 2,609 2,253
Depreciation and
amortization of
non-rental property and
equipment...................... 2,931 6 82 9 94 1 197 240 263
------- ---- ------- ------ ------ ------ ------ ------- -------
Total operating expenses.... 25,218 32 6,397 129 1,567 80 837 2,849 2,516
------- ---- ------- ------ ------ ------ ------ ------- -------
Operating income.................. 20,670 147 1,389 100 340 97 1,002 3,467 3,206
Other (income)/expense
Interest expense................. 9,391 18 506 4 738 31 381 2,600 2,089
Other
(income)/expense,
net............................ (538) -- (121) (13) -- -- -- (78) 205
------- ---- ------- ------ ------ ------ ------ ------- -------
Total other (income)/
expense.................... 8,853 18 385 (9) 738 31 381 2,522 2,294
------- ---- ------- ------ ------ ------ ------ ------- -------
Income before provision for income
taxes............................ 11,817 129 1,004 109 (398) 66 621 945 912
Provision for income taxes....... 4,963 54 421 46 (167) 28 261 397 383
------- ---- ------- ------ ------ ------ ------ ------- -------
Net income (loss)................. $ 6,854 $75 $ 583 $ 63 $ (231) $ 38 $ 360 $ 548 $ 529
======= ==== ======= ====== ====== ====== ====== ======= =======
Basic and diluted net income per
share............................ $ 0.23
=======
<CAPTION>
OTHER ACQUISITION PRO FORMA OFFERING
RELIABLE A-1 ACTION LOGAN ACQUISITIONS ADJUSTMENTS COMBINED ADJUSTMENTS
-------- ------- ------- ------- ------------ ----------- --------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Equipment rentals................ 6,423 $37,440 $ 5,626 $12,881 $39,095 $ (961)(1) $218,904 $ --
Sales of equipment, merchandise,
parts and supplies............. 1,200 7,306 5,464 18,048 13,978 -- 117,863
------ ------- ------- ------- ------- ------- -------- -------
Total revenue............... 7,623 44,746 11,090 30,929 53,073 (961) 336,767 --
Cost of revenue:
Cost of equipment rentals,
excluding depreciation......... 2,970 12,713 2,657 2,107 20,124 (1,980)(a) 79,237 --
Rental equipment (337)(l)
depreciation................... 993 13,762 598 3,253 8,686 (15,986)(b) 38,905 --
Sales of equipment, (68)(l)
merchandise, parts and supplies
sold........................... 421 1,958 4,690 13,488 9,195 (5)(1) 81,321 --
------ ------- ------- ------- ------- ------- -------- -------
Total cost of revenue....... 4,384 28,433 7,945 18,848 38,005 (18,376) 199,463 --
------ ------- ------- ------- ------- ------- -------- -------
Gross profit...................... 3,239 16,313 3,145 12,081 15,068 17,415 137,304 --
Operating expenses:
Selling, general and
administrative expenses........ 1,736 3,745 2,451 7,518 9,227 (3,406)(d) 57,121 --
Depreciation and (468)(l)
amortization of 516(e)
non-rental property and
equipment...................... 231 238 153 176 579 6,286 (f)(g 11,486 --
------ ------- ------- ------- ------- ------- -------- -------
Total operating expenses.... 1,967 3,983 2,604 7,694 9,806 2,928 68,607 --
------ ------- ------- ------- ------- ------- -------- -------
Operating income.................. 1,272 12,330 541 4,387 5,262 14,487 68,697 --
Other (income)/expense
Interest expense................. 288 789 2,394 1,912 2,716 14,312(h) 38,130 3,855(k)
Other (39)(l)
(income)/expense,
net............................ (17) (297) (5) -- 161 73(i) (630) --
------ ------- ------- ------- ------- ------- -------- -------
Total other (income)/
expense.................... 271 492 2,389 1,912 2,877 14,346 37,500 3,855
------ ------- ------- ------- ------- ------- -------- -------
Income before provision for income
taxes............................ 1,001 11,838 (1,848) 2,475 2,385 141 31,197 (3,855)
Provision for income taxes....... 420 4,735 -- 44 1,001 516(j) 13,102 (1,619)(j)
------ ------- ------- ------- ------- ------- -------- -------
Net income (loss)................. $ 581 $ 7,103 $(1,848) $ 2,431 $ 1,384 $ (375) $ 18,095 $(2,236)
====== ======= ======= ======= ======= ======= ======== =======
Basic and diluted net income per
share............................
<CAPTION>
PRO FORMA
AS ADJUSTED
-----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C>
Revenue:
Equipment rentals................ $218,904
Sales of equipment, merchandise,
parts and supplies............. 117,863
--------
Total revenue............... 336,767
Cost of revenue:
Cost of equipment rentals,
excluding depreciation......... 79,237
Rental equipment
depreciation................... 38,905
Sales of equipment,
merchandise, parts and supplies
sold........................... 81,321
--------
Total cost of revenue....... 199,463
--------
Gross profit...................... 137,304
Operating expenses:
Selling, general and
administrative expenses........ 57,121
Depreciation and
amortization of
non-rental property and
equipment...................... 11,486
--------
Total operating expenses.... 68,607
--------
Operating income.................. 68,697
Other (income)/expense
Interest expense................. 41,985
Other
(income)/expense,
net............................ (630)
--------
Total other (income)/
expense.................... 41,355
--------
Income before provision for income
taxes............................ 27,342
Provision for income taxes....... 11,483
--------
Net income (loss)................. $ 15,859
========
Basic and diluted net income per
share............................ $ 0.28
========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
PF-7
<PAGE> 65
NATIONSRENT, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. HISTORICAL FINANCIAL STATEMENTS
The historical financial data presented in these pro forma consolidated
financial statements represents the financial position of the Company and the
acquired businesses at September 30, 1998 and their results of operations for
the year ended December 31, 1997 and nine months ended September 30, 1998
(except that the financial data for Jobs included in the pro forma consolidated
statements of operations for the year ended December 31, 1997 consists of the
combined six months ended June 30, 1997 and December 31, 1997, the financial
data for J. Kelly included in the pro forma consolidated statements of
operations for the year ended December 31, 1997 is for the year ended March 31,
1998 and includes $1,546 in revenue also included in the pro forma consolidated
statements of operations for the nine months ended September 30, 1998, the
financial data for High Reach included in the pro forma consolidated statements
of operations for the year ended December 31, 1997 is for the year ended
September 30, 1997, the financial data for Acme Rental, Inc. included in the pro
forma consolidated statements of operations for the year ended December 31, 1997
consists of the combined three months ended March 31, 1997 and nine months ended
December 31, 1997, and the financial data for Central Alabama included in the
pro forma consolidated statements of operations for the year ended December 31,
1997 consists of the combined nine months ended September 30, 1997 and the three
months ended December 31, 1997).
2. ACQUISITIONS
During the year ended December 31, 1997 the Company completed five
acquisitions. Following year-end but prior to September 30, 1998, the Company
completed twenty-two acquisitions and subsequent to September 30, 1998, the
Company completed five acquisitions. Each of these was accounted for in the
unaudited pro forma consolidated financial statements using the purchase method
of accounting. Preliminary purchase accounting values for the acquired
businesses prior to September 30, 1998 have been recorded based on estimated
fair values of the assets and liabilities acquired. Final adjustments will be
recorded when final information as to fair values of the net assets acquired is
available. The purchase accounting adjustments for the acquisitions subsequent
to September 30, 1998 were based on the respective companies' September 30, 1998
balance sheets using estimates as to the fair values of assets and liabilities
acquired. As a result, final allocation could be different.
The following table presents the allocation of purchase price for the
acquisitions subsequent to September 30, 1998:
<TABLE>
<S> <C>
Purchase price.............................................. $265,827
Net assets acquired......................................... 46,108
Acquisition adjustments
Rental Equipment.......................................... 4,750
Inventories............................................... (1,031)
Deferred income taxes..................................... (1,451)
--------
Intangible assets recorded.................................. $217,451
========
</TABLE>
PF-8
<PAGE> 66
NATIONSRENT, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
3. PRO FORMA ADJUSTMENTS
<TABLE>
<S> <C>
BALANCE SHEET:
a. Represents the preliminary estimate of the adjustment to
fair market value.
b. To eliminate the assets not acquired in the Acquisitions.
c. Represents the excess purchase price over the estimated fair
value of the net assets acquired of $217,451, net of
historical goodwill and other intangibles of $1,831.
d. Represents borrowings for the Acquisitions of $123,630,
$31,100 and $74,168 funded by the Credit Facilities, through
the issuance of subordinated convertible notes and
subordinated notes to the sellers, respectively. Also
reflected are reductions for pre-acquisition debt not
assumed in the Acquisitions of $4,522 and the conversion to
equity of convertible notes issued in connection with the
A-1 acquisition (the "A-1 Convertible Notes") for $50,000.
e. Represents the estimated deferred income tax liability
related to the purchase accounting adjustments recorded for
the Acquisitions.
f. To eliminate the equity accounts reflected in the historical
financial statements of the Acquisitions.
g. Represents the elimination of the equity accounts of the
Acquisitions of $212, the issuance of Common Stock of $43
and $70 for acquisitions and the conversion of the A-1
Convertible Notes respectively.
h. Represents the elimination of the equity accounts of the
Acquisitions of $2,803 and additional paid-in capital
related to the issuance of Common Stock of $36,886 and
$49,931 for acquisitions and the conversion to equity of the
A-1 Convertible Notes.
i. Represents debt issuance costs related to the Private Debt
Offering.
j. Represents the Private Debt Offering of $175,000 and
reductions to the Credit Facilities and subordinated notes
using the estimated net proceeds of $168,750.
STATEMENTS OF OPERATIONS:
a. Adjustment to eliminate historical lease expense on rental
equipment resulting from the termination of certain leases
which occurred in connection with purchases of the
Acquisitions.
b. Adjustment to the historical rental equipment depreciation
recorded to conform to the Company's accounting policies.
Adjustment is based on the estimated fair value of rental
equipment acquired using estimated useful lives ranging from
2 to 10 years on the straight-line method with salvage
values ranging from zero to ten percent of cost.
c. Adjustment to conform the historical accounting for
inventory of the Acquisitions from the LIFO method to FIFO
method, where applicable.
d. Adjustment to reduce historical compensation and benefits of
certain former owners and executives of the Acquisitions to
amounts consistent with employment arrangements entered into
between the certain owners and executives and the Company,
as well as the elimination of certain private company
business expenses that will not be incurred by the Company.
e. Adjustment to historical facility lease expense to reflect
the increase in current lease payments in excess of
historical amounts.
f. Adjustment to historical property and equipment depreciation
recorded to conform to the Company's accounting policies.
Adjustment is based on the estimated fair value of property
and equipment acquired using estimated useful lives ranging
from 3 to 39 years on the straight-line method.
</TABLE>
PF-9
<PAGE> 67
NATIONSRENT, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
g. Adjustment to recognize the amortization of goodwill and
non-compete agreements using an estimated useful life of 40
and five years, respectively. Management believes that 40
years is a reasonable life for goodwill in light of the
characteristics of the equipment rental industry such as the
lack of dependence on technological change, the many years
that the industry has been in existence, the current trend
towards the outsourcing of equipment, the recent double
digit annual growth rate and the stable nature of the
customer base. In addition, the Company has focused on
acquiring well established companies that have been in
existence for many years.
h. Adjustment to record interest on borrowings under the Credit
Facilities and notes issued to former owners of the
Acquisitions, net of interest related to debt not assumed or
paid off at acquisition. The interest rate on the Credit
Facilities is determined using a base rate plus a spread
based on certain financial performance ratios. Based on
current market rates, an incremental borrowing rate of 8.1%
was used to determine interest expense. A change of
one-eighth of a percent would result in a $312 reduction or
increase in the pro forma adjustment to annual interest
expense.
i. To eliminate historical gains related to assets not
acquired.
j. To record a provision (benefit) for income taxes at an
expected effective rate of 42%.
k. To record interest expense and amortization of debt issuance
costs related to the Private Debt Offering.
l. Adjustment to eliminate operations of a division of one of
the acquired business not purchased.
</TABLE>
4. PRO FORMA EARNINGS PER SHARE
Pro forma diluted earnings per share is calculated based on the shares
outstanding at December 31, 1997 and September 30, 1998, as well as giving
effect to the Private Placement, the Initial Public Offering, the Acquisitions,
and the conversion to equity of the A-1 Convertible Notes as if these shares
were outstanding at the beginning of the respective periods. The shares used to
calculate pro forma earnings per share ("EPS") are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
<S> <C> <C>
Shares outstanding................................... 25,000 44,360
Shares issued in Private Placement................... 5,119 --
Shares issued in Initial Public Offering............. 13,000 --
A-1 Convertible Notes................................ 6,957 6,957
Acquisitions......................................... 5,553 4,312
------ ------
Shares used in basic EPS computation 55,629 55,629
Common Stock equivalents --(a) 177
Convertible Notes --(a) 9,099
------ ------
Shares used in diluted EPS computation............... 55,629 64,905
====== ======
Add back to net income for interest expense, net of
income taxes, for assumed conversion of convertible
notes.............................................. $ --(a) $2,375
====== ======
</TABLE>
- ---------------
(a) Excluded from computation as antidilutive.
PF-10
<PAGE> 68
NATIONSRENT, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
THE REGISTRANT
NATIONSRENT, INC.
Report of Independent Certified Public Accountants........ F-5
Consolidated Balance Sheet as of December 31, 1997........ F-6
Consolidated Statement of Income for the period from
inception (August 14, 1997) to December 31, 1997....... F-7
Consolidated Statement of Stockholders' Equity for the
period from inception (August 14, 1997) to December 31,
1997................................................... F-8
Consolidated Statement of Cash Flows for the period from
inception (August 14, 1997) to December 31, 1997....... F-9
Notes to Consolidated Financial Statements................ F-10
NATIONSRENT, INC. -- UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
Unaudited Consolidated Balance Sheet as of September 30,
1998................................................... F-20
Unaudited Consolidated Statements of Income for the period
from inception (August 14, 1997) to September 30, 1997
and for the nine months ended September 30, 1998....... F-21
Unaudited Consolidated Statements of Cash Flows for the
period from inception (August 14, 1997) to September
30, 1997 and for the nine months ended September 30,
1998................................................... F-22
Notes to Unaudited Consolidated Financial Statements...... F-23
THE PREDECESSOR COMPANY
GABRIEL TRAILER MANUFACTURING COMPANY, INC. ("SAM'S")
Report of Independent Certified Public Accountants........ F-28
Consolidated Balance Sheets as of March 31, 1997 and
August 31, 1997........................................ F-29
Consolidated Statements of Income for the years ended
March 31, 1996 and 1997 and the period from April 1,
1997 to August 31, 1997................................ F-30
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 1996 and 1997 and the period from
April 1, 1997 to August 31, 1997....................... F-31
Consolidated Statements of Cash Flows for the years ended
March 31, 1996 and 1997 and the period from April 1,
1997 to August 31, 1997................................ F-32
Notes to Consolidated Financial Statements................ F-33
COMPLETED ACQUISITIONS
R. AND R. RENTAL, INC.
Report of Independent Certified Public Accountants........ F-38
Balance Sheet as of December 10, 1997..................... F-39
Statement of Operations for the period from January 1,
1997 to December 10, 1997.............................. F-40
Statement of Stockholder's Equity for the period from
January 1, 1997 to December 10, 1997................... F-41
Statement of Cash Flows for the period from January 1,
1997 to December 10, 1997.............................. F-42
Notes to Financial Statements............................. F-43
C&E RENTAL AND SERVICE, INC.
Report of Independent Certified Public Accountants........ F-47
Balance Sheets as of December 31, 1996 and December 22,
1997................................................... F-48
</TABLE>
F-1
<PAGE> 69
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Statements of Income for the year ended December 31, 1996
and the period from January 1, 1997 to December 22,
1997................................................... F-49
Statements of Stockholder's Equity for the year ended
December 31, 1996 and the period from January 1, 1997
to December 22, 1997................................... F-50
Statements of Cash Flows for the year ended December 31,
1996 and the period from January 1, 1997 to December
22, 1997............................................... F-21
Notes to Financial Statements............................. F-52
TITAN RENTALS, INC.
Report of Independent Certified Public Accountants........ F-57
Balance Sheet as of December 30, 1997..................... F-58
Statement of Income for the period from January 1, 1997 to
December 30, 1997...................................... F-59
Statement of Stockholders' Equity for the period from
January 1, 1997 to December 30, 1997................... F-60
Statement of Cash Flows for the period from January 1,
1997 to December 30, 1997.............................. F-61
Notes to Financial Statements............................. F-62
THE BODE-FINN COMPANY
Report of Independent Certified Public Accountants........ F-67
Balance Sheets as of December 31, 1996 and 1997 and March
31, 1998 (unaudited)................................... F-68
Statements of Income for the years ended December 31,
1995, 1996 and 1997 and for the three month periods
ended March 31, 1997 and 1998 (unaudited).............. F-69
Statements of Stockholders' Equity for the years ended
December 31, 1995, 1996 and 1997 and for the three
month period ended March 31, 1998 (unaudited).......... F-70
Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997 and for the three month periods
ended March 31, 1997 and 1998 (unaudited).............. F-71
Notes to Financial Statements............................. F-72
RFL ENTERPRISES, INC.
Report of Independent Certified Public Accountants........ F-79
Balance Sheets as of December 31, 1997 and March 31, 1998
(unaudited)............................................ F-80
Statements of Income for the year ended December 31, 1997
and for the three month periods ended March 31, 1997
and 1998 (unaudited)................................... F-81
Statements of Stockholder's Equity for the year ended
December 31, 1997 and for the three month period ended
March 31, 1998 (unaudited)............................. F-82
Statements of Cash Flows for the year ended December 31,
1997 and for the three month periods ended March 31,
1997 and 1998 (unaudited).............................. F-83
Notes to Financial Statements............................. F-84
NAPLES RENT-ALL & SALES COMPANY, INC.
Report of Independent Certified Public Accountants........ F-88
Balance Sheets as of December 31, 1997 and March 31, 1998
(unaudited)............................................ F-89
Statements of Income for the year ended December 31, 1997
and for the three month periods ended March 31, 1997
and 1998 (unaudited)................................... F-90
Statements of Stockholder's Equity for the year ended
December 31, 1997 and for the three month period ended
March 31, 1998 (unaudited)............................. F-91
Statements of Cash Flows for the year ended December 31,
1997 and for the three month periods ended March 31,
1997 and 1998 (unaudited).............................. F-92
Notes to Financial Statements............................. F-93
</TABLE>
F-2
<PAGE> 70
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
RAYMOND EQUIPMENT COMPANY, INC. ("JOBS")
Report of Independent Certified Public Accountants........ F-98
Balance Sheets as of June 30, 1996 and 1997 and March 31,
1998 (unaudited)....................................... F-99
Statements of Income for the years ended June 30, 1996 and
1997 and for the nine month periods ended March 31,
1997 and 1998 (unaudited).............................. F-100
Statements of Stockholders' Equity for the years ended
June 30, 1996 and 1997 and for the nine month period
ended March 31, 1998 (unaudited)....................... F-101
Statements of Cash Flows for the years ended June 30, 1996
and 1997 and for the nine month periods ended March 31,
1997 and 1998 (unaudited).............................. F-102
Notes to Financial Statements............................. F-103
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS OF
GENERAL RENTAL, INC.
Report of Independent Certified Public Accountants........ F-108
Division Balance Sheets as of December 31, 1997 and June
30, 1998 (unaudited)................................... F-109
Statements of Division Operations for the year ended
December 31, 1997 and for the six month periods ended
June 30, 1997 and 1998 (unaudited)..................... F-110
Statements of Division Equity for the year ended December
31, 1997 and for the six month period ended June 30,
1998 (unaudited)....................................... F-111
Statements of Division Cash Flows for the year ended
December 31, 1997 and for the six month periods ended
June 30, 1997 and 1998 (unaudited)..................... F-112
Notes to Division Financial Statements.................... F-113
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
Report of Independent Certified Public Accountants........ F-119
Balance Sheets as of December 31, 1996 and 1997 and June
30, 1998 (unaudited)................................... F-120
Statements of Income for the years ended December 31,
1995, 1996 and 1997 and for the six month periods ended
June 30, 1997 and 1998 (unaudited)..................... F-121
Statements of Stockholder's Equity for the years ended
December 31, 1995, 1996 and 1997 and for the six month
period ended June 30, 1998 (unaudited)................. F-122
Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997 and for the six month periods ended
June 30, 1997 and 1998 (unaudited)..................... F-123
Notes to Financial Statements............................. F-124
REVCO EQUIPMENT RENTALS, INC.
Report of Independent Certified Public Accountants........ F-132
Balance Sheets as of December 31, 1997 and March 31, 1998
(unaudited)............................................ F-133
Statements of Income for the year ended December 31, 1997
and for the three month periods ended March 31, 1997
and 1998 (unaudited)................................... F-134
Statements of Stockholders' Equity for the year ended
December 31, 1997 and for the three month period ended
March 31, 1998 (unaudited)............................. F-135
Statements of Cash Flows for the year ended December 31,
1997 and for the three month periods ended March 31,
1997 and 1998 (unaudited).............................. F-136
Notes to Financial Statements............................. F-137
HIGH REACH COMPANY, INC. AND HIGH REACH LEASING COMPANY
Report of Independent Certified Public Accountants........ F-141
Combined Balance Sheets as of September 30, 1997 and June
30, 1998 (unaudited)................................... F-142
Combined Statements of Income for the year ended September
30, 1997 and for the nine months ended June 30, 1997
and 1998 (unaudited)................................... F-143
Combined Statements of Stockholder's Equity and Owner's
Capital for the year ended September 30, 1997 and for
the nine months ended June 30, 1998 (unaudited)........ F-144
</TABLE>
F-3
<PAGE> 71
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Combined Statements of Cash Flows for the year ended
September 30, 1997 and for the nine month period ended
June 30, 1997 and 1998 (unaudited)..................... F-145
Notes to Combined Financial Statements.................... F-146
RELIABLE RENTAL & SUPPLY CO, INC.
Report of Independent Certified Public Accountants........ F-154
Balance Sheets as of December 31, 1997 and June 30, 1998
(unaudited)............................................ F-155
Statements of Income for the year ended December 31, 1997
and for the six month period ended June 30, 1997 and
1998 (unaudited)....................................... F-156
Statements of Stockholders' Equity for the year ended
December 31, 1997 and for the six months ended June 30,
1998 (unaudited)....................................... F-157
Statements of Cash Flows for the year ended December 31,
1997 and for the six month period ended June 30, 1997
and 1998 (unaudited)................................... F-158
Notes to Financial Statements............................. F-159
RAY L. O'NEAL, INC. AND ARENCO, LLC
Report of Independent Certified Public Accountants........ F-164
Combined Balance Sheets as of December 31, 1996 and 1997
and September 30, 1998 (unaudited)..................... F-165
Combined Statements of Income for the years ended December
31, 1995, 1996 and 1997 and for the nine month periods
ended September 30, 1997 and 1998 (unaudited).......... F-166
Combined Statements of Stockholders' Equity for the years
ended December 31, 1995, 1996 and 1997 and for the nine
month period ended September 30, 1998 (unaudited)...... F-167
Combined Statements of Cash Flows for the years ended
December 31, 1995, 1996, and 1997 and for the nine
month periods ended September 30, 1997 and 1998
(unaudited)............................................ F-168
Notes to Combined Financial Statements.................... F-170
ACTION EQUIPMENT COMPANY, INC. AND ACTION SUPPLY CO., INC.
Report of Independent Public Accountants.................. F-176
Combined Balance Sheets as of December 31, 1997 and
September 30, 1998 (unaudited)......................... F-177
Combined Statements of Operations for the year ended
December 31, 1997 and for the nine months ended
September 30, 1997 and 1998 (unaudited)................ F-178
Combined Statements of Stockholders' Deficit for the year
ended December 31, 1997 and for the nine months ended
September 30, 1998 (unaudited)......................... F-179
Combined Statements of Cash Flows for the year ended
December 31, 1997 and for the nine months ended
September 30, 1997 and 1998 (unaudited)................ F-180
Notes to Combined Financial Statements.................... F-181
LOGAN EQUIPMENT CORPORATION
Report of Independent Auditors............................ F-189
Balance Sheets as of December 31, 1997 and September 30,
1998 (unaudited)....................................... F-190
Statements of Income for the year ended December 31, 1997
and for the nine months ended September 30, 1997 and
1998 (unaudited)....................................... F-191
Statements of Changes in Stockholders' Equity for the year
ended December 31, 1997 and for the nine months ended
September 30, 1998 (unaudited)......................... F-192
Statements of Cash Flows for the year ended December 31,
1997 and for the nine month period ended September 30,
1997 and 1998 (unaudited).............................. F-193
Notes to Consolidated Financial Statements................ F-194
</TABLE>
F-4
<PAGE> 72
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To NationsRent, Inc.:
We have audited the accompanying consolidated balance sheet of NationsRent,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for the period from August 14, 1997 (inception) to 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of NationsRent,
Inc. and subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for the period from August 14, 1997 (inception)
to December 31, 1997 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
June 3, 1998 (except with respect to
the matters referred to in the
third and fifth paragraphs of Note 10,
as to which the date is July 15, 1998).
F-5
<PAGE> 73
NATIONSRENT, INC.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents................................... $ 1,493
Accounts receivable, net of allowance for doubtful accounts
of $587................................................... 5,008
Inventories................................................. 1,840
Prepaid expenses and other assets........................... 755
Rental equipment, net....................................... 30,619
Property and equipment, net................................. 2,334
Intangible assets related to acquired businesses, net....... 37,108
-------
Total Assets...................................... $79,157
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.......................................... $ 2,303
Accrued repair and maintenance expenses................... 950
Accrued compensation and related taxes.................... 328
Accrued expenses and other liabilities.................... 2,579
Debt...................................................... 42,928
Income taxes payable...................................... 1,523
Deferred income taxes..................................... 2,545
-------
Total liabilities................................. 53,156
-------
Commitments and Contingencies (Notes 9 and 10)
Stockholders' Equity:
Preferred stock -- $0.01 par value, 5,000,000 shares
authorized, no shares issued and outstanding........... --
Common stock -- $0.01 par value, 100,000,000 shares
authorized, 25,000,000 shares issued and outstanding... 250
Additional paid-in capital................................ 24,750
Retained earnings......................................... 1,001
-------
Total stockholders' equity........................ 26,001
-------
Total Liabilities and Stockholders' Equity........ $79,157
=======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-6
<PAGE> 74
NATIONSRENT, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD FROM INCEPTION (AUGUST 14, 1997) THROUGH DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C>
Revenue:
Equipment rentals......................................... $ 7,410
Sales of equipment, parts and supplies.................... 1,895
-------
Total revenue..................................... 9,305
-------
Cost of revenue:
Cost of equipment rentals, excluding depreciation......... 2,196
Rental equipment depreciation............................. 1,526
Cost of sales of equipment, parts and supplies............ 1,691
-------
Total cost of revenue............................. 5,413
-------
Gross profit................................................ 3,892
Operating expenses:
Selling, general and administrative expenses.............. 1,081
Non-rental equipment depreciation and amortization........ 284
-------
Operating income............................................ 2,527
-------
Other (income)/expense:
Interest expense.......................................... 760
Interest income........................................... (29)
Other, net................................................ 29
-------
760
-------
Income before provision for income taxes.................... 1,767
Provision for income taxes................................ 766
-------
Net income.................................................. $ 1,001
=======
Net income per share -- basic and diluted................... $ 0.04
=======
Weighted average common shares outstanding:
Basic..................................................... 25,000
=======
Diluted................................................... 25,007
=======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-7
<PAGE> 75
NATIONSRENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL
NUMBER OF PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ------ ---------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, August 14, 1997 (Inception)............ -- $ -- $ -- $ -- $ --
Issuance of common stock (after giving effect
to the stock split discussed in Note 1).... 25,000,000 250 24,750 -- 25,000
Net income.................................... -- -- -- 1,001 1,001
---------- ---- ------- ------ -------
BALANCE, December 31, 1997...................... 25,000,000 $250 $24,750 $1,001 $26,001
========== ==== ======= ====== =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-8
<PAGE> 76
NATIONSRENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 1,001
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.......................... 1,810
Gain on sale of rental equipment....................... (59)
Deferred income tax provision.......................... 357
Changes in operating assets and liabilities:
Accounts receivable............................... 334
Inventories....................................... 83
Prepaid expenses and other assets................. (296)
Accounts payable.................................. 776
Accrued expenses and other liabilities............ (428)
Income taxes payable.............................. 117
--------
Net cash provided by operating activities......... 3,695
--------
CASH FLOWS FROM INVESTING ACTIVITIES, NET OF ACQUISITIONS:
Acquisitions of businesses, net of cash acquired....... (34,137)
Purchases of rental equipment.......................... (2,461)
Purchases of property and equipment.................... (963)
Proceeds from sale of rental equipment................. 1,159
Decrease in notes receivable affiliates................ 1,358
--------
Net cash used in investing activities............. (35,044)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock................. 25,000
Proceeds from debt..................................... 21,917
Repayments of debt..................................... (14,075)
--------
Net cash provided by financing activities......... 32,842
--------
Net increase in cash and cash equivalents................... 1,493
Cash and cash equivalents, beginning of period.............. --
--------
Cash and cash equivalents, end of period.................... $ 1,493
========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................. $ 621
========
Cash paid for income taxes............................. $ 390
========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
The Company acquired the net assets and assumed
certain liabilities of certain businesses as
follows:
Total assets, net of cash acquired................ $ 78,629
Total liabilities assumed......................... (27,311)
Amounts paid through the issuance of debt......... (17,181)
--------
Net cash paid..................................... $ 34,137
========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-9
<PAGE> 77
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ACCOUNTING POLICIES
Basis of presentation
NationsRent, Inc. (the "Company") was incorporated in the state of Delaware
on August 14, 1997 for the purpose of creating a nationally branded network of
equipment rental locations offering a broad selection of equipment primarily to
the construction and industrial segments of the equipment rental industry in the
United States. The Company also sells used and new equipment, spare parts,
merchandise and supplies, and provides maintenance and repair services.
The nature of the Company's business is such that short-term obligations
are typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the accompanying consolidated balance sheets
are presented on an unclassified basis.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. The Company had no
cash equivalents at December 31, 1997.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Inventories
Inventories, which consist of equipment, tools, parts and related
merchandise supply items, are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method. Provision is made to
reduce excess or obsolete inventories to their estimated net realizable value.
Rental equipment
Rental equipment purchased new by the Company is recorded at cost and
depreciated over the estimated useful life of the equipment using the
straight-line method. Rental equipment that is obtained through the acquisition
of a business is valued at its estimated fair market value at the time of
acquisition. The range of useful lives estimated by management for rental
equipment is two to ten years. Rental equipment is depreciated to a salvage
value of zero to ten percent of cost. Rental equipment having a cost of $500 or
less is charged to expense at the time of purchase. Accumulated depreciation on
rental equipment was $1,526,000 at December 31, 1997. Ordinary maintenance and
repair costs are charged to operations as incurred.
F-10
<PAGE> 78
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and equipment
Property and equipment purchased new by the Company is recorded at cost.
Property and equipment obtained through the acquisition of a business is
recorded at the estimated fair market value at the time of acquisition.
Depreciation and amortization are recorded on a straight-line basis over the
following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements........................ 10-39 years, not to exceed lease term
Furniture, fixtures and office equipment.......... 3-7 years
Vehicles, delivery and shop equipment............. 5-10 years
</TABLE>
Ordinary maintenance and repair costs are charged to expense as incurred.
Intangible assets
Intangible assets are recorded at cost and are amortized using the
straight-line method over their estimated useful lives of five years for
covenants not to compete and 40 years for goodwill. The accumulated amortization
of intangible assets, including goodwill, relating to acquired businesses, was
approximately $180,000 at December 31, 1997.
Long-lived assets
The carrying value of long-lived assets, including goodwill, is reviewed if
the facts and circumstances suggest that it may be impaired. If this review
indicates that long-lived assets will not be recoverable, as determined based on
the undiscounted cash flows of the entity acquired over the remaining
amortization period, the Company's carrying value of the long-lived assets will
be reduced by the amount by which carrying value exceeds fair value.
Fair value of financial instruments
The carrying amounts reported in the accompanying consolidated balance
sheets for accounts receivable, accounts payable and accrued expenses and other
liabilities approximate fair value due to the short-term nature of these
accounts. The fair value of debt is determined using current interest rates for
similar instruments at December 31, 1997 and approximates the carrying value of
these notes due to the fact that the underlying instruments include provisions
to adjust note balances and interest rates to approximate fair market value.
Revenue recognition
Rental revenue is recognized as earned during the rental agreement period.
Equipment rentals in the consolidated statements of operations includes revenue
earned on equipment rentals, rental equipment delivery and pick-up fees and fuel
sales. Revenue from the sale of used equipment, parts and supplies and retail
merchandise is recognized at the time of delivery to, or pick-up by, the
customer. When rental equipment is sold, the related cost and accumulated
depreciation are removed from the respective accounts. Proceeds from the sale
and the related book value of the equipment sold are reported as revenue from
rental equipment sales and cost of rental equipment sales, respectively, in the
statements of operations.
F-11
<PAGE> 79
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Advertising
Advertising costs are charged to expense as incurred. For the period from
August 14, 1997 (inception) to December 31, 1997, the Company incurred $171,000
of advertising costs.
Income taxes
The Company accounts for income taxes under the liability method pursuant
to Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting for
Income Taxes. Under the liability method, deferred tax assets and liabilities
are determined based on differences between the financial reporting and tax
bases of assets and liabilities using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse. The Company and its
wholly owned subsidiaries file a consolidated federal income tax return.
Computation of earnings per share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, Earnings Per Share. SFAS No. 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Under SFAS No. 128, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Earnings per share
amounts for all periods have been presented to conform with SFAS No. 128 and
Staff Accounting Bulletin No. 98 (issued by the Securities and Exchange
Commission in February 1998), which amends the determination of and accounting
for "cheap stock" in periods prior to an initial public offering. The effect of
dilutive securities is computed using the treasury stock method.
Stock split
During June 1998, the Company effected a 2,500-for-one split of its common
stock. The accompanying consolidated financial statements reflect the stock
split on a retroactive basis from the beginning of the periods presented.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of diverse customers make
up the Company's customer base. No single customer represents greater than 10%
of total accounts receivable. The Company controls credit risk through credit
approvals, credit limits, and monitoring procedures.
Stock based compensation
The Company accounts for stock compensation arrangements in accordance with
APB Opinion No. 25, "Accounting for Stock Issued to Employees," ("APB No. 25")
and accordingly, recognizes no compensation expense for the stock compensation
arrangements since the stock options are granted at exercise prices at or
greater than the fair value of the shares at the date of grant.
F-12
<PAGE> 80
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Seasonality
The Company's initial acquisitions have been in the Midwest region of the
United States. The Company's revenue and income are dependent upon the activity
in the construction industry in the markets served by the Company. Construction
activity is dependent upon weather and the traditional seasons for construction
work. Because of this variability in demand, the Company's quarterly revenue may
fluctuate, and revenue for the first quarter of each year can be expected to be
lower than the remaining quarters. Although the Company believes that the
historical trend in quarterly revenue for the second, third and fourth quarters
of each year is generally higher than the first quarter, there can be no
assurance that this will occur in future periods. Accordingly, quarterly or
other interim results should not be considered indicative of results to be
expected for any quarter or for the full year.
Impact of recently issued accounting standards
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company is required to adopt the provisions of these
Statements in fiscal year 1998. SFAS No. 130 establishes standards for reporting
and display of comprehensive income and its components in a primary financial
statement. The Company is currently evaluating the reporting formats recommended
under this Statement. SFAS No. 131 establishes a new method by which companies
will report operating segment information. This method requires disclosure of
information which is based on the manner in which management organizes the
segments within a company for making operating decisions and assessing
performance. The Company continues to evaluate the provisions of SFAS No. 131
and, upon adoption, the Company may report operating segments. In April 1998,
the American Institute of Certified Public Accountants issued Statement of
Position No. 98-5 ("SOP 98-5"). SOP 98-5 requires that all non-governmental
entities expense costs of start-up activities, including pre-operating,
pre-opening and organization activities, as those costs are incurred. In the
opinion of management, the adoption of this statement will have no impact on its
statement of operations.
2. ACQUISITIONS
The Company is building a nationally branded network of equipment rental
locations. Pursuant to this strategy, the Company has made five acquisitions
during 1997. Consideration for these acquisitions has consisted of cash and debt
payable to former owners. The acquisitions have been accounted for using the
purchase method and, accordingly, the acquired assets and assumed liabilities,
including goodwill, have been recorded at their estimated fair values as of the
date of acquisition. Purchase accounting values for all acquisitions have been
assigned on a preliminary basis, and are subject to adjustment when final
information as to the fair values of the nets assets acquired is available. The
operations of the acquired businesses have been included in the Company's
consolidated statement of income since the date of each respective acquisition.
F-13
<PAGE> 81
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth businesses acquired during 1997 and the
consideration paid:
<TABLE>
<CAPTION>
TOTAL
NAME OF BUSINESS DATE OF ACQUISITION CONSIDERATION
- ---------------- ------------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Sam's Equipment Rental, Inc......................... August 31, 1997 $23,431
Ashland Rental and Sales, Inc. ..................... November 18, 1997 2,221
R. and R. Rental, Inc. ............................. December 10, 1997 8,000
C & E Rental and Service, Inc. ..................... December 23, 1997 12,250
Titan Rentals, Inc. ................................ December 31, 1997 5,900
-------
Total..................................... $51,802
=======
</TABLE>
The following table sets forth the estimated fair value of the assets
acquired and liabilities assumed for the above acquisitions (in thousands):
<TABLE>
<S> <C>
Assets, including cash...................................... $41,828
Goodwill.................................................... 36,686
Other intangibles........................................... 599
Liabilities................................................. 27,311
</TABLE>
The following table sets forth the unaudited pro forma consolidated results
of operations for the year ended December 31, 1997 giving effect to the above
acquisitions as if such acquisitions had occurred on January 1, 1997 (in
thousands, except per share data):
<TABLE>
<S> <C>
Revenue..................................................... $42,085
Net income.................................................. 2,816
Basic and diluted earnings per share........................ $ 0.11
</TABLE>
The above unaudited pro forma consolidated results are based upon certain
assumptions and estimates which the Company believes are reasonable. The
unaudited pro forma consolidated results of operations may not be indicative of
the operating results that actually would have been reported had the Company
been in existence and had the acquisitions been consummated on January 1, 1997,
nor are they necessarily indicative of results which will be reported in the
future.
3. PROPERTY AND EQUIPMENT
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
(IN THOUSANDS)
<S> <C>
Buildings and improvements.................................. $ 96
Furniture, fixtures and office equipment.................... 514
Vehicles, delivery and shop equipment....................... 906
Construction in process..................................... 923
------
2,439
Less -- accumulated depreciation and amortization........... (105)
------
Property and equipment, net............................... $2,334
======
</TABLE>
F-14
<PAGE> 82
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997
--------------
(IN THOUSANDS)
<S> <C>
Subordinated promissory notes, bearing interest at 8.5%,
interest payable quarterly and maturities through December
2000...................................................... $ 6,091
Subordinated convertible notes, bearing interest at 6.5%,
interest payable quarterly and maturities through December
2002...................................................... 11,090
Mortgage payable, bearing interest at 9.5%, payable in
monthly installments through July 2007.................... 112
Note payable, with interest at 8.25%, payable in monthly
installments through August 1998.......................... 33
Equipment notes, bearing interest at 6.0% to 9.25%, payable
in various monthly installments through June 2000, secured
by equipment.............................................. 5,144
Notes payable to financial institutions..................... 20,458
-------
Total debt........................................ $42,928
=======
</TABLE>
The subordinated promissory notes and the subordinated convertible notes
were issued in connection with the acquisitions of certain businesses. The
convertible notes have features that allow the holder to convert the principal,
or portion thereof, of the note into common stock in the event the Company
completes an initial public offering ("IPO") of its common stock. Such principal
would be converted into common stock at the IPO price. Certain convertible notes
have provisions that prospectively increase the interest rates to 8.5% if the
Company does not complete an IPO of its common stock before March 1999.
Notes payable to financial institutions at December 31, 1997 consist of
amounts due under: (i) a $12,500,000 interest bearing term loan, with interest
equal to the prime rate less 0.25%, payable in equal monthly installments of
$20,833 and a final payment of $12,000,000 on September 22, 1999, (ii) a
$6,000,000 interest bearing term loan, with interest equal to the prime rate
less 0.25%, payable in equal monthly installments of $83,333 and a final payment
of $5,500,000 on June 18, 1998 and (iii) a $2,000,000 revolving credit
agreement, bearing interest equal to the prime rate less 0.25%, with the
principal due on September 22, 1999. Each of the above notes imposes, among
other covenants, an earnings to fixed charges covenant, a minimum net worth
covenant and a liabilities to worth covenant, as defined. The notes also provide
the financial institution with a security interest in all of the assets of the
Company.
In March 1998, the Company entered into a $165,000,000 credit facility, as
amended, with a syndicate of lenders to provide for cash borrowings and letters
of credit. The credit facility has a three year term scheduled to expire on May
15, 2001. The credit facility can be used to complete permitted acquisitions,
make capital expenditures, enter into standby letters of credit, or for working
capital and other general corporate purposes. Cash borrowings bear interest at
either the BankBoston base rate plus a percentage ranging from 0.00% to 0.50%
or, at the Company's option, the Eurodollar market rate plus a percentage
ranging from 1.50% to 2.75%. The percentage over the BankBoston base rate or the
Eurodollar market rate is based on the Company's financial performance as
measured by a total funded debt ratio (as defined in the credit facility). The
credit facility provides the banks with a security interest in substantially all
of the assets of the Company. The credit facility also imposes,
F-15
<PAGE> 83
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
among other covenants, a tangible assets to senior debt covenant, a restriction
on all of the Company's retained earnings including the declaration and payment
of cash dividends, consent requirements on certain acquisitions and a
restriction on the ratio of total funded debt to earnings before interest,
income taxes, deprecation and amortization. The proceeds from the credit
facility were used to repay substantially all of the notes payable to financial
institutions that were outstanding at December 31, 1997.
The aggregate maturity of debt at December 31, 1997 for the five years
ending December 31 is: 1998, $13,892,000; 1999, $17,039,000; 2000, $9,521,000;
2001, $184,000; 2002, $2,197,000; 2003 and thereafter, $95,000.
5. STOCKHOLDERS' EQUITY
Preferred stock
The Company has authorized 5,000,000 shares of $0.01 par value preferred
stock. No shares of preferred stock have been issued at December 31, 1997. The
rights and preferences of the preferred stock will be fixed by the Board of
Directors at the time such shares are issued. The preferred stock, when issued,
will have dividend and liquidation preferences over those of the common
stockholders.
Stock options
During 1997, the Company granted to certain employees options to purchase
an aggregate of 282,527 shares of common stock, at exercise prices ranging from
$2.96 to $4.40 per share. At December 31, 1997 all options granted during the
year were outstanding and had a weighted average remaining contractual life of
9.93 years. The weighted average exercise price per share for these stock
options was $3.54. The exercise price per share was based on the estimated fair
value of the Company's common stock at the time of the grant. As such, no
compensation cost will be recognized for these stock options. The above options
become exercisable in equal 25% increments commencing on the first anniversary
of date of the grant, and expire 10 years from the date of grant. Accordingly,
no options were exercisable at December 31, 1997.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, which also requires that the information be determined
as if the Company had accounted for its employee stock options granted
subsequent to December 31, 1994 under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model. The following assumptions were used in the
valuation: average expected life 7 years, expected volatility 0.75, risk free
interest rate 6% and no dividends. The weighted average fair value of options
granted during the year was $2.86.
For purposes of pro forma disclosures of net income and earnings per share,
the estimated fair value of the options is amortized to expense over the
options' vesting period, resulting in pro forma compensation expense of
approximately $23,000 for the period from August 14, 1997 (inception) to
December 31, 1997. The Company's pro forma net income for the period from August
14, 1997 (inception) to December 31, 1997 was $978,000 with pro forma diluted
and basic net income per share of $0.04.
F-16
<PAGE> 84
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The components of the provision for federal and state income taxes for the
period from August 14, 1997 (inception) to December 31, 1997 are as follows (in
thousands):
<TABLE>
<S> <C>
Current..................................................... $409
Deferred.................................................... 357
----
$766
====
Federal..................................................... $602
State....................................................... 164
----
$766
====
</TABLE>
A reconciliation of the difference between the expected provision for
income taxes using the statutory federal income tax rate of 34% and the
Company's actual provision for the period from August 14, 1997 (inception) to
December 31, 1997 is as follows:
<TABLE>
<S> <C>
Federal statutory income tax rate........................... 34.0%
Add:
Non-deductible goodwill amortization...................... 3.0
State income taxes, net of federal tax benefit............ 6.1
Other, net................................................ 0.3
----
43.4%
====
</TABLE>
The components of deferred income tax liabilities (assets) at December 31,
1997 are as follows (in thousands):
<TABLE>
<S> <C>
Depreciation and amortization differences................... $2,766
Accrued liabilities not deductible until paid............... (761)
Bad debt provision not currently deductible................. (233)
Change from cash to accrual basis for income tax reporting
purposes.................................................. 773
------
Net deferred income tax liabilities....................... $2,545
======
</TABLE>
F-17
<PAGE> 85
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. 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>
PERIOD FROM
AUGUST 14, 1997
(INCEPTION) TO
DECEMBER 31,
1997
---------------
<S> <C>
Numerator:
Net income................................................ $ 1,001
=======
Denominator:
Denominator for basic earnings per
share -- weighted-average shares....................... 25,000
Effect of dilutive securities:
Employee stock options................................. 7
-------
Denominator for diluted earnings per share -- adjusted
weighted-average shares................................ 25,007
=======
Basic earnings per share.................................... $ 0.04
=======
Diluted earnings per share.................................. $ 0.04
=======
</TABLE>
Options to purchase 113,752 shares of common stock at $4.40 per share were
outstanding at December 31, 1997 but were not included in the computation of
diluted earnings per share because the options' exercise price was greater than
the average fair value of the common shares and, therefore, the effect would be
antidilutive.
See Note 10 for a description of certain transactions occurring in 1998
that would have significantly changed the number of common shares outstanding at
December 31, 1997 if these transactions had occurred before December 31, 1997.
8. RELATED PARTY TRANSACTIONS
The Company rents certain buildings from a related party. Such rental
expense totaled $160,000 for the period from August 14, 1997 (inception) to
December 31, 1997. One of the principal owners of the related party is an
officer and director of the Company.
9. COMMITMENTS AND CONTINGENCIES
Operating leases
The Company leases rental equipment, real estate and certain office
equipment under operating leases. Certain real estate leases require the Company
to pay maintenance, insurance, taxes and certain other expenses in addition to
the stated rentals. Future minimum lease payments under noncancelable operating
leases, including the related party lease discussed above, at December 31, 1997
total $1,108,000, $867,000, $555,000, $518,000 and $398,000 for the years ending
December 31, 1998, 1999, 2000, 2001 and 2002, respectively. There are no
payments under noncancelable operating leases subsequent to the year ending
December 31, 2002. Rent expense under noncancelable operating leases for the
period from August 14, 1997 (inception) to December 31, 1997 was $410,000,
including the related party lease discussed above.
F-18
<PAGE> 86
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Legal matters
The Company is subject to claims and lawsuits in the ordinary course of its
business. In the opinion of management, the Company has either adequate legal
defense, indemnification for such matters from previous owners or is adequately
covered by insurance. If not insured, such matters will not, in the aggregate,
have a material adverse impact upon the Company's consolidated financial
position, results of future operations or cash flows.
Environmental matters
The Company and its operations are subject to various laws and related
regulations governing environmental matters. Under such laws, an owner or lessee
of real estate may be liable for the costs of removal or remediation of certain
hazardous or toxic substances located on or in, or emanating from, such
property, as well as investigation of property damage. As part of the Company's
acquisition due diligence, the Company performs extensive environmental
analysis. The remediation has typically been the responsibility of the prior
owner and is addressed prior to closing. The Company does not believe there are
currently any environmental liabilities which should be recorded or disclosed in
its financial statements. The Company believes the possibility is remote that
its compliance with various laws and regulations relating to the protection of
the environment will have a material effect on its capital expenditures, future
earnings or financial position.
10. SUBSEQUENT EVENTS
In June 1998, the founding stockholders of the Company made an additional
capital contribution of $17,400,000. Also, in June 1998, the Company sold an
aggregate of 5,118,694 shares of common stock in a private placement for
aggregate proceeds of $27,600,000. Investors in the private placement include
Company employees and associates of the founding stockholders of the Company.
In May 1998, the Company received an unsecured subordinated loan in the
amount of $17,400,000 (the "Huizenga Note") from Huizenga Investments Limited
Partnership, an entity controlled by a current director and stockholder of the
Company. The loan accrued interest at the prevailing prime rate which was
payable quarterly. The loan had a maturity date of January 19, 2001. The loan
was repaid, without any prepayment penalty, in its entirety on June 3, 1998
using the proceeds from the aforementioned additional capital contribution.
Through July 15, 1998, the Company has completed eleven acquisitions of
rental equipment businesses since December 31, 1997 for aggregate consideration
of $170,875,000. Such consideration consisted of $131,566,000 of cash,
$39,309,000 of subordinated convertible debt and warrants to purchase
approximately $800,000 of the Company's common stock at the IPO price. The cash
portion of the consideration was funded through borrowings under the credit
facility and the Huizenga Note. Each of the acquisitions has been accounted for
using the purchase method.
Subsequent to December 31, 1997, through April 20, 1998, the Company
granted to certain employees options to purchase an aggregate of 805,044 shares
of common stock, at exercise prices ranging from $4.40 to $6.69 per share. The
weighted average exercise price per share for these stock options was $5.95. The
exercise prices per share were based on the estimated fair value of the
Company's common stock at the time of the grants. As such, no compensation cost
will be recognized for these stock options.
In July 1998, the Company amended its credit facility to increase the limit
for cash borrowings and letters of credit from $165,000,000 to $265,000,000.
F-19
<PAGE> 87
NATIONSRENT, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 9,231 $ 1,493
Accounts receivable, net of allowance for doubtful accounts
of $2,742 and $587 at September 30, 1998 and December 31,
1997, respectively........................................ 48,115 5,008
Inventories................................................. 12,406 1,840
Prepaid expenses and other assets........................... 11,424 755
Rental equipment, net....................................... 316,824 30,619
Property and equipment, net................................. 19,416 2,334
Intangible assets related to acquired businesses, net....... 245,434 37,108
-------- -------
Total Assets...................................... $662,850 $79,157
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.......................................... $ 44,117 $ 2,303
Accrued repair and maintenance expenses................... 4,681 950
Accrued compensation and related taxes.................... 3,520 328
Accrued expenses and other liabilities.................... 23,852 2,579
Debt...................................................... 389,841 42,928
Income taxes payable...................................... 638 1,523
Deferred income taxes..................................... 7,442 2,545
-------- -------
Total liabilities................................. 474,091 53,156
-------- -------
Commitments and Contingencies (Note 7)
Stockholders' Equity:
Preferred stock -- $0.01 par value, 5,000,000 shares
authorized, no shares issued and outstanding........... -- --
Common stock -- $0.01 par value, 250,000,000 shares
authorized, 44,360,334 shares and 25,000,000 shares
issued and outstanding at September 30, 1998 and
December 31, 1997, respectively........................ 444 250
Additional paid-in capital................................ 180,460 24,750
Retained earnings......................................... 7,855 1,001
-------- -------
Total stockholders' equity........................ 188,759 26,001
-------- -------
Total Liabilities and Stockholders' Equity........ $662,850 $79,157
======== =======
</TABLE>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these consolidated financial statements.
F-20
<PAGE> 88
NATIONSRENT, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
FROM
AUGUST 14, 1997
NINE MONTHS (INCEPTION)
ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
------------- ---------------
<S> <C> <C>
Revenue:
Equipment rentals......................................... $73,644 $ 2,643
Sales of equipment, parts and supplies.................... 39,084 198
------- -------
Total revenue..................................... 112,728 2,841
------- -------
Cost of revenue:
Cost of equipment rentals, excluding depreciation......... 25,195 577
Rental equipment depreciation............................. 13,555 326
Cost of sales of equipment, parts and supplies............ 28,090 78
------- -------
Total cost of revenue............................. 66,840 981
------- -------
Gross profit................................................ 45,888 1,860
Operating expenses:
Selling, general and administrative expenses.............. 22,287 286
Non-rental equipment depreciation and amortization........ 2,931 64
------- -------
Operating income............................................ 20,670 1,510
------- -------
Other (income)/expense:
Interest expense.......................................... 9,391 104
Interest income........................................... (143) (12)
Other, net................................................ (395) (2)
------- -------
8,853 90
------- -------
Income before provision for income taxes.................... 11,817 1,420
Provision for income taxes................................ 4,963 614
------- -------
Net income.................................................. $ 6,854 $ 806
======= =======
Net income per share:
Basic..................................................... $ 0.23 $ 0.03
======= =======
Diluted................................................... $ 0.23 $ 0.03
======= =======
Weighted average common shares outstanding:
Basic..................................................... 29,894 25,000
======= =======
Diluted................................................... 33,501 25,000
======= =======
</TABLE>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these consolidated financial statements.
F-21
<PAGE> 89
NATIONSRENT, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
FROM
NINE MONTHS AUGUST 14, 1997
ENDED (INCEPTION)
SEPTEMBER 30, THROUGH
1998 SEPTEMBER 30, 1997
------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 6,854 $ 806
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 16,742 390
Gain on sale of rental equipment.......................... (2,910) (14)
Deferred income tax provision............................. 3,580 382
Changes in operating assets and liabilities:
Accounts receivable..................................... (14,175) (662)
Inventories............................................. 917 (40)
Prepaid expenses and other assets....................... (3,666) 53
Accounts payable........................................ 32,588 496
Accrued expenses and other liabilities.................. 270 (63)
Income taxes payable.................................... (903) 231
--------- --------
Net cash provided by operating activities............. 39,297 1,579
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired.......... (207,967) (11,900)
Purchases of rental equipment............................. (76,816) (250)
Purchases of property and equipment....................... (6,004) (2)
Decreases in notes receivable affiliates.................. -- 1,358
Proceeds from sale of rental equipment.................... 12,808 71
--------- --------
Net cash used in investing activities................. (277,979) (10,723)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 123,277 15,000
Capital contribution...................................... 23,400 --
Proceeds from debt........................................ 560,173 1,547
Repayments of debt........................................ (456,885) (994)
Debt issuance costs....................................... (3,545) --
--------- --------
Net cash provided by financing activities............. 246,420 15,553
--------- --------
Net increase in cash and cash equivalents................... 7,738 6,409
Cash and cash equivalents, beginning of period.............. 1,493 --
--------- --------
Cash and cash equivalents, end of period.................... $ 9,231 $ 6,409
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 7,416 $ 155
========= ========
Cash paid for income taxes................................ $ 1,791 $ 98
========= ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
The Company acquired the net assets and assumed certain
liabilities of certain businesses as follows:
Total assets, net of cash acquired...................... $ 497,008 $ 47,804
Total liabilities assumed............................... (229,760) (24,123)
Amount paid with common stock and warrants.............. (9,227) --
Amount paid through the issuance of debt and future
payments.............................................. (50,054) (11,781)
--------- --------
Net cash paid......................................... $ 207,967 $ 11,900
========= ========
</TABLE>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these consolidated financial statements.
F-22
<PAGE> 90
NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have
been prepared by NationsRent, Inc. (the "Company") and reflect all adjustments
of a normal recurring nature which are, in the opinion of management, necessary
for a fair presentation of financial results for the three and nine months ended
September 30, 1998 and for the period from August 14, 1997 (Inception) through
September 30, 1997, in accordance with generally accepted accounting principles
for interim financial reporting and pursuant to Article 10 of Regulation S-X.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These unaudited interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements for the period ended December 31, 1997
appearing in the Company's Registration Statement on Form S-1, as amended
(Commission File No. 333-56233), filed with the Securities and Exchange
Commission. The results of operations for the three and nine months ended
September 30, 1998 are not necessarily indicative of the results which may be
reported for the year ending December 31, 1998.
The unaudited interim consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All material
intercompany transactions and balances have been eliminated in consolidation.
Impact of recently issued accounting standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Company adopted SFAS No. 130 during the
quarter ended June 30, 1998. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components in a full set
of financial statements. The objective of SFAS No. 130 is to report a measure
(comprehensive income) of all changes in equity of an enterprise that result
from transactions and other economic events in a period other than transactions
with owners. The adoption of SFAS 130 did not have a material impact on the
Company's consolidated financial statements, as comprehensive income was equal
to net income for all periods presented. The Company is currently evaluating the
reporting formats recommended under this Statement. SFAS No. 131 establishes a
new method by which companies will report operating segment information. This
method requires disclosure of information which is based on the manner in which
management organizes the segments within a company for making operating
decisions and assessing performance. The Company continues to evaluate the
provisions of SFAS No. 131 and, upon adoption, the Company may report operating
segments.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 establishes criteria for determining which costs of
developing or obtaining internal-use computer software should be charged to
expense and which should be capitalized. SOP 98-1 is effective for all
transactions entered into in
F-23
<PAGE> 91
NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
SEPTEMBER 30, 1998
fiscal years beginning after December 15, 1998. The Company does not believe
that the adoption of SOP 98-1 will have a material effect on the Company's
financial position or results of operations.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position No. 98-5. SOP 98-5 requires that all
non-governmental entities expense costs of start-up activities, including
pre-operating, pre-opening and organization activities, as those costs are
incurred. In the opinion of management, the adoption of this Statement will not
have a material effect on the Company's financial position or results of
operations.
NOTE 2 -- ACQUISITIONS
The Company is building a nationally branded network of equipment rental
locations. Pursuant to this strategy, the Company made 22 acquisitions of
equipment rental businesses during the nine months ended September 30, 1998. The
aggregate consideration for these acquisitions was $272,099,000 and consisted
of, (i) $212,818,000 of cash, (ii) $44,350,000 of subordinated convertible debt,
(iii) $1,409,000 of subordinated debt, (iv) $4,295,000 of future contractual
cash payments, (v) 1,241,640 shares of the Company's common stock, $0.01 par
value per share ("Common Stock"), and (vi) warrants to purchase 100,000 shares
of Common Stock. In addition, in connection with seven of the acquisitions, the
Company has agreed to make up to an aggregate $4,113,000 of future payments to
the former owners based on the achievement of certain future operating results.
Such payments will be made at various times through July 2001. The cash portion
of the consideration was funded through borrowings under the Company's revolving
credit facility (the "Credit Facility"), capital contributions by the founders
of the Company and a private placement of Common Stock. In addition, the Company
repaid or assumed outstanding indebtedness of the acquired companies in the
aggregate amount of $196,386,000. The acquisitions have been accounted for using
the purchase method and, accordingly, the acquired assets and assumed
liabilities, including goodwill, have been recorded at their estimated fair
values as of the date of acquisition. Purchase accounting values for all
acquisitions have been assigned on a preliminary basis, and are subject to
adjustment when final information as to the fair values of the net assets
acquired is available. The operations of the acquired businesses have been
included in the Company's consolidated statements of income since the date of
each respective acquisition.
The following table sets forth the estimated fair value of the assets
acquired and liabilities assumed for the aforementioned acquisitions (in
thousands):
<TABLE>
<S> <C>
Assets, including cash...................................... $292,488
Goodwill.................................................... 208,982
Other intangibles........................................... 389
Liabilities................................................. 229,760
</TABLE>
F-24
<PAGE> 92
NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
SEPTEMBER 30, 1998
The following table sets forth the unaudited pro forma consolidated results
of operations for the nine months ended September 30, 1998 giving effect to the
aforementioned acquisitions as if such acquisitions had occurred on January 1,
1998 (in thousands, except per share data):
<TABLE>
<S> <C>
Revenue..................................................... $231,044
Net income.................................................. 11,763
Earnings per share:
Basic.................................................. $ 0.27
Diluted................................................ $ 0.26
</TABLE>
NOTE 3 -- COMMON STOCK
During the first nine months of 1998, the founding stockholders of the
Company made an additional capital contribution of $23,400,000. In June 1998,
the Company sold an aggregate of 5,118,694 shares of Common Stock in a private
placement for aggregate proceeds of $27,600,000. Investors in the private
placement included Company employees and associates of the founding stockholders
of the Company.
In August 1998, the Company consummated its initial public offering of
13,000,000 shares of Common Stock at $8.00 per share. The Company received net
proceeds of approximately $95,677,000 after deducting underwriting discounts and
commissions and offering expenses. The Company used all of the net proceeds to
repay a portion of the outstanding borrowings of the Company under its Credit
Facility.
NOTE 4 -- SEASONALITY
The Company's initial acquisitions have been primarily in the Midwest
region of the United States. The Company's revenue and income are dependent upon
the activity in the construction industry in the markets served by the Company.
Construction activity is dependent upon weather and the traditional seasons for
construction work. Because of this variability in demand, the Company's
quarterly revenue may fluctuate, and revenue for the first quarter of each year
can be expected to be lower than the remaining quarters. Although the Company
believes that the historical trend in quarterly revenue for the second, third
and fourth quarters of each year is generally higher than the first quarter,
there can be no assurance that this will occur in future periods. Accordingly,
quarterly or other interim results should not be considered indicative of
results to be expected for any quarter or for the full year.
F-25
<PAGE> 93
NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
SEPTEMBER 30, 1998
NOTE 5 -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
FROM
AUGUST 14, 1997
THREE MONTHS NINE MONTHS (INCEPTION)
ENDED ENDED THROUGH
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1998 1997
------------- ------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Net income -- basic earnings
per share................... $ 5,561 $ 6,854 $ 806
Interest expense on convertible
subordinated debt, net of
income taxes................ 488 821 --
------- ------- -------
Numerator -- diluted earnings
per share................... $ 6,049 $ 7,675 $ 806
======= ======= =======
Denominator:
Denominator for basic earnings
per share --
weighted-average shares..... 37,909 29,894 25,000
Effect of dilutive securities:
Convertible subordinated
debt...................... 6,083 3,430 --
Employee stock options...... 279 177 --
------- ------- -------
Denominator for diluted
earnings per share --
adjusted weighted-average
shares...................... 44,271 33,501 25,000
======= ======= =======
Basic earnings per share......... $ 0.15 $ 0.23 $ 0.03
======= ======= =======
Diluted earnings per share....... $ 0.14 $ 0.23 $ 0.03
======= ======= =======
</TABLE>
NOTE 6 -- DEBT
In September 1998, the Company amended its Credit Facility to increase the
facility to include a term loan of $175,000,000 (the "Term Loan") in addition to
its existing revolving credit facility of up to $260,000,000 (the "Revolver").
Recently, the Credit Facility was amended further to allow the administrative
agent to reallocate the aggregate dollar amounts of the bank commitments between
the Revolver and the Term Loan, provided that the aggregate commitment may not
be less than $435,000,000 and the aggregate commitment under the Revolver may
not be less than $260,000,000. The Revolver has a three-year term scheduled to
expire in September 2001 and the Term Loan has a six-year term scheduled to
expire in September 2004. The Credit Facility can be used to complete permitted
acquisitions, make capital expenditures, enter into standby letters of credit,
or for working capital and other general corporate purposes. Borrowings under
the Revolver bear interest at either the BankBoston base rate plus a percentage
ranging from 0.0% to 0.50% or, at the Company's option, the Eurodollar market
rate plus a percentage ranging from 2.00% to 2.75%. The Term Loan bears interest
ranging from 3.00% to 3.25% over the Eurodollar market rate. The percentage over
the BankBoston base rate or the Eurodollar market rate is based on the Company's
financial performance
F-26
<PAGE> 94
NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
SEPTEMBER 30, 1998
as measured by the total funded debt ratio. The Credit Facility is secured by a
security interest in substantially all of the assets of the Company. The Credit
Facility also imposes, among other covenants, a tangible assets to senior debt
covenant, a restriction on all of the Company's retained earnings including the
declaration and payment of cash dividends, consent requirements on certain
acquisitions and a restriction on the ratio of total funded debt to earnings
before interest, income taxes, depreciation and amortization.
NOTE 7 -- SUBSEQUENT EVENTS
The Company has completed three acquisitions of rental equipment businesses
since September 30, 1998 for aggregate consideration of $187,946,000. Such
consideration consisted of, (i) $108,076,000 of cash, (ii) $51,770,000 of
subordinated convertible debt, and (iii) $28,100,000 of subordinated debt. Also,
upon the satisfaction of certain post-closing earnings targets, the Company
shall pay additional consideration of $10,000,000 in cash and $10,000,000 in
shares of the Company's Common Stock. The cash portion of the consideration was
funded through borrowings under the Credit Facility. Each of the acquisitions
has been accounted for using the purchase method.
F-27
<PAGE> 95
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Gabriel Trailer Manufacturing Company, Inc.:
We have audited the accompanying consolidated balance sheets of Gabriel Trailer
Manufacturing Company, Inc. and subsidiary (an Ohio corporation) as of March 31,
1997 and August 31, 1997, and the related consolidated statements of income,
stockholders' equity and cash flows for the years ended March 31, 1996 and 1997
and for the period from April 1, 1997 through August 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Gabriel Trailer Manufacturing
Company, Inc. and subsidiary as of March 31, 1997 and August 31, 1997, and the
results of their operations and their cash flows for the years ended March 31,
1996 and 1997 and for the period from April 1, 1997 through August 31, 1997 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 8, 1998.
F-28
<PAGE> 96
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, AUGUST 31,
1997 1997
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 17,186 $ 149,742
Accounts receivable, net of allowances for doubtful accounts
of $265,000 and $330,000 as of March 31, and August 31,
1997, respectively........................................ 2,044,590 3,335,663
Inventories................................................. 947,322 991,902
Due from affiliates......................................... 1,421,199 1,357,990
Rental equipment, net....................................... 21,788,980 21,885,967
Property, plant and equipment, net.......................... 1,208,147 1,145,612
Other assets................................................ 186,704 221,186
----------- -----------
Total assets...................................... $27,614,128 $29,088,062
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable.......................................... $ 1,739,231 $ 422,591
Accrued expenses and other liabilities.................... 1,667,030 1,759,464
Debt...................................................... 16,100,269 16,558,863
Income taxes payable...................................... 1,491,129 1,423,026
Deferred income taxes..................................... 2,149,565 3,156,458
----------- -----------
Total liabilities................................. 23,147,224 23,320,402
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 7, 8 and 10)
STOCKHOLDERS' EQUITY:
Common stock -- no par value, 10,000 shares authorized,
issued and outstanding................................. 500 500
Retained earnings......................................... 4,466,404 5,767,160
----------- -----------
Total stockholders' equity........................ 4,466,904 5,767,660
----------- -----------
Total liabilities and stockholders' equity........ $27,614,128 $29,088,062
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-29
<PAGE> 97
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE YEAR ENDED MARCH 31, APRIL 1, 1997
---------------------------- TO
1996 1997 AUGUST 31, 1997
------------ ------------ ---------------
<S> <C> <C> <C>
REVENUE:
Equipment rentals................................ $11,871,114 $15,327,802 $8,514,810
Sales of equipment, parts and supplies........... 4,301,865 4,177,194 1,204,708
----------- ----------- ----------
16,172,979 19,504,996 9,719,518
COST OF REVENUE:
Cost of equipment rentals, excluding
depreciation.................................. 4,379,534 6,029,585 2,192,790
Rental equipment depreciation.................... 2,052,534 3,465,293 1,847,567
Cost of sales of equipment, parts and supplies... 4,490,975 2,790,666 984,147
----------- ----------- ----------
10,923,043 12,285,544 5,024,504
----------- ----------- ----------
Gross profit............................. 5,249,936 7,219,452 4,695,014
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES....... 2,972,337 3,563,930 1,683,311
NONRENTAL DEPRECIATION............................. 180,101 237,905 114,993
----------- ----------- ----------
Operating income......................... 2,097,498 3,417,617 2,896,710
----------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest expense................................. (582,807) (866,284) (580,107)
Interest income.................................. 71,103 15,941 15,710
Other, net....................................... 125,468 187,044 (77,597)
----------- ----------- ----------
Total other income (expense), net........ (386,236) (663,299) (641,994)
----------- ----------- ----------
Income before provision for income
taxes.................................. 1,711,262 2,754,318 2,254,716
PROVISION FOR INCOME TAXES......................... 732,793 1,127,416 938,790
----------- ----------- ----------
NET INCOME......................................... $ 978,469 $ 1,626,902 $1,315,926
=========== =========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-30
<PAGE> 98
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------
NUMBER OF TREASURY RETAINED
SHARES AMOUNT STOCK EARNINGS TOTAL
--------- ------ --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, April 1, 1995.................... 10,000 $500 $(190,000) $2,051,033 $1,861,533
Retirement of treasury stock............ -- -- 190,000 (190,000) --
Net income.............................. -- -- -- 978,469 978,469
------ ---- --------- ---------- ----------
BALANCE, March 31, 1996................... 10,000 500 -- 2,839,502 2,840,002
Net income.............................. -- -- -- 1,626,902 1,626,902
------ ---- --------- ---------- ----------
BALANCE, March 31, 1997................... 10,000 500 -- 4,466,404 4,466,904
Distribution............................ -- -- -- (15,170) (15,170)
Net income.............................. -- -- -- 1,315,926 1,315,926
------ ---- --------- ---------- ----------
BALANCE, August 31, 1997.................. 10,000 $500 $ -- $5,767,160 $5,767,660
====== ==== ========= ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated statements.
F-31
<PAGE> 99
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE YEAR ENDED MARCH 31, APRIL 1, 1997
---------------------------- TO AUGUST 31,
1996 1997 1997
------------ ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 978,469 $ 1,626,902 $ 1,315,926
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation................................... 2,232,635 3,703,200 1,962,560
(Gain) loss on sale of assets.................. 16,202 (68,548) 84,020
Deferred income taxes.......................... 486,450 809,283 1,006,893
Changes in operating assets and liabilities:
Accounts receivable.......................... (309,761) (688,006) (1,291,073)
Inventories.................................. (122,582) (187,075) (44,580)
Other assets................................. (41,962) 8,601 (93,296)
Accounts payable............................. 244,241 777,122 (1,316,640)
Accrued expenses and other liabilities....... 446,252 503,630 92,434
Income taxes payable......................... 246,343 318,133 (68,103)
----------- ----------- -----------
Net cash provided by operating
activities.............................. 4,176,287 6,803,242 1,648,141
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............... (494,684) (516,029) (63,792)
Proceeds from sale of property and equipment...... 314,097 17,560 8,733
Purchases of rental equipment..................... (8,799,248) (8,101,137) (1,775,155)
Proceeds from sale of rental equipment............ 916,403 1,326,510 136,685
----------- ----------- -----------
Net cash used in investing activities..... (8,063,432) (7,273,096) (1,693,529)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt................................ 12,823,899 17,922,405 4,843,858
Repayments of debt................................ (8,658,333) (14,417,413) (3,651,766)
Payments of equipment financings.................. -- (1,928,097) (1,045,871)
(Advances to) repayments from affiliates, net..... (316,721) (1,094,105) 31,723
----------- ----------- -----------
Net cash provided by financing
activities.............................. 3,848,845 482,790 177,944
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... (38,300) 12,936 132,556
CASH AND CASH EQUIVALENTS, beginning of period...... 42,550 4,250 17,186
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period............ $ 4,250 $ 17,186 $ 149,742
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................ $ 553,206 $ 821,349 $ 546,085
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Equipment financing............................... $ -- $ 4,637,084 $ 387,503
=========== =========== ===========
Property dividends................................ $ -- $ -- $ 15,170
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
consolidated statements.
F-32
<PAGE> 100
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND AUGUST 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION:
Gabriel Trailer Manufacturing Company, Inc. ("Gabriel") (together with its
subsidiary, the "Company") was incorporated in March 1970 to manufacture, buy,
sell and deal in trailer equipment, other related equipment and parts and
accessories. Gabriel's wholly-owned subsidiary, Sam's Equipment Rental, Inc. was
formed for the purpose of renting and leasing construction related equipment.
The Company currently rents a broad array of equipment to a diverse customer
base including construction industry participants, industrial companies,
homeowners and others. The Company also engages in related activities such as
selling used equipment, acting as a distributor for certain new and used
equipment, and selling related merchandise and parts. The nature of the
Company's business is such that short-term obligations are typically met by cash
flow generated from long-term assets. Consequently, consistent with industry
practice, the accompanying balance sheets are presented on an unclassified
basis.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash equivalents
The Company considers all highly liquid instruments with an original
maturity of three months or less when purchased to be cash equivalents. At March
31, 1997 and August 31, 1997, the Company had no cash equivalents.
Inventories
Inventories consist of equipment, tools, parts, fuel and related rental
equipment supplies and accessories. Inventories are stated at the lower of cost
or market.
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using the straight-line method. The range of
useful lives estimated by management for rental equipment is five to seven
years. Ordinary maintenance and repair costs are charged to operations as
incurred.
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to the rental of equipment is recognized
over the contract term.
Property, plant and equipment
Property, plant and equipment is recorded at cost and depreciated over the
estimated useful life using the straight-line method. The range of useful lives
estimated by management for property, plant
F-33
<PAGE> 101
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and equipment is three to forty years. Ordinary maintenance and repair costs are
charged to operations as incurred.
Impairment of long-lived assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount, the Company records impairment as required under generally
accepted accounting principles. No such impairment losses were incurred for the
periods presented.
Fair value of financial instruments
The carrying amounts reported in the accompanying consolidated balance
sheets for cash and cash equivalents, accounts receivable, accounts payable,
accrued expenses and other liabilities approximate fair value as of March 31,
1997 and August 31, 1997.
Income taxes
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires, among other things, recognition
of future tax effects measured at enacted rates attributable to deductible
temporary differences between financial statement and income tax bases of assets
and liabilities to the extent that realization of said effects is more likely
than not.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of diverse customers make
up the Company's customer base. No single customer represents greater than 10%
of total accounts receivable. The Company controls credit risk through credit
approvals, credit limits and monitoring procedures.
3. RENTAL EQUIPMENT:
Rental equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
MARCH 31, AUGUST 31,
1997 1997
----------- -----------
<S> <C> <C>
Rental equipment.......................................... $28,790,435 $30,641,146
Less -- accumulated depreciation.......................... 7,001,455 8,755,179
----------- -----------
Rental equipment, net................................ $21,788,980 $21,885,967
=========== ===========
</TABLE>
F-34
<PAGE> 102
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
MARCH 31, AUGUST 31,
1997 1997
----------- -----------
<S> <C> <C>
Land...................................................... $ 49,863 $ 49,863
Building.................................................. 757,816 757,816
Furniture and fixtures.................................... 355,131 339,593
Vehicles.................................................. 1,134,204 1,113,193
----------- -----------
2,297,014 2,260,465
Less -- accumulated depreciation.......................... (1,088,867) (1,114,853)
----------- -----------
Property, plant and equipment, net.............. $ 1,208,147 $ 1,145,612
=========== ===========
</TABLE>
5. ACCRUED EXPENSES AND OTHER LIABILITIES:
Accrued expenses and other liabilities consists of the following:
<TABLE>
<CAPTION>
MARCH 31, AUGUST 31,
1997 1997
---------- ----------
<S> <C> <C>
Personal property taxes..................................... $1,044,423 $1,172,905
Payroll-related............................................. 231,274 188,246
Tax penalties and interest.................................. 248,000 248,000
Other....................................................... 143,333 150,313
---------- ----------
Accrued expenses and other liabilities............ $1,667,030 $1,759,464
========== ==========
</TABLE>
6. DEBT:
Debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, AUGUST 31,
1997 1997
----------- -----------
<S> <C> <C>
Lines of credit, with borrowings up to $6.3 million,
secured by substantially all of the Company's assets,
interest ranging from 8.25% to 8.50%, payable in
monthly installments through September 1997.......... $ 4,091,315 $ 5,497,095
Revolving term loans, secured by substantially all of
the Company's assets, interest ranging from 8.25% to
8.90%, payable in monthly installments through
January 2000......................................... 6,444,444 6,233,334
Equipment notes, secured by rental equipment, interest
ranging from 6.90% to 9.00%, payable in monthly
installments through June 2000....................... 5,312,900 4,656,172
Mortgages payable, secured by real estate, interest
ranging from 6.75% to 9.50%, payable in monthly
installments through August 2005..................... 161,798 113,936
Note payable to related party, secured by life insurance
policy on officer, interest at 8.25%, payable in
monthly installments through August 1998............. 89,812 58,326
----------- -----------
Total debt...................................... $16,100,269 $16,558,863
=========== ===========
</TABLE>
F-35
<PAGE> 103
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of the Company's debt at August 31, 1997, for the years ended
August 31, are as follows:
<TABLE>
<S> <C>
1998........................................................ $14,155,433
1999........................................................ 1,677,753
2000........................................................ 636,277
2001........................................................ 9,853
2002........................................................ 10,831
Thereafter.................................................. 68,716
-----------
$16,558,863
===========
</TABLE>
7. INCOME TAXES:
The provision for Federal and state income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED PERIOD FROM
MARCH 31, APRIL 1, 1997
---------------------- TO AUGUST 31,
1996 1997 1997
-------- ---------- -------------
<S> <C> <C> <C>
Current......................................... $246,343 $ 318,133 $ (68,103)
Deferred........................................ 486,450 809,283 1,006,893
-------- ---------- ----------
$732,793 $1,127,416 $ 938,790
======== ========== ==========
Federal......................................... $575,542 $ 885,481 $ 737,333
State........................................... 157,251 241,935 201,457
-------- ---------- ----------
$732,793 $1,127,416 $ 938,790
======== ========== ==========
</TABLE>
A reconciliation of the difference between the expected provision for
income taxes using the statutory Federal income tax rate of 34% and the
Company's actual provision is as follows:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED PERIOD FROM
MARCH 31, APRIL 1, 1997
---------------------- TO AUGUST 31,
1996 1997 1997
-------- ---------- -------------
<S> <C> <C> <C>
Provision at the statutory tax rate............. $581,829 $ 936,468 $766,603
State income taxes.............................. 103,786 159,677 132,962
Nondeductible expenses.......................... 47,178 31,271 39,225
-------- ---------- --------
$732,793 $1,127,416 $938,790
======== ========== ========
</TABLE>
Deferred income taxes arise primarily due to temporary differences in
recognizing certain revenues and expenses for tax purposes and the use of
accelerated depreciation for tax purposes. The components of the deferred income
tax liabilities are as follows:
<TABLE>
<CAPTION>
MARCH 31, AUGUST 31,
1997 1997
---------- ----------
<S> <C> <C>
Depreciation of property and equipment and rental
equipment................................................. $2,211,443 $2,708,783
Accrued liabilities......................................... (871,739) (349,825)
Accounts receivable......................................... 809,861 (118,830)
Section 481 cash to accrual election change................. -- 916,330
---------- ----------
Deferred income tax liability............................. $2,149,565 $3,156,458
========== ==========
</TABLE>
F-36
<PAGE> 104
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's income tax returns and related payments for the years ended
March 31, 1995, 1996 and 1997 were not filed on a timely basis. It is not
possible to predict the ultimate outcome of the Company's penalties for failure
to file, and pay on a timely basis and underpayment. The Company has estimated
an approximate liability of $175,000, which is included in accrued expenses and
other liabilities.
8. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company leases rental equipment, real estate and certain office
equipment under operating leases. Certain real estate leases require the Company
to pay maintenance, insurance, taxes and certain other expenses in addition to
the stated rentals. The leases cover several operating locations and expire at
various dates through September 2002. Future minimum lease payments to related
and unrelated third parties, by year and in the aggregate, at August 31, 1997
for noncancelable operating leases with initial or remaining terms of one year
or more are as follows:
<TABLE>
<CAPTION>
RELATED PARTY OTHER TOTAL
------------- -------- ----------
<S> <C> <C> <C>
1998............................................ $ 480,000 $328,322 $ 808,322
1999............................................ 368,000 228,866 596,866
2000............................................ 256,000 67,821 323,821
2001............................................ 192,000 -- 192,000
2002............................................ 8,000 -- 8,000
---------- -------- ----------
Total $1,304,000 $625,009 $1,929,009
========== ======== ==========
</TABLE>
Rent expense under noncancelable operating leases for the years ended March
31, 1996 and 1997 and the period from April 1, 1997 through August 31, 1997 is
$784,354, $1,098,234 and $423,798, respectively. Included in total rent expense
is rent to a related party of approximately $280,000, $357,000 and $200,000 for
the years ended March 31, 1996 and 1997 and the period from April 1, 1997
through August 31, 1997, respectively.
Litigation, Claims and Assessments
From time to time, the Company may be engaged in routine litigation and
disputes incidental to its business. The Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying financial statements.
9. EMPLOYEE BENEFIT PLAN:
The Company has a 401(k) defined contribution profit-sharing plan under
which employees having worked a minimum of twelve months are eligible to
participate. Employer contributions, which are discretionary and depend on the
Company's profitability, were approximately $54,600, $70,100 and $47,700 for the
years ended March 31, 1996 and 1997 and for the period from April 1, 1997
through August 31, 1997, respectively.
10. SUBSEQUENT EVENT:
Effective September 1, 1997, all of the outstanding stock of the Company
was purchased by NationsRent, Inc., an unrelated third party, in exchange for
cash and debt.
F-37
<PAGE> 105
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To R. and R. Rental, Inc.:
We have audited the accompanying balance sheet of R. and R. Rental, Inc. (an
Ohio S corporation) at December 10, 1997, and the related statements of
operations, stockholder's equity and cash flows for the period from January 1,
1997 through December 10, 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of R. and R. Rental, Inc. at
December 10, 1997, and the results of its operations and its cash flows for the
period from January 1, 1997 through December 10, 1997 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 8, 1998.
F-38
<PAGE> 106
R. AND R. RENTAL, INC.
BALANCE SHEET
AS OF DECEMBER 10, 1997
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents................................... $ 193,714
Accounts receivable, net of allowance for doubtful accounts
of $150,000............................................... 649,193
Inventories................................................. 928,962
Rental equipment, net....................................... 4,002,825
Property and equipment, net................................. 267,903
Other assets................................................ 3,400
----------
Total assets...................................... $6,045,997
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable.......................................... $ 15,354
Accrued expenses and other liabilities.................... 108,996
Note payable.............................................. 1,523,139
----------
Total liabilities................................. 1,647,489
----------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 9)
STOCKHOLDER'S EQUITY:
Common stock -- no par value, 250 shares authorized,
issued and outstanding................................. 500
Additional paid-in capital................................ 5,327,477
Accumulated deficit....................................... (929,469)
----------
Total stockholder's equity........................ 4,398,508
----------
Total liabilities and stockholder's equity........ $6,045,997
==========
</TABLE>
The accompanying notes to financial statements are an integral part of this
balance sheet.
F-39
<PAGE> 107
R. AND R. RENTAL, INC.
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 10, 1997
<TABLE>
<S> <C>
REVENUE:
Equipment rentals......................................... $2,409,518
Sales of equipment, parts and supplies.................... 2,106,695
----------
4,516,213
COST OF REVENUE:
Cost of equipment rentals, excluding depreciation......... 1,398,174
Rental equipment depreciation............................. 630,548
Cost of sales of equipment, parts and supplies............ 1,808,076
----------
3,836,798
----------
Gross profit...................................... 679,415
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 715,140
NONRENTAL DEPRECIATION...................................... 76,630
----------
Operating loss.................................... (112,355)
----------
OTHER INCOME (EXPENSE):
Interest expense.......................................... (79,579)
Other income.............................................. 29,829
----------
Total other income (expense), net................. (49,750)
----------
NET LOSS.......................................... $ (162,105)
==========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-40
<PAGE> 108
R. AND R. RENTAL, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 10, 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL
NUMBER PAID-IN ACCUMULATED
OF SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- ------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997.................. 250 $500 $3,761,380 $(767,364) $2,994,516
Capital contributions................... -- -- 1,566,097 -- 1,566,097
Net loss................................ -- -- -- (162,105) (162,105)
--- ---- ---------- --------- ----------
BALANCE, December 10, 1997................ 250 $500 $5,327,477 $(929,469) $4,398,508
=== ==== ========== ========= ==========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-41
<PAGE> 109
R. AND R. RENTAL, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 10, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (162,105)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 707,178
Loss on sale of rental equipment....................... 65,326
Changes in operating assets and liabilities:
Accounts receivable.................................. (40,271)
Inventories.......................................... (298,639)
Other assets......................................... 4,523
Accounts payable..................................... (382,070)
Accrued expenses and other liabilities............... 28,016
-----------
Net cash used in operating activities............. (78,042)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of rental equipment............................. (2,208,233)
Purchases of property and equipment....................... (96,568)
Proceeds from sale of rental equipment.................... 307,793
-----------
Net cash used in investing activities............. (1,997,008)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable................................ 1,523,139
Repayments of note payable................................ (935,609)
Capital contributions..................................... 1,566,097
-----------
Net cash provided by financing activities......... 2,153,627
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 78,577
CASH AND CASH EQUIVALENTS, beginning of period.............. 115,137
-----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 193,714
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 79,579
===========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-42
<PAGE> 110
R. AND R. RENTAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 10, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
R. and R. Rentals, Inc. (the "Company") was incorporated in July 1988 in
the State of Ohio. The Company rents a broad array of equipment to a diverse
customer base that includes construction industry participants, industrial
companies, homeowners and others. The Company also engages in related activities
such as selling used equipment, acting as a distributor for certain new
equipment and selling related merchandise and parts. The nature of the Company's
business is such that short-term obligations are typically met by cash flow
generated from long-term assets. Consequently, consistent with industry
practice, the accompanying balance sheet is presented on an unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. At December 10,
1997, the Company had no cash equivalents.
Inventories
Inventories consist of equipment, tools, parts, fuel and related equipment
supplies and accessories inventories are stated at the lower of weighted average
cost or market.
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using the straight-line method. The useful life
estimated by management for rental equipment is seven years. Ordinary
maintenance and repair costs are charged to operations as incurred.
Revenue recognition
Revenue related to the sale of equipment is recognized at the point of
sale. Revenue related to equipment rental is recognized over the contract term.
Property and equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method. The range of useful lives
estimated by management for property and equipment is three to fifteen years.
Ordinary maintenance and repair costs are charged to operations as incurred.
Impairment of long-lived assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount, the Company records impairment as required
F-43
<PAGE> 111
R. AND R. RENTAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
under generally accepted accounting principles. No such impairment losses were
incurred for the periods presented.
Fair value of financial instruments
The carrying amounts reported in the balance sheet for cash and cash
equivalents, accounts receivable, accounts payable, accrued expenses and other
liabilities and note payable approximate fair value as of December 10, 1997.
Income taxes
The Company is an S corporation for income tax purposes. Accordingly,
income, losses and related temporary differences which arise in the recording of
income and expense items for financial reporting and tax reporting purposes are
included in the individual tax return of the stockholder. Therefore, no
provision or liability for Federal and state income taxes has been included in
the accompanying financial statements.
On a pro forma basis, the Company would have had a tax benefit, however it
would have been fully offset by a valuation allowance as the benefit would not
have achieved the realization requirements of Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes."
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of diverse customers make
up the Company's customer base. No single customer represents greater than 10%
of total accounts receivable. The Company controls credit risk through credit
approvals, credit limits, and monitoring procedures.
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation as of December 10,
1997, consist of the following:
<TABLE>
<S> <C>
Rental equipment............................................ $ 5,349,321
Less -- accumulated depreciation............................ (1,346,496)
-----------
Rental equipment, net............................. $ 4,002,825
===========
</TABLE>
F-44
<PAGE> 112
R. AND R. RENTAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
A summary of property and equipment as of December 10, 1997, is as follows:
<TABLE>
<S> <C>
Trucks and autos............................................ $ 255,842
Furniture and fixtures...................................... 147,333
Computer equipment.......................................... 81,986
Leasehold improvements...................................... 38,466
---------
523,627
Less -- accumulated depreciation............................ (255,724)
---------
Property and equipment, net....................... $ 267,903
=========
</TABLE>
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities as of December 10, 1997, consists of
the following:
<TABLE>
<S> <C>
Accrued property taxes...................................... $100,000
Payroll-related............................................. 8,996
--------
Accrued expenses and other liabilities............ $108,996
========
</TABLE>
6. DEBT
The Company entered into a demand promissory note bearing interest at prime
(8.5% at December 10, 1997), with interest payable quarterly. This note is
secured by substantially all of the Company's rental equipment. The note had an
outstanding balance of $1,523,139 at December 10, 1997.
7. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases various automobiles under operating leases. Future
minimum lease payments, by year and in the aggregate, for noncancelable
operating leases with initial or remaining terms of one year or more are as
follows at December 10, 1997 for the following years ended December 10:
<TABLE>
<S> <C>
1998........................................................ $30,044
1999........................................................ 17,875
2000........................................................ 6,186
-------
Total............................................. $54,105
=======
</TABLE>
Expense under these operating leases for the period ended December 10, 1997
was $44,493 and is included under selling, general and administrative expenses
in the accompanying statement of operations.
Litigation, Claims and Assessments
From time to time, the Company may be engaged in routine litigation and
disputes incidental to its business. The Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying financial statements.
F-45
<PAGE> 113
R. AND R. RENTAL, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. RELATED PARTY TRANSACTIONS
The Company leases two buildings from the stockholder under monthly
operating leases. For the period ended December 10, 1997, rent expense totaled
approximately $56,500 and is included under selling, general and administrative
expenses in the accompanying statement of operations.
9. SUBSEQUENT EVENT
Effective December 11, 1997, substantially all of the Company's operating
assets and liabilities were purchased by NationsRent, Inc., an unrelated third
party, in exchange for cash and debt.
The demand promissory note of $1,523,139 at December 10, 1997 was paid off
by the stockholder of the Company with proceeds from the purchase of the
Company's assets and liabilities.
F-46
<PAGE> 114
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To C & E Rental and Service, Inc.:
We have audited the accompanying balance sheets of C & E Rental and Service,
Inc. (an Indiana S corporation) as of December 31, 1996 and December 22, 1997,
and the related statements of income, stockholder's equity and cash flows for
the year ended December 31, 1996 and the period from January 1, 1997 through
December 22, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of C & E Rental and Service, Inc.
as of December 31, 1996 and December 22, 1997, and the results of its operations
and its cash flows for the year ended December 31, 1996 and the period from
January 1, 1997 through December 22, 1997 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 8, 1998.
F-47
<PAGE> 115
C & E RENTAL AND SERVICE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 22,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 43,390 $ 184,318
Accounts receivable, net of allowances for doubtful accounts
of $81,011 and $109,973 as of December 31, 1996, and
December 22, 1997, respectively........................... 705,695 701,156
Inventories................................................. 134,491 213,934
Due from affiliate.......................................... 372,115 --
Rental equipment, net....................................... 2,202,833 3,022,154
Property and equipment, net................................. 394,665 621,734
Other assets................................................ 30,357 32,543
---------- ----------
Total assets...................................... $3,883,546 $4,775,839
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable.......................................... $ 194,278 $ 205,403
Accrued expenses and other liabilities.................... 198,443 185,087
Debt...................................................... 1,284,908 922,856
---------- ----------
Total liabilities................................. 1,677,629 1,313,346
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 10)
STOCKHOLDER'S EQUITY:
Common stock -- no par value, 1,000 shares authorized,
issued and outstanding................................. 200,000 200,000
Retained earnings......................................... 2,588,781 3,845,357
Less: Treasury stock -- 500 shares at cost................ (582,864) (582,864)
---------- ----------
Total stockholder's equity........................ 2,205,917 3,462,493
---------- ----------
Total liabilities and stockholder's equity........ $3,883,546 $4,775,839
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-48
<PAGE> 116
C & E RENTAL AND SERVICE, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FROM JANUARY 1,
ENDED 1997 TO
DECEMBER 31, DECEMBER 22,
1996 1997
------------ ---------------
<S> <C> <C>
REVENUE:
Equipment rentals......................................... $4,395,313 $4,506,274
Sales of equipment, parts and supplies.................... 1,961,510 2,638,935
Other..................................................... 115,115 128,586
---------- ----------
6,471,938 7,273,795
COST OF REVENUE:
Cost of equipment rentals, excluding depreciation......... 1,752,011 1,846,084
Rental equipment depreciation............................. 637,210 765,518
Cost of sales of equipment, parts and supplies............ 1,352,831 1,791,275
---------- ----------
3,742,052 4,402,877
---------- ----------
Gross profit...................................... 2,729,886 2,870,918
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 1,760,595 1,417,097
NONRENTAL DEPRECIATION AND AMORTIZATION..................... 136,897 157,252
---------- ----------
Operating income.................................. 832,394 1,296,569
---------- ----------
OTHER INCOME (EXPENSE):
Interest expense.......................................... (115,243) (101,218)
Other, net................................................ 51,580 61,225
---------- ----------
Total other income (expense), net................. (63,663) (39,993)
---------- ----------
Net income........................................ 768,731 1,256,576
PRO FORMA PROVISION FOR INCOME TAX.......................... 307,492 502,630
---------- ----------
PRO FORMA NET INCOME........................................ $ 461,239 $ 753,946
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-49
<PAGE> 117
C & E RENTAL AND SERVICE, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE PERIOD FROM JANUARY 1, 1997 TO DECEMBER 22, 1997
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
NUMBER RETAINED TREASURY
OF SHARES AMOUNT EARNINGS STOCK TOTAL
--------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1996................. 1,000 $200,000 $1,820,050 $(582,864) $1,437,186
Net income............................. -- -- 768,731 -- 768,731
----- -------- ---------- --------- ----------
BALANCE, December 31, 1996............... 1,000 200,000 2,588,781 (582,864) 2,205,917
Net income............................. -- -- 1,256,576 -- 1,256,576
----- -------- ---------- --------- ----------
BALANCE, December 22, 1997............... 1,000 $200,000 $3,845,357 $(582,864) $3,462,493
===== ======== ========== ========= ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-50
<PAGE> 118
C & E RENTAL AND SERVICE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE YEAR JANUARY 1, 1997
ENDED TO
DECEMBER 31, DECEMBER 22,
1996 1997
------------ ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 768,731 $ 1,256,576
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 774,107 922,770
Gain on sale of assets................................. (473,908) (705,063)
Changes in operating assets and liabilities:
Accounts receivable, net............................. (199,095) 4,539
Inventories.......................................... 15,644 (79,443)
Other assets......................................... 7,146 (2,186)
Accounts payable..................................... 65,384 11,125
Accrued expenses and other liabilities............... (21,052) (13,356)
----------- -----------
Net cash provided by operating activities......... 936,957 1,394,962
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of rental equipment............................. (1,609,651) (2,848,230)
Proceeds from sale of rental equipment.................... 1,271,362 1,968,454
Purchases of property and equipment....................... (102,209) (384,321)
----------- -----------
Net cash used in investing activities............. (440,498) (1,264,097)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt........................................ 612,000 1,488,000
Repayments of debt........................................ (734,711) (1,850,052)
Payments from (advances to) affiliate..................... (372,115) 372,115
----------- -----------
Net cash provided by (used in) financing
activities...................................... (494,826) 10,063
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 1,633 140,928
CASH AND CASH EQUIVALENTS, beginning of period.............. 41,757 43,390
----------- -----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 43,390 $ 184,318
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 115,243 $ 101,218
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-51
<PAGE> 119
C & E RENTAL AND SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND DECEMBER 22, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
C & E Rental and Service, Inc. ("C & E Rental" or the "Company", formerly
Bob's Rental & Supply, Inc.), was incorporated in the State of Indiana in August
1959 and is engaged in the rental of a broad array of equipment to a diverse
customer base that includes construction industry participants, industrial
companies, homeowners and others. The Company also engages in related activities
such as selling new and used equipment, related merchandise and parts. The
nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the accompanying balance sheets are presented
on an unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. At December 31, 1996
and December 22, 1997, the Company had no cash equivalents.
Inventories
Inventories consist of equipment, tools, parts, fuel and related supply
items. Inventories are stated at the lower of cost (first-in, first-out) or
market.
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using an accelerated method. The useful life
estimated by management for rental equipment is seven years. Ordinary
maintenance and repair costs are charged to operations as incurred.
Property and equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using straight-line and accelerated methods. Ordinary
maintenance and repair costs are charged to operations as incurred. The range of
useful lives estimated by management for property and equipment is as follows:
<TABLE>
<CAPTION>
YEARS
-------------
<S> <C>
Machinery and equipment..................................... 5
Furniture and fixtures...................................... 5
Autos and trucks............................................ 5
Buildings................................................... 20 - 30
Leasehold improvements...................................... Life of lease
</TABLE>
Impairment of long-lived assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by
F-52
<PAGE> 120
C & E RENTAL AND SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
those assets are less than the assets' carrying amount, the Company records
impairment as required under generally accepted accounting principles. No such
impairment losses were incurred for the periods presented.
Fair value of financial instruments
The carrying amounts reported in the accompanying balance sheets for cash
and cash equivalents, accounts receivable, accounts payable and accrued expenses
and other liabilities approximate fair value as of December 31, 1996 and
December 22, 1997 and approximates the carrying value of such debt.
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to rental equipment is recognized over the
contract term.
Income taxes
The Company is an S corporation for income tax purposes. Accordingly,
income, losses and related temporary differences which arise in the recording of
income and expense items for financial reporting and tax reporting purposes are
included in the individual tax return of the stockholder. Therefore, no
provision or liability for Federal and state income taxes has been included in
the accompanying financial statements.
The pro forma adjustment to reflect income taxes in the accompanying
statements of income is for informational purposes only. The pro forma provision
for income tax has been provided at the estimated effective rate of 40%.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of diverse customers make
up the Company's customer base. No single customer represents greater than 10%
of total accounts receivable. The Company controls credit risk through credit
approvals, credit limits and monitoring procedures.
F-53
<PAGE> 121
C & E RENTAL AND SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 22,
1996 1997
------------ ------------
<S> <C> <C>
Rental equipment............................................ $ 4,245,254 $ 5,275,468
Less -- accumulated depreciation............................ (2,042,421) (2,253,314)
----------- -----------
Rental equipment, net............................. $ 2,202,833 $ 3,022,154
=========== ===========
</TABLE>
4. PROPERTY AND EQUIPMENT
A summary of property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 22,
1996 1997
------------ ------------
<S> <C> <C>
Machinery and equipment..................................... $ 26,190 $ 47,614
Furniture and fixtures...................................... 153,241 245,779
Autos and trucks............................................ 406,528 479,348
Buildings................................................... 349,743 349,743
Leasehold improvements...................................... -- 195,351
Land........................................................ 88,566 89,430
---------- ----------
1,024,268 1,407,265
Less -- accumulated depreciation............................ (629,603) (785,531)
---------- ----------
Property and equipment, net....................... $ 394,665 $ 621,734
========== ==========
</TABLE>
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 22,
1996 1997
------------ ------------
<S> <C> <C>
Payroll-related............................................. $100,640 $ 70,069
Sales, property and other taxes............................. 97,803 115,018
-------- --------
Accrued expenses and other liabilities............ $198,443 $185,087
======== ========
</TABLE>
F-54
<PAGE> 122
C & E RENTAL AND SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 22,
1996 1997
------------ ------------
<S> <C> <C>
Line of credit, with borrowings up to $950,000, secured by
substantially all of the Company's business assets,
interest at 9.00% and 8.75%, as of 1996 and 1997,
respectively, payable in monthly installments through
November 1998............................................. $ 227,000 $150,000
Promissory note, secured by substantially all of the
Company's business assets, interest at 8.00%, payable in
monthly installments of $15,775 through July 2001......... 712,908 587,539
Note payable to officer, unsecured, interest at 9.50% and
9.00%, as of 1996 and 1997, respectively, payable in
December 1997............................................. 345,000 65,000
Note payable to bank, secured by certain real property,
interest at 8.75%, payable in monthly installments of
$1,583 through May 2000................................... -- 120,317
---------- --------
Total debt........................................ $1,284,908 $922,856
========== ========
</TABLE>
Maturities of the Company's debt at December 22, 1997, for the years ended
December 22, are as follows:
<TABLE>
<S> <C>
1998........................................................ $371,459
1999........................................................ 169,516
2000........................................................ 275,014
2001........................................................ 106,867
--------
Total............................................. $922,856
========
</TABLE>
7. RELATED-PARTY TRANSACTIONS
In addition to the note payable to officer, described in Note 6, the
Company made a $372,115 advance to an affiliated company during 1996 which is
reflected as due from affiliate in the accompanying balance sheet as of December
31, 1996. The advance was repaid in 1997. During 1997, the Company entered into
a monthly operating lease with the same affiliated company for one of its
buildings. For the period ended December 22, 1997, such rental expense totaled
approximately $40,000.
F-55
<PAGE> 123
C & E RENTAL AND SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases real estate under operating leases. Certain leases
require the Company to pay maintenance, insurance, taxes and certain other
expenses in addition to the stated rentals. Future minimum lease payments, by
year and in the aggregate, for noncancelable operating leases with initial or
remaining terms of one year or more are as follows at December 22, 1997:
<TABLE>
<S> <C>
1998........................................................ $54,600
1999........................................................ 28,935
-------
Total............................................. $83,535
=======
</TABLE>
Rent expense under operating leases for the year ended December 31, 1996
and the period ended December 22, 1997 were approximately $46,800 and $94,600,
respectively.
Litigation, Claims and Assessments
From time to time, the Company may be engaged in routine litigation and
disputes incidental to its business. The Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying financial statements.
9. EMPLOYEE BENEFIT PLAN
The Company has a contributory 401(k) profit-sharing plan under which
substantially all full-time employees are eligible to participate. Employer
contributions were approximately $51,000 and $61,000 for 1996 and 1997,
respectively.
10. SUBSEQUENT EVENT
Effective December 23, 1997, substantially all of the Company's operating
assets and liabilities were purchased by NationsRent, Inc., an unaffiliated
third party, in exchange for cash and debt.
F-56
<PAGE> 124
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Titan Rentals, Inc.:
We have audited the accompanying balance sheet of Titan Rentals, Inc. (a West
Virginia corporation) as of December 30, 1997, and the related statements of
income, stockholders' equity and cash flows for the period from January 1, 1997
through December 30, 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Titan Rentals, Inc. as of
December 30, 1997, and the results of its operations and its cash flows for the
period from January 1, 1997 through December 30, 1997 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 6, 1998.
F-57
<PAGE> 125
TITAN RENTALS, INC.
BALANCE SHEET
AS OF DECEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents................................... $ 249,470
Accounts receivable, net of allowance for doubtful accounts
of $37,360................................................ 637,253
Inventories................................................. 93,120
Prepaid expenses and other assets........................... 117,205
Rental equipment, net....................................... 1,132,746
Property and equipment, net................................. 73,305
Income taxes receivable..................................... 70,352
----------
Total assets...................................... $2,373,451
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable.......................................... $ 105,384
Accrued expenses and other liabilities.................... 97,354
Debt...................................................... 501,612
Deferred income taxes..................................... 194,307
----------
Total liabilities................................. 898,657
----------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 11)
STOCKHOLDERS' EQUITY:
Common stock -- $1,000 par value, 1,000 shares authorized,
155 shares issued and outstanding...................... 155,000
Retained earnings......................................... 1,319,794
----------
Total stockholders' equity........................ 1,474,794
----------
Total liabilities and stockholders' equity........ $2,373,451
==========
</TABLE>
The accompanying notes to financial statements are an integral part of this
balance sheet.
F-58
<PAGE> 126
TITAN RENTALS, INC.
STATEMENT OF INCOME
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 30, 1997
<TABLE>
<S> <C>
REVENUE:
Equipment rentals......................................... $1,926,760
Sales of equipment, parts and supplies.................... 2,991,843
Other..................................................... 50,611
----------
4,969,214
COST OF REVENUE:
Cost of equipment rentals, excluding depreciation......... 1,302,454
Rental equipment depreciation............................. 302,271
Cost of sales of equipment, parts and supplies............ 2,043,201
----------
3,647,926
----------
Gross profit...................................... 1,321,288
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 823,906
NONRENTAL DEPRECIATION AND AMORTIZATION..................... 16,048
----------
Operating income.................................. 481,334
----------
OTHER INCOME (EXPENSE):
Interest expense.......................................... (33,579)
Other expense............................................. (7,438)
----------
Total other income (expense), net................. (41,017)
----------
Income before provision for income tax............ 440,317
PROVISION FOR INCOME TAX.................................... 168,085
----------
NET INCOME.................................................. $ 272,232
==========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-59
<PAGE> 127
TITAN RENTALS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK
--------------------
NUMBER RETAINED
OF SHARES AMOUNT EARNINGS TOTAL
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1997........................... 155 $155,000 $1,047,562 $1,202,562
Net income....................................... -- -- 272,232 272,232
--- -------- ---------- ----------
BALANCE, December 30, 1997......................... 155 $155,000 $1,319,794 $1,474,794
=== ======== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-60
<PAGE> 128
TITAN RENTALS, INC.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH DECEMBER 30, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 272,232
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 318,319
Gain on sale of rental equipment....................... (666,617)
Deferred income taxes.................................. 56,199
Changes in operating assets and liabilities:
Accounts receivable.................................. (72,740)
Inventories.......................................... (5,430)
Prepaid expenses and other assets.................... 49,703
Income taxes receivable.............................. (41,127)
Accounts payable..................................... (184,448)
Accrued expenses and other liabilities............... 49,522
-----------
Net cash used in operating activities............. (224,387)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of rental equipment............................. (1,063,670)
Purchases of property and equipment....................... (61,822)
Proceeds from sale of rental equipment.................... 1,510,660
-----------
Net cash provided by investing activities......... 385,168
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt........................................ 417,271
Repayments of debt........................................ (578,759)
-----------
Net cash used in financing activities............. (161,488)
-----------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (707)
CASH AND CASH EQUIVALENTS, beginning of period.............. 250,177
-----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 249,470
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 33,579
===========
Cash paid for income taxes................................ $ 154,467
===========
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
F-61
<PAGE> 129
TITAN RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 30, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Titan Rentals, Inc. (the "Company") was incorporated in the state of West
Virginia in January 1990 for the purpose of creating an equipment rental
company. The Company rents a broad array of equipment to a diverse customer base
that includes construction industry participants, industrial companies,
homeowners and others. The Company also engages in related activities such as
selling used equipment, acting as a distributor for certain new equipment and
selling related merchandise and parts. The nature of the Company's business is
such that short-term obligations are typically met by cash flow generated from
long-term assets. Consequently, consistent with industry practice, the
accompanying balance sheet is presented on an unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. At December 30,
1997, the Company had no cash equivalents.
Inventories
Inventories consist of equipment, tools, parts, fuel and related supply
items. Inventories are stated at the lower of average cost or market.
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using accelerated and straight-line methods. The
range of useful lives estimated by management for rental equipment is three to
seven years. Rental equipment having a cost of $500 or less is expensed at the
time of purchase. Ordinary maintenance and repair costs are charged to
operations as incurred.
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to rental equipment is recognized over the
contract term.
Property and equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using accelerated and straight-line methods. The range of
useful lives estimated by management for property and equipment is five to seven
years. Ordinary maintenance and repair costs are charged to operations as
incurred.
Impairment of long-lived assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by
F-62
<PAGE> 130
TITAN RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
those assets are less than the assets' carrying amount, the Company records
impairment as required under generally accepted accounting principles. No such
impairment losses were incurred for the periods presented.
Fair value of financial instruments
The carrying amounts reported in the accompanying balance sheet for cash
and cash equivalents, accounts receivable, income taxes receivable, accounts
payable, accrued expenses and other liabilities and debt approximate fair value
as of December 30, 1997 and approximates the carrying value of such debt.
Income taxes
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes," which requires, among other things,
recognition of future tax effects measured at enacted rates attributable to
deductible temporary differences between financial statement and income tax
bases of assets and liabilities to the extent that realization of said effects
is more likely than not.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of diverse customers make
up the Company's customer base. No single customer represents greater than 10%
of total accounts receivable. The Company controls credit risk through credit
approvals, credit limits and monitoring procedures.
3. RENTAL EQUIPMENT
As of December 30, 1997, rental equipment and related accumulated
depreciation consist of the following:
<TABLE>
<S> <C>
Rental equipment............................................ $1,491,084
Less -- accumulated depreciation............................ (358,338)
----------
Rental equipment, net............................. $1,132,746
==========
</TABLE>
F-63
<PAGE> 131
TITAN RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
A summary of property and equipment as of December 30, 1997, is as follows:
<TABLE>
<S> <C>
Furniture, fixtures and office equipment.................... $121,175
Less -- accumulated depreciation............................ (47,870)
--------
Property and equipment, net....................... $ 73,305
========
</TABLE>
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities as of December 30, 1997, consists of
the following:
<TABLE>
<S> <C>
Payroll-related............................................. $12,746
Property and sales tax...................................... 30,469
Other....................................................... 54,139
-------
Accrued expenses and other liabilities............ $97,354
=======
</TABLE>
6. DEBT
As of December 30, 1997, debt consists of the following:
<TABLE>
<S> <C>
Line of credit, secured by accounts receivable and
inventory, interest at prime plus .50% (9.5% at December
30, 1997), payable in monthly installments through
December 2002............................................. $ 33,303
Equipment notes, secured by equipment, interest from 7.90%
to 9.25%, payable in various monthly installments through
January 2000.............................................. 468,309
--------
Total debt........................................ $501,612
========
</TABLE>
Maturities of the Company's debt at December 30, 1997, for the years ended
December 30, are as follows:
<TABLE>
<S> <C>
1998........................................................ $247,731
1999........................................................ 158,804
2000........................................................ 95,077
--------
Total............................................. $501,612
========
</TABLE>
7. INCOME TAXES
The provision for Federal and state income taxes for the period from
January 1, 1997 through December 30, 1997, is as follows:
<TABLE>
<S> <C>
Current..................................................... $111,886
Deferred.................................................... 56,199
--------
$168,085
========
Federal..................................................... $112,552
State....................................................... 55,533
--------
$168,085
========
</TABLE>
F-64
<PAGE> 132
TITAN RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the difference between the expected provision for
income taxes for the period from January 1, 1997 through December 30, 1997,
using the statutory federal income tax rate of 34% and the Company's effective
tax rate is as follows:
<TABLE>
<S> <C>
Provision at statutory tax rate............................. $149,700
State income taxes, net of federal benefit.................. 36,652
Other....................................................... (18,267)
--------
$168,085
========
</TABLE>
The components of deferred income tax assets and (liabilities) as of
December 30, 1997, are as follows:
<TABLE>
<S> <C>
Accrued liabilities......................................... $ 22,000
Accounts receivable......................................... (36,504)
Prepaid expenses............................................ (13,429)
Property and equipment...................................... (166,374)
---------
Deferred tax liability............................ $(194,307)
=========
</TABLE>
8. RELATED-PARTY TRANSACTIONS
Effective January 1, 1994, the Company entered into a lease with a related
party to lease its office and operating facilities. The minimum annual rental
payments amount to $84,000 per year and are paid on a month-to-month basis.
The accompanying financial statements include revenue of $173,499 for the
period from January 1, 1997 through December 30, 1997 and outstanding accounts
receivable as of December 30, 1997 of $24,117 related to sales to a related
party.
9. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases rental equipment under operating leases. Future minimum
lease payments, by year and in the aggregate, for noncancelable operating leases
with initial or remaining terms of one year or more are as follows at December
30, 1997:
<TABLE>
<S> <C>
1998........................................................ $74,292
1999........................................................ 39,893
</TABLE>
Rental equipment expense under noncancelable operating leases was $74,292
for the period from January 1, 1997 through December 30, 1997.
Litigation, Claims and Assessments
From time to time, the Company may be engaged in routine litigation and
disputes incidental to its business. The Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying financial statements.
F-65
<PAGE> 133
TITAN RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
10. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution profit-sharing plan under which
employees having worked a minimum of twelve months are eligible to participate.
Employer contributions, which are discretionary and depend on the Company's
profitability, were approximately $49,000 for 1997.
11. SUBSEQUENT EVENT
Effective December 31, 1997, all of the outstanding stock of the Company
was purchased by NationsRent, Inc., an unrelated third party, in exchange for
cash and debt.
F-66
<PAGE> 134
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Bode-Finn Company:
We have audited the accompanying balance sheets of The Bode-Finn Company (an
Ohio corporation) as of December 31, 1996 and 1997, and the related statements
of income, stockholders' equity and cash flows for each of the three years in
the 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Bode-Finn Company as of
December 31, 1996 and 1997, and the results of its operations and cash flows for
each of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 12, 1998.
F-67
<PAGE> 135
THE BODE-FINN COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........................... $ 244,625 $ 398,042 $ 887,170
Accounts receivable, net of allowance for doubtful
accounts of $770,000, $760,000 and $798,180
(unaudited) for 1996, 1997 and 1998,
respectively...................................... 8,013,745 7,840,930 7,250,208
Inventories, net.................................... 4,635,371 3,823,388 4,855,835
Rental equipment, net............................... 20,438,368 21,560,523 21,920,589
Property and equipment, net......................... 1,041,681 956,768 989,588
Other assets........................................ 879,378 886,487 849,219
----------- ----------- -----------
Total assets.............................. $35,253,168 $35,466,138 $36,752,609
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable.................................. $ 3,951,392 $ 2,350,332 $ 3,921,807
Accrued expenses and other liabilities............ 4,623,823 5,374,820 5,094,374
Debt.............................................. 16,407,989 16,086,500 15,839,363
----------- ----------- -----------
Total liabilities......................... 24,983,204 23,811,652 24,855,544
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 12)
STOCKHOLDERS' EQUITY:
Common stock, no par value, 2,500 shares
authorized, 1,250 shares issued and
outstanding.................................... 125,000 125,000 125,000
Retained earnings................................. 10,144,964 11,529,486 11,772,065
----------- ----------- -----------
Total stockholders' equity................ 10,269,964 11,654,486 11,897,065
----------- ----------- -----------
Total liabilities and stockholders'
equity.................................. $35,253,168 $35,466,138 $36,752,609
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-68
<PAGE> 136
THE BODE-FINN COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTH
PERIOD ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Equipment rentals.............. $18,231,447 $19,772,670 $20,211,679 $ 4,742,679 $ 4,687,176
Sales of equipment, parts and
supplies.................... 26,599,122 32,722,336 33,821,681 7,324,630 8,254,837
Service and other.............. 5,468,525 6,251,936 7,216,815 1,753,068 1,768,973
----------- ----------- ----------- ----------- -----------
50,299,094 58,746,942 61,250,175 13,820,377 14,710,986
COST OF REVENUE:
Cost of equipment rentals,
excluding depreciation...... 4,771,698 5,229,390 4,978,411 1,323,300 1,399,440
Rental equipment
depreciation................ 5,436,903 6,515,970 7,265,763 1,745,328 1,832,972
Cost of sales of equipment,
parts and supplies.......... 20,161,831 25,937,735 26,425,012 5,752,417 6,177,680
Other.......................... 2,052,764 1,895,993 2,159,402 589,033 576,602
----------- ----------- ----------- ----------- -----------
32,423,196 39,579,088 40,828,588 9,410,078 9,986,694
----------- ----------- ----------- ----------- -----------
Gross profit........... 17,875,898 19,167,854 20,421,587 4,410,299 4,724,292
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES........ 14,093,787 15,443,249 16,596,595 3,755,319 3,964,404
NONRENTAL DEPRECIATION AND
AMORTIZATION................... 205,564 260,652 256,808 72,853 61,814
----------- ----------- ----------- ----------- -----------
Operating income....... 3,576,547 3,463,953 3,568,184 582,127 698,074
----------- ----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense............... (1,329,494) (1,494,310) (1,601,831) (349,526) (379,571)
Other income................... 227,106 212,218 347,947 39,326 85,795
----------- ----------- ----------- ----------- -----------
Other income (expense),
net.................. (1,102,388) (1,282,092) (1,253,884) (310,200) (293,776)
----------- ----------- ----------- ----------- -----------
Income before provision
for income taxes..... 2,474,159 2,181,861 2,314,300 271,927 404,298
PROVISION FOR INCOME TAXES....... 1,036,771 936,241 929,778 137,461 161,719
----------- ----------- ----------- ----------- -----------
NET INCOME....................... $ 1,437,388 $ 1,245,620 $ 1,384,522 $ 134,466 $ 242,579
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-69
<PAGE> 137
THE BODE-FINN COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 1997
AND THE THREE MONTH PERIOD ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------
NUMBER TOTAL
OF RETAINED STOCKHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
--------- -------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1995.................... 1,250 $125,000 $ 7,461,956 $ 7,586,956
Net income................................ -- -- 1,437,388 1,437,388
----- -------- ----------- -----------
BALANCE, December 31, 1995.................. 1,250 125,000 8,899,344 9,024,344
Net income................................ -- -- 1,245,620 1,245,620
----- -------- ----------- -----------
BALANCE, December 31, 1996.................. 1,250 125,000 10,144,964 10,269,964
Net income................................ -- -- 1,384,522 1,384,522
----- -------- ----------- -----------
BALANCE, December 31, 1997.................. 1,250 125,000 11,529,486 11,654,486
Net income (unaudited).................... -- -- 242,579 242,579
----- -------- ----------- -----------
BALANCE, March 31, 1998 (unaudited)......... 1,250 $125,000 $11,772,065 $11,897,065
===== ======== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-70
<PAGE> 138
THE BODE-FINN COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTH
FOR THE YEAR ENDED DECEMBER 31, PERIOD ENDED MARCH 31,
------------------------------------------ --------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................... $ 1,437,388 $ 1,245,620 $ 1,384,522 $ 134,466 $ 242,579
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization..... 5,642,467 6,776,622 7,522,571 1,818,181 1,899,786
Provision for bad debts........... 291,256 413,151 244,184 54,550 57,169
Provision for inventory
obsolescence.................... -- -- 50,000 -- --
Gain on sale of rental
equipment....................... (618,322) (712,961) (800,940) (121,132) (131,185)
(Gain) loss on sale of property
and equipment................... 740 (22,522) (230,537) 1,231 (29,649)
Changes in operating assets and
liabilities:
Accounts receivable............. (220,880) (810,847) (71,369) 390,384 533,553
Inventories..................... (1,359,110) 1,198,655 1,614,587 553,534 (795,309)
Other assets.................... 275,012 140,938 (7,109) (16,922) 37,268
Accounts payable................ 604,748 1,179,194 (1,601,060) (1,008,860) 1,571,475
Accrued expenses and other
liabilities.................. 383,309 (274,895) 750,997 141,046 (280,446)
------------ ------------ ------------ ------------ -----------
Total adjustments............ 4,999,220 7,887,335 7,471,324 1,812,012 2,862,662
------------ ------------ ------------ ------------ -----------
Net cash provided by
operating activities....... 6,436,608 9,132,955 8,855,846 1,946,478 3,105,241
------------ ------------ ------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of rental equipment... (10,733,785) (10,254,290) (10,364,431) (2,720,488) (2,588,134)
Purchases of property and
equipment.................... (419,435) (702,564) (211,398) (43,803) (101,984)
Proceeds from sale of rental
equipment.................... 1,690,437 1,850,831 1,736,844 283,554 289,142
Proceeds from sale of property
and equipment................ 16,422 42,378 458,045 1,200 32,000
------------ ------------ ------------ ------------ -----------
Net cash used in investing
activities................. (9,446,361) (9,063,645) (8,380,940) (2,479,537) (2,368,976)
------------ ------------ ------------ ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt................ 8,236,990 10,797,136 17,437,380 18,054,160 758,150
Repayments of debt................ (5,331,819) (10,831,673) (17,758,869) (17,066,355) (1,005,287)
------------ ------------ ------------ ------------ -----------
Net cash provided by (used in)
financing activities............ 2,905,171 (34,537) (321,489) 987,805 (247,137)
------------ ------------ ------------ ------------ -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................... (104,582) 34,773 153,417 454,746 489,128
CASH AND CASH EQUIVALENTS, beginning
of period........................... 314,434 209,852 244,625 244,625 398,042
------------ ------------ ------------ ------------ -----------
CASH AND CASH EQUIVALENTS, end of
period.............................. $ 209,852 $ 244,625 $ 398,042 $ 699,371 $ 887,170
============ ============ ============ ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.............. $ 1,441,462 $ $1,476,730 $ 1,582,877 $ 349,380 $ 373,420
============ ============ ============ ============ ===========
Cash paid for income taxes.......... $ 832,954 $ 915,026 $ 812,481 $ 98,200 $ 88,000
============ ============ ============ ============ ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-71
<PAGE> 139
THE BODE-FINN COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. ORGANIZATION AND BASIS OF PRESENTATION:
The Bode-Finn Company (the "Company") was incorporated in Ohio in January
1938. The Company rents a broad array of equipment to a diverse customer base
that includes construction industry participants, industrial companies and
others in the states of Ohio, Kentucky, West Virginia and Indiana. The Company
also engages in related activities such as selling used equipment, acting as a
distributor for certain new equipment and selling related merchandise and parts.
The nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the accompanying audited and unaudited
balance sheets are presented on an unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents.
Inventories
Inventories consist of equipment, parts and related supply items. New and
used equipment inventories are stated at the lower of cost (determined using a
first-in, first-out "FIFO" basis) or market. Parts inventories are determined
using a combination of the last-in, first-out "LIFO" and FIFO methods and are
stated at replacement cost which approximates market.
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using an accelerated method. The range of useful
lives estimated by management for rental equipment is five to seven years.
Rental equipment is depreciated to a salvage value of ten to twenty percent of
cost. Rental equipment having a cost of $2,000 or less is expensed at the time
of purchase. Ordinary maintenance and repair costs are charged to operations as
incurred.
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to rental equipment is recognized over the
contract term.
Property and equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using an accelerated method. The range of useful lives
estimated by management for property and equipment is two to thirty-nine years.
Property and equipment is depreciated to a salvage value of zero to twenty
percent of cost. Ordinary maintenance and repair costs are charged to operations
as incurred.
F-72
<PAGE> 140
THE BODE-FINN COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Impairment of long-lived assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount, the Company records impairment as required under generally
accepted accounting principles. No such impairment losses were incurred for the
periods presented.
Fair value of financial instruments
The carrying amounts for accounts receivable, accounts payable and accrued
expenses and other liabilities approximate fair value due to the short-term
nature of these accounts. The fair value of debt is determined using current
interest rates for similar instruments as of December 31, 1996 and 1997 and
approximates the carrying value of these notes due to the fact that the
underlying instruments include provisions to adjust note balances and interest
rates to approximate fair market value.
Income taxes
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes," which requires, among other things,
recognition of future tax benefits measured at enacted rates attributable to
deductible temporary differences between financial statement and income tax
bases of assets and liabilities and to tax net operating loss carryforwards to
the extent that realization of said benefits is more likely than not.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of geographically diverse
customers make up the Company's customer base. No single customer represents
greater than 10% of total accounts receivable. The Company controls credit risk
through credit approvals, credit limits, and monitoring procedures.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Interim financial information
In the opinion of management, the unaudited interim financial information
as of March 31, 1998 and for the three month periods ended March 31, 1997 and
1998 furnished herein reflects all adjustments consisting of normal recurring
accruals that, in the opinion of management, are necessary for a fair
presentation of the results for the interim period. The results of operations
for the three months ended March 31, 1998 are not necessarily indicative of the
results to be expected for the entire year.
F-73
<PAGE> 141
THE BODE-FINN COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES:
Inventories are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
New and used equipment, FIFO............. $ 2,581,561 $ 1,590,860 $ 2,319,053
Parts, LIFO.............................. 645,076 801,055 747,327
Parts, FIFO.............................. 900,780 901,854 921,799
Work in progress, at cost................ 682,954 754,619 1,092,656
Allowance for obsolete inventory......... (175,000) (225,000) (225,000)
------------ ------------ ------------
Total inventories, net......... $ 4,635,371 $ 3,823,388 $ 4,855,835
============ ============ ============
</TABLE>
The current costs, determined by using the FIFO basis, of LIFO inventories
was $1,122,383, $1,301,380 and $1,247,652 (unaudited) at December 31, 1996 and
1997 and March 31, 1998.
4. RENTAL EQUIPMENT:
Rental equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment......................... $ 46,719,676 $ 50,299,100 $ 51,198,041
Less -- accumulated depreciation......... (26,281,308) (28,738,577) (29,277,452)
------------ ------------ ------------
Rental equipment, net.......... $ 20,438,368 $ 21,560,523 $ 21,920,589
============ ============ ============
</TABLE>
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Furniture, fixtures and office
equipment.............................. $ 3,728,682 $ 3,588,314 $ 3,621,218
Less -- accumulated depreciation......... (2,687,001) (2,631,546) (2,631,630)
------------ ------------ ------------
Property and equipment, net.... $ 1,041,681 $ 956,768 $ 989,588
============ ============ ============
</TABLE>
F-74
<PAGE> 142
THE BODE-FINN COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCRUED EXPENSES AND OTHER LIABILITIES:
Accrued expenses and other liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Compensation and payroll-related............... $2,083,332 $2,422,240 $1,723,623
Deferred income-rental and maintenance......... 777,237 955,808 999,391
Taxes.......................................... 532,373 698,314 737,698
Medical insurance reserve...................... 232,256 302,381 302,381
Other.......................................... 998,625 996,077 1,331,281
---------- ---------- ----------
Accrued expenses and other liabilities......... $4,623,823 $5,374,820 $5,094,374
========== ========== ==========
</TABLE>
7. DEBT:
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable, unsecured, interest at 6%,
payable on demand......................... $ 28,095 $ 35,525 $ 43,675
Revolving $7,000,000 credit agreement,
secured by rental equipment and inventory,
interest at prime, 8.5% at December 31,
1997 and March 31, 1998 (unaudited), due
1999...................................... -- 2,950,000 3,350,000
Revolving $15,000,000 credit agreement,
secured by rental equipment and inventory,
interest at 9.25%, payable in monthly
installments through February 2003........ -- 12,916,670 12,291,674
Revolving $8,000,000 credit agreement,
secured by rental equipment and inventory,
interest at prime 8.5% at December 31,
1997 and March 31, 1998 (unaudited),
repaid during 1997........................ 6,650,000 -- --
Notes payable, secured by rental equipment
and inventory, interest at prime plus
1/2% (9.0% at December 31, 1997 and March
31, 1998 (unaudited)), payable in monthly
installments, repaid during 1997.......... 9,123,939 -- --
Note payable, secured by property and
equipment, interest at 9.1%, payable in
monthly installments, repaid during
1997...................................... 317,337 -- --
Rental equipment notes, secured by rental
equipment and inventory, interest from
8.5% to 10.5%, payable in various monthly
installments through 2001................. 288,618 184,305 154,014
----------- ----------- -----------
Total debt........................ $16,407,989 $16,086,500 $15,839,363
=========== =========== ===========
</TABLE>
Maturities of the Company's debt at December 31, 1997 for the years ended
December 31, are as follows:
F-75
<PAGE> 143
THE BODE-FINN COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
1998........................................................ $ 2,610,563
1999........................................................ 5,497,943
2000........................................................ 2,536,997
2001........................................................ 2,524,034
2002........................................................ 2,500,297
2003 and thereafter......................................... 416,666
-----------
$16,086,500
===========
</TABLE>
8. INCOME TAXES:
The provision (benefit) for Federal and state income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTH
PERIOD ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------- -------------------
1995 1996 1997 1997 1998
---------- ---------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current................................... $ 800,518 $1,157,016 $828,793 $128,263 $150,404
Deferred.................................. 236,253 (220,775) 100,985 9,198 11,315
---------- ---------- -------- -------- --------
$1,036,771 $ 936,241 $929,778 $137,461 $161,719
========== ========== ======== ======== ========
Federal................................... $ 888,321 $ 805,329 $789,496 $116,774 $137,462
State and local........................... 148,450 130,912 140,282 20,687 24,257
---------- ---------- -------- -------- --------
$1,036,771 $ 936,241 $929,778 $137,461 $161,719
========== ========== ======== ======== ========
</TABLE>
The deferred income tax results from temporary differences in the
recognition of certain items for tax and financial statement purposes,
principally from differences in depreciation methods, allowance for doubtful
accounts and other expenses not currently deductible for tax purposes. For
financial statement purposes, the credit has been recognized in 1997 as a
deferred tax asset.
A reconciliation of the difference between the expected provision for
income taxes using the statutory federal income tax rate of 34% and the
Company's actual provision is as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTH
PERIOD ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- -------------------
1995 1996 1997 1997 1998
---------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Provision at statutory tax rate............. $ 841,214 $741,832 $786,862 $117,225 $137,462
State and local income taxes, net of federal
benefit................................... 97,977 86,402 92,586 13,653 16,010
Other....................................... 97,580 108,007 50,330 6,583 8,247
---------- -------- -------- -------- --------
$1,036,771 $936,241 $929,778 $137,461 $161,719
========== ======== ======== ======== ========
</TABLE>
F-76
<PAGE> 144
THE BODE-FINN COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred income tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Reserves and accruals not deductible until paid..... $ 945,915 $ 1,103,736 $ 1,116,255
Depreciation........................................ (1,274,973) (1,394,170) (1,320,000)
Alternative minimum tax credit carryforward......... 392,356 252,747 252,747
----------- ----------- -----------
Net deferred tax asset (liability)........ $ 63,298 $ (37,687) $ 49,002
=========== =========== ===========
</TABLE>
Net deferred tax assets and net deferred tax liability are reported in the
accompanying balance sheets as components of other assets and accrued expenses
and other liabilities, respectively.
9. COMMITMENTS AND CONTINGENCIES:
Operating Leases
The Company leases rental equipment, real estate and certain office
equipment under noncancelable operating leases. These leases expire at various
dates through September 30, 2010. Certain real estate leases require the Company
to pay maintenance, insurance, taxes and certain other expenses in addition to
the stated rentals. Future minimum lease payments for noncancelable operating
leases with initial or remaining terms of one year or more are as follows at
December 31, 1997:
<TABLE>
<S> <C>
1998..................................................... $1,644,419
1999..................................................... 1,055,192
2000..................................................... 568,309
2001..................................................... 356,649
2002..................................................... 166,289
Thereafter............................................... 1,196,538
----------
$4,987,396
==========
</TABLE>
Rent expense under noncancelable operating leases for the years ended
December 31, 1995, 1996 and 1997 were $1,537,082, $1,598,979 and $1,824,938,
respectively.
Litigation
From time to time, the Company may be engaged in routine litigation and
disputes incidental to its business. The Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying consolidated financial statements.
10. RELATED PARTY TRANSACTIONS:
The Company leases land and buildings used in its operations from its
stockholders and officers. The leases cover several operating locations and
expire at various dates through September 30, 2010. The leases require minimum
monthly payments plus override amounts when certain conditions are met or
exceeded. The total rent expense related to these leases for the years ended
December 31, 1995, 1996 and 1997 was $661,481, $739,781 and $768,716,
respectively.
F-77
<PAGE> 145
THE BODE-FINN COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. EMPLOYEE BENEFIT PLANS:
401(k) Plan
The Company participates in a 401(k) plan (the "Plan") which covers certain
full-time employees over 21 years old who have worked a minimum of one year for
the Company. The Plan is funded by employee deferrals of income and
discretionary contributions by the Company. The Company's matching contributions
totaled $207,982, $262,267 and $302,769 for the years ended December 31, 1995,
1996 and 1997. No amount was due to the Plan as of December 31, 1997.
Profit Sharing Plan
All full-time employees over 21 years old who have worked a minimum of one
year for the Company may participate in the Company's Profit Sharing Retirement
Plan (the "Profit Sharing Plan"). The Profit Sharing Plan is funded by
contributions made by the Company. The Company's Board of Directors determines
the annual amount of contributions. The Company's Profit Sharing retirement
contributions totaled $550,000, $400,000 and $508,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
Deferred Compensation Plan
The Company has deferred compensation agreements with various employees.
Under the terms of the agreements, the Company will pay these employees a
defined amount for ten years subsequent to their retirement from the Company, if
retirement from the Company is after the agreed retirement date. A deferred
compensation accrual of approximately $534,226, $539,585 and $539,585
(unaudited) is included in the accompanying balance sheets in accrued expenses
and other liabilities at December 31, 1996 and 1997 and March 31, 1998.
12. SUBSEQUENT EVENT:
Effective May 5, 1998, substantially all of the outstanding stock of the
Company was purchased by NationsRent, Inc., an unrelated third party, in
exchange for cash and stock.
F-78
<PAGE> 146
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To RFL Enterprises, Inc.:
We have audited the accompanying balance sheet of RFL Enterprises, Inc. (an
Indiana S corporation) as of December 31, 1997, and the related statements of
income, stockholder's equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of RFL Enterprises, Inc. as of
December 31, 1997, and the results of its operations and cash flows for the year
then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 8, 1998.
F-79
<PAGE> 147
RFL ENTERPRISES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 50,158 $ 390,055
Accounts receivable, net of allowances for doubtful accounts
of $10,000 and $10,000 (unaudited) as of December 31, 1997
and March 31, 1998, respectively.......................... 215,240 170,300
Inventories................................................. 185,366 180,962
Rental equipment, net....................................... 1,622,404 1,333,136
Property, plant and equipment, net.......................... 199,192 197,592
---------- ----------
Total assets...................................... $2,272,360 $2,272,045
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable.......................................... $ 1,791 $ 1,362
Accrued expenses and other liabilities.................... 58,041 54,940
Debt...................................................... 844,871 742,877
---------- ----------
Total liabilities................................. 904,703 799,179
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)
STOCKHOLDER'S EQUITY:
Common stock -- no par value, 1,000 shares authorized, 100
issued and outstanding................................. 10,000 10,000
Retained earnings......................................... 1,357,657 1,462,866
---------- ----------
Total stockholder's equity........................ 1,367,657 1,472,866
---------- ----------
Total liabilities and stockholder's equity........ $2,272,360 $2,272,045
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-80
<PAGE> 148
RFL ENTERPRISES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE FOR THE THREE MONTH
YEAR ENDED PERIOD ENDED MARCH 31,
DECEMBER 31, -------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUE:
Equipment rentals........................................ $ 966,277 $241,591 $201,806
Sales of equipment, parts and supplies................... 1,950,382 522,518 473,635
Other.................................................... 126,511 27,454 33,913
---------- -------- --------
3,043,170 791,563 709,354
COST OF REVENUE:
Cost of equipment rentals................................ 463,165 105,353 102,899
Rental equipment depreciation............................ 261,405 58,259 77,144
Cost of sales of equipment, parts and supplies........... 1,471,807 334,783 326,984
---------- -------- --------
2,196,377 498,395 507,027
---------- -------- --------
Gross profit..................................... 846,793 293,168 202,327
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............... 208,694 47,470 46,365
NONRENTAL DEPRECIATION..................................... 23,307 1,600 1,600
---------- -------- --------
Operating income................................. 614,792 244,098 154,362
---------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense......................................... (92,293) (20,654) (16,891)
Interest income.......................................... 14,925 2,356 348
---------- -------- --------
Total other income (expense), net................ (77,368) (18,298) (16,543)
---------- -------- --------
Net income....................................... 537,424 225,800 137,819
PRO FORMA PROVISION FOR INCOME TAXES....................... 214,970 90,320 55,128
---------- -------- --------
PRO FORMA NET INCOME....................................... $ 322,454 $135,480 $ 82,691
========== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-81
<PAGE> 149
RFL ENTERPRISES, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE
THREE MONTH PERIOD ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK
NO PAR VALUE
-------------------
NUMBER RETAINED
OF SHARES AMOUNT EARNINGS TOTAL
--------- ------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1997............................ 100 $10,000 $ 940,484 $ 950,484
Distribution...................................... -- -- (120,251) (120,251)
Net income........................................ -- -- 537,424 537,424
--- ------- ---------- ----------
BALANCE, December 31, 1997.......................... 100 10,000 1,357,657 1,367,657
Distribution (unaudited).......................... -- -- (32,610) (32,610)
Net income (unaudited)............................ -- -- 137,819 137,819
--- ------- ---------- ----------
BALANCE, March 31, 1998 (unaudited)................. 100 $10,000 $1,462,866 $1,472,866
=== ======= ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-82
<PAGE> 150
RFL ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE THREE MONTH
YEAR ENDED PERIOD ENDED MARCH 31,
DECEMBER 31, -------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 537,424 $ 225,800 $ 137,819
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation......................................... 284,712 59,859 78,744
Gain on sale of rental equipment..................... (471,986) (177,803) (150,519)
Changes in operating assets and liabilities:
Accounts receivable, net........................... 56,067 97,997 44,940
Inventories........................................ (29,941) (3,529) 4,404
Accounts payable................................... 968 174,349 (429)
Accrued expenses and other liabilities............. 31,674 (11,446) (3,101)
----------- --------- ---------
Net cash provided by operating activities....... 408,918 365,227 111,858
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of rental equipment........................... (2,077,859) (616,880) (110,992)
Proceeds from sale of rental equipment.................. 1,914,038 522,518 473,635
----------- --------- ---------
Net cash provided by (used in) investing
activities.................................... (163,821) (94,362) 362,643
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of distributions................................ (120,251) (120,000) (32,610)
Repayments of debt...................................... (133,202) (101,752) (101,994)
----------- --------- ---------
Net cash used in financing activities........... (253,453) (221,752) (134,604)
----------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... (8,356) 49,113 339,897
CASH AND CASH EQUIVALENTS, beginning of period............ 58,514 58,514 50,158
----------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period.................. $ 50,158 $ 107,627 $ 390,055
=========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................. $ 87,293 $ 20,654 $ 16,891
=========== ========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-83
<PAGE> 151
RFL ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
RFL Enterprises, Inc. (the "Company") was incorporated in 1983 as an
Indiana S corporation. The Company rents a broad array of equipment to a
customer base that includes principally construction industry participants and
industrial companies. The Company also engages in related activities such as
selling used equipment, acting as a distributor for certain new equipment and
selling related merchandise and parts. The nature of the Company's business is
such that short-term obligations are typically met by cash flow generated from
long-term assets. Consequently, consistent with industry practice, the
accompanying audited and unaudited balance sheets are presented on an
unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. The Company had no
cash equivalents at December 31, 1997 and March 31, 1998 (unaudited).
Inventories
Inventories consist of equipment, tools, parts, fuel and related supply
items and are stated at the lower of average weighted cost or market.
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using the straight-line method. The range of
useful lives estimated by management for rental equipment is five to ten years.
Ordinary maintenance and repair costs are charged to operations as incurred.
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to rental equipment is recognized over the
contract term.
Property, plant and equipment
Property, plant and equipment are recorded at cost and depreciated over
their estimated useful lives using the straight-line method. The range of useful
lives estimated by management for property and equipment is five to thirty-nine
years. Ordinary maintenance and repair costs are charged to operations as
incurred.
Impairment of long-lived assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount, the Company records impairment as required
F-84
<PAGE> 152
RFL ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
under generally accepted accounting principles. No such impairment losses were
incurred for the periods presented.
Fair value of financial instruments
The carrying amounts reported in the accompanying balance sheets for cash
and cash equivalents, accounts receivable, accounts payable and accrued expenses
and other liabilities approximate fair value as of December 31, 1997 and March
31, 1998 (unaudited).
Income taxes
The Company is an S corporation for income tax purposes. Accordingly,
income, losses and related temporary differences which arise in the recording of
income and expense items for financial reporting and tax reporting purposes are
included in the individual tax return of the shareholder. Therefore, no
provision or liability for Federal and state income taxes has been included in
the accompanying financial statements.
The pro forma adjustment to reflect income taxes in the accompanying
statements of income is for information purposes only. The pro forma provision
for income tax has been provided at the estimated rate of 40%.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Three customers each represent greater than 10%
of total accounts receivable. As of December 31, 1997, these accounts
represented 40% of total accounts receivable. The Company controls credit risk
through credit approvals, credit limits, and monitoring procedures.
Interim financial information
In the opinion of management, the unaudited interim financial information
as of March 31, 1998 and for the three month periods ended March 31, 1997 and
1998 furnished herein reflects all adjustments consisting of normal recurring
accruals that, in the opinion of management, are necessary for a fair
presentation of the results for the interim period. The results of operations
for the three months ended March 31, 1998 are not necessarily indicative of the
results to be expected for the entire year primarily due to seasonal variations.
F-85
<PAGE> 153
RFL ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Rental equipment............................................ $2,161,788 $1,880,998
Less -- accumulated depreciation............................ (539,384) (547,862)
---------- ----------
Rental equipment, net............................. $1,622,404 $1,333,136
========== ==========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Furniture, fixtures and office equipment.................... $ 20,603 $ 20,603
Building.................................................... 140,820 140,820
Land........................................................ 80,000 80,000
-------- --------
241,423 241,423
Less -- accumulated depreciation............................ (42,231) (43,831)
-------- --------
Property and equipment, net....................... $199,192 $197,592
======== ========
</TABLE>
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Deferred revenues........................................... $36,000 $36,000
Sales and property tax...................................... 12,197 13,183
Other....................................................... 9,844 5,757
------- -------
Accrued expenses and other liabilities............ $58,041 $54,940
======= =======
</TABLE>
F-86
<PAGE> 154
RFL ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Line of credit, interest at 8.75%, payable on demand........ $550,000 $ 64,000
Term loan, secured by accounts receivable, inventories and
equipment, interest at 9.9%, payable in semi annual
installments through December 1999........................ 114,000 500,000
Mortgage, secured by building and land, interest at 9.18%,
payable in monthly installments through June 2009......... 157,871 155,877
Unsecured note payable to stockholder, interest at 10%,
payable on demand......................................... 23,000 23,000
-------- --------
Total debt........................................ $844,871 $742,877
======== ========
</TABLE>
Subsequent to December 31, 1997, the Company retired the line of credit,
term loan and note payable to stockholder in connection with its purchase by
NationsRent, Inc., an unrelated third party. Maturities of the mortgage at
December 31, 1997, for the years ended December 31, are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 12,000
1999........................................................ 12,000
2000........................................................ 12,000
2001........................................................ 12,000
2002........................................................ 12,000
Thereafter.................................................. 97,871
--------
Total............................................. $157,871
========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
From time to time, the Company may be engaged in routine litigation and
disputes incidental to its business. The Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying financial statements.
8. SUBSEQUENT EVENT
Effective April 15, 1998, substantially all of the Company's operating
assets and liabilities were purchased by NationsRent, Inc. in exchange for cash
and debt.
F-87
<PAGE> 155
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Naples Rent-All & Sales Company, Inc.:
We have audited the accompanying balance sheet of Naples Rent-All & Sales
Company, Inc. (a Florida S corporation) as of December 31, 1997, and the related
statements of income, stockholder's equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Naples Rent-All & Sales
Company, Inc. as of December 31, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 1, 1998.
F-88
<PAGE> 156
NAPLES RENT-ALL & SALES COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 98,660 $ 87,208
Accounts receivable, net of allowances for doubtful accounts
of $34,035 and $24,072 (unaudited) as of December 31, 1997
and March 31, 1998, respectively.......................... 408,579 447,831
Inventories................................................. 816,397 957,373
Rental equipment, net....................................... 913,137 866,056
Property and equipment, net................................. 119,647 144,475
Other assets................................................ 27,259 55,240
---------- ----------
Total assets...................................... $2,383,679 $2,558,183
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable.......................................... $ 428,714 $ 564,619
Accrued expenses and other liabilities.................... 148,452 172,948
Debt...................................................... 176,128 171,420
---------- ----------
Total liabilities................................. 753,294 908,987
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 9)
STOCKHOLDER'S EQUITY:
Common stock -- $10 par value, 5,500 shares authorized,
5,129 shares issued.................................... 51,290 51,290
Additional paid-in capital................................ 6,826 6,826
Retained earnings......................................... 1,901,639 1,920,450
Treasury stock -- 1,709 shares at cost.................... (329,370) (329,370)
---------- ----------
Total stockholder's equity........................ 1,630,385 1,649,196
---------- ----------
Total liabilities and stockholder's equity........ $2,383,679 $2,558,183
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-89
<PAGE> 157
NAPLES RENT-ALL & SALES COMPANY, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE FOR THE THREE MONTH
YEAR ENDED PERIOD ENDED MARCH 31,
DECEMBER 31, -------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUE:
Equipment rentals....................................... $2,262,014 $ 509,684 $ 512,784
Sales of equipment, parts and supplies.................. 3,747,704 807,151 867,976
Other................................................... 57,121 19,900 24,782
---------- ---------- ----------
6,066,839 1,336,735 1,405,542
COST OF REVENUE:
Cost of equipment rentals, excluding depreciation....... 1,706,311 360,942 394,948
Rental equipment depreciation........................... 440,152 93,437 94,377
Cost of sales of equipment, parts and supplies.......... 2,967,261 627,675 686,811
---------- ---------- ----------
5,113,724 1,082,054 1,176,136
---------- ---------- ----------
Gross profit.................................... 953,115 254,681 229,406
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.............. 517,662 109,503 119,820
NONRENTAL DEPRECIATION AND AMORTIZATION................... 44,970 6,981 9,333
---------- ---------- ----------
Operating income................................ 390,483 138,197 100,253
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense........................................ (23,535) (4,976) (3,976)
Other income, net....................................... 52,433 14,907 13,054
---------- ---------- ----------
Total other income (expense), net............... 28,898 9,931 9,078
---------- ---------- ----------
Net income...................................... 419,381 148,128 109,331
PRO FORMA PROVISION FOR INCOME TAX........................ 167,752 59,251 43,732
---------- ---------- ----------
PRO FORMA NET INCOME...................................... $ 251,629 $ 88,877 $ 65,599
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-90
<PAGE> 158
NAPLES RENT-ALL & SALES COMPANY, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL
NUMBER PAID-IN RETAINED TREASURY
OF SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
--------- ------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997......... 5,129 $51,290 $6,826 $1,810,258 $(329,370) $1,539,004
Stockholder distributions...... -- -- -- (328,000) -- (328,000)
Net income..................... -- -- -- 419,381 -- 419,381
----- ------- ------ ---------- --------- ----------
BALANCE, December 31, 1997....... 5,129 51,290 6,826 1,901,639 (329,370) 1,630,385
Stockholder distributions
(unaudited)................. -- -- -- (90,520) -- (90,520)
Net income (unaudited)......... -- -- -- 109,331 -- 109,331
----- ------- ------ ---------- --------- ----------
BALANCE, March 31, 1998
(unaudited).................... 5,129 $51,290 $6,826 $1,920,450 $(329,370) $1,649,196
===== ======= ====== ========== ========= ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-91
<PAGE> 159
NAPLES RENT-ALL & SALES COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE THREE MONTH
YEAR ENDED PERIOD ENDED MARCH 31,
DECEMBER 31, -------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 419,381 $148,128 $109,331
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 485,122 100,418 103,710
Gain on sale of rental equipment...................... (212,328) (35,288) (69,563)
Gain on sale of property and equipment................ (4,637) -- --
Changes in operating assets and liabilities:
Accounts receivable, net............................ (64,496) (13,733) (39,252)
Inventories......................................... 64,926 (17,837) (140,976)
Other assets........................................ 1,533 (53,435) (27,981)
Accounts payable.................................... (18,273) 29,397 135,905
Accrued expenses and other liabilities.............. 31,964 (12,133) 24,496
--------- -------- --------
Net cash provided by operating activities........ 703,192 145,517 95,670
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of rental equipment............................ (560,004) (112,088) (85,472)
Purchases of property and equipment...................... (71,997) (2,869) (34,161)
Proceeds from sale of rental equipment................... 393,040 65,646 107,739
Proceeds from sale of property and equipment............. 16,320 -- --
--------- -------- --------
Net cash used in investing activities............ (222,641) (49,311) (11,894)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stockholder distributions................................ (328,000) (72,132) (90,520)
Proceeds from debt....................................... 65,000 10,632 --
Repayments of debt....................................... (188,261) (35,000) (4,708)
--------- -------- --------
Net cash used in financing activities............ (451,261) (96,500) (95,228)
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 29,290 (294) (11,452)
CASH AND CASH EQUIVALENTS, beginning of period............. 69,370 69,370 98,660
--------- -------- --------
CASH AND CASH EQUIVALENTS, end of period................... $ 98,660 $ 69,076 $ 87,208
========= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................... $ 23,535 $ 4,976 $ 3,976
========= ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-92
<PAGE> 160
NAPLES RENT-ALL & SALES COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Naples Rent-All & Sales Company, Inc. (the "Company") was incorporated in
January 1968 to serve as a rental center for homeowners and contractors
equipment, lawn and garden equipment, and golf course and turf maintenance
equipment. The Company also engages in related activities such as selling used
equipment, acting as a distributor for certain new equipment and selling related
merchandise and parts. The nature of the Company's business is such that
short-term obligations are typically met by cash flow generated from long-term
assets. Consequently, consistent with industry practice, the accompanying
audited and unaudited balance sheets are presented on an unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. As of December 31,
1997 and March 31, 1998 (unaudited), the Company had no cash equivalents.
Inventories
Inventories consist of equipment, tools, parts, fuel and related supply
items. Inventories are stated at the lower of weighted average cost or market.
Rental equipment
Rental equipment is recorded at cost and depreciated over a five-year life
using accelerated methods. Rental equipment is depreciated to a salvage value of
five percent of cost. Rental equipment having a cost of $500 or less is expensed
at the time of purchase. Ordinary maintenance and repair costs are charged to
operations as incurred.
Property and equipment
Property and equipment are recorded at cost and depreciated over an
estimated useful life of five years using the straight-line method. Ordinary
maintenance and repair costs are charged to operations as incurred. The range of
useful lives estimated by management for property and equipment is as follows:
<TABLE>
<CAPTION>
YEARS
-------------
<S> <C>
Furniture and fixtures...................................... 5
Equipment................................................... 5
Leasehold improvements...................................... Life of lease
</TABLE>
Impairment of long-lived assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount, the Company records impairment as required
F-93
<PAGE> 161
NAPLES RENT-ALL & SALES COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
under generally accepted accounting principles. No such impairment losses were
incurred for the periods presented.
Fair value of financial instruments
The carrying amounts reported in the accompanying balance sheets for cash
and cash equivalents, accounts receivable, accounts payable, accrued expenses
and other liabilities and debt approximate fair value as of December 31, 1997
and March 31, 1998 (unaudited).
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to rental equipment is recognized over the
contract term.
Income taxes
The Company is an S corporation for tax purposes. Accordingly, income,
losses and related temporary differences which arise in the recording of income
and expense items for financial reporting and tax reporting purposes are
included in the individual tax return of the stockholder. Therefore, no
provision or liability for Federal and state income taxes has been included in
the accompanying financial statements.
The pro forma adjustment to reflect income taxes in the accompanying
statements of income is for informational purposes only. The pro forma provision
for income tax has been provided at the estimated effective tax rate of 40%.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of customers make up the
Company's customer base. No single customer represents greater than 10% of total
accounts receivable. The Company controls credit risk through credit approvals,
credit limits, and monitoring procedures.
Interim financial information
In the opinion of management, the unaudited interim financial information
as of March 31, 1998 and for the three month periods ended March 31, 1997 and
1998 furnished herein reflects all adjustments consisting of normal recurring
accruals that, in the opinion of management, are necessary for a fair
presentation of the results for the interim period. The results of operations
for the three months ended March 31, 1998 are not necessarily indicative of the
results to be expected for the entire year primarily due to seasonal variations.
F-94
<PAGE> 162
NAPLES RENT-ALL & SALES COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Rental equipment............................................ $ 2,033,651 $ 2,051,524
Less -- accumulated depreciation............................ (1,120,514) (1,185,468)
----------- -----------
Rental equipment, net............................. $ 913,137 $ 866,056
=========== ===========
</TABLE>
4. PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Furniture and fixtures...................................... $ 32,697 $ 32,032
Equipment................................................... 278,072 291,313
Leasehold improvements...................................... 36,847 38,362
--------- ---------
347,616 361,707
Less -- accumulated depreciation............................ (227,969) (217,232)
--------- ---------
Property and equipment, net....................... $ 119,647 $ 144,475
========= =========
</TABLE>
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Payroll-related............................................. $ 55,247 $ 56,988
Accrued dividends payable................................... 45,000 50,429
Accrued property taxes...................................... 15,187 4,978
Other....................................................... 33,018 60,553
-------- --------
Accrued expenses and other liabilities............ $148,452 $172,948
======== ========
</TABLE>
F-95
<PAGE> 163
NAPLES RENT-ALL & SALES COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Revolving line of credit, with borrowings up to $350,000,
secured by substantially all of the Company's receivables,
interest at prime plus .25% (8.75% at December 31, 1997
and March 31, 1998), payable in monthly installments
through November 1998..................................... $ 50,000 $ 50,000
Equipment notes, secured by equipment, interest at rates
averaging approximately 7%, payable in monthly
installments through December 2000........................ 126,128 121,420
-------- --------
Total debt........................................ $176,128 $171,420
======== ========
</TABLE>
Maturities of the Company's debt at December 31, 1997 for the years ended
December 31, are as follows:
<TABLE>
<S> <C>
1998........................................................ $122,090
1999........................................................ 36,168
2000........................................................ 17,870
--------
Total............................................. $176,128
========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases real estate under operating leases. Certain real estate
leases require the Company to pay maintenance, insurance, taxes and certain
other expenses in addition to the stated rentals. Future minimum lease payments,
by year and in the aggregate, for noncancelable operating leases with initial or
remaining terms of one year or more are as follows at December 31, 1997:
<TABLE>
<S> <C>
1998........................................................ $221,710
1999........................................................ 203,234
--------
Total............................................. $424,944
========
</TABLE>
Rent expense under operating leases for the year ended December 31, 1997
and three month periods ended March 31, 1997 and 1998 was approximately
$222,000, $58,000 (unaudited) and $55,000 (unaudited), respectively.
Consulting Agreement
The Company has a consulting agreement with a former stockholder in which
the Company is required to pay the former stockholder $30,000 per year through
November 1, 1999. Consulting fees for the year ended December 31, 1997 under the
terms of this agreement were $30,000. Subsequent to year-end, all future amounts
owed under this agreement were settled in exchange for approximately $40,000.
F-96
<PAGE> 164
NAPLES RENT-ALL & SALES COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Litigation, Claims and Assessments
From time to time, the Company may be engaged in routine litigation and
disputes incidental to its business. The Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying financial statements.
8. EMPLOYEE BENEFIT PLAN
The Company has a contributory 401(k) profit-sharing plan under which
substantially all full-time employees are eligible to participate. The plan
allows for discretionary employer contributions as determined by the Company.
Employees vest in contributions made by the employer over a seven-year period.
Employer contributions for the year ended December 31, 1997 and three month
periods ended March 31, 1997 and 1998 were approximately $17,000, $0 (unaudited)
and $3,000 (unaudited), respectively.
9. SUBSEQUENT EVENT
Effective April 30, 1998, substantially all of the Company's operating
assets and liabilities were purchased by NationsRent, Inc., an unrelated third
party, in exchange for cash and debt.
F-97
<PAGE> 165
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Raymond Equipment Company, Inc.:
We have audited the accompanying balance sheets of Raymond Equipment Company,
Inc. (a Kentucky S corporation) as of June 30, 1996 and 1997, and the related
statements of income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Raymond Equipment Company, Inc.
as of June 30, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 13, 1998.
F-98
<PAGE> 166
RAYMOND EQUIPMENT COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................... $ 749,276 $ 224,684 $ 427,366
Marketable securities at market value................... 1,227,355 777,860 914,335
Accounts receivable..................................... 3,390,079 3,608,443 2,198,061
Inventories............................................. 644,061 586,321 752,124
Rental equipment, net................................... 28,865,568 32,685,787 33,704,468
Property and equipment, net............................. 2,709,715 2,719,656 2,868,278
Other assets............................................ 195,664 399,687 397,243
----------- ----------- -----------
Total assets.................................. $37,781,718 $41,002,438 $41,261,875
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable...................................... $ 974,322 $ 793,087 $ 883,350
Accrued expenses and other liabilities................ 1,059,130 539,020 328,848
Debt.................................................. 24,498,329 25,883,180 23,468,571
----------- ----------- -----------
Total liabilities............................. 26,531,781 27,215,287 24,680,769
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 10)
STOCKHOLDERS' EQUITY:
Common stock, no par value, 500,000 shares authorized,
207,650, 209,651 and 210,975 (unaudited) shares
issued and outstanding at June 30, 1996, 1997 and
March 31, 1998, respectively....................... 439,116 544,168 629,513
Retained earnings..................................... 10,461,809 12,969,978 15,442,113
Net unrealized gain on marketable
securities.................................. 349,012 273,005 509,480
----------- ----------- -----------
Total stockholders' equity.................... 11,249,937 13,787,151 16,581,106
----------- ----------- -----------
Total liabilities and stockholders' equity.... $37,781,718 $41,002,438 $41,261,875
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-99
<PAGE> 167
RAYMOND EQUIPMENT COMPANY, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE NINE MONTH PERIOD
FOR THE YEAR ENDED JUNE 30, ENDED MARCH 31,
--------------------------- -------------------------
1996 1997 1997 1998
------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE:
Equipment rentals......................... $10,427,708 $11,997,902 $ 8,082,542 $ 9,113,745
Sales of equipment, parts and supplies.... 8,700,165 9,323,810 7,318,745 6,923,388
----------- ----------- ----------- -----------
19,127,873 21,321,712 15,401,287 16,037,133
COST OF REVENUE:
Cost of equipment rentals, excluding
depreciation........................... 3,172,008 3,329,502 2,506,446 2,291,828
Rental equipment depreciation............. 3,652,589 4,198,076 3,049,772 3,565,429
Cost of sales of equipment, parts and
supplies............................... 5,287,538 5,991,061 4,178,088 4,123,883
----------- ----------- ----------- -----------
12,112,135 13,518,639 9,734,306 9,981,140
----------- ----------- ----------- -----------
Gross profit...................... 7,015,738 7,803,073 5,666,981 6,055,993
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................. 2,361,132 2,837,207 1,865,711 1,952,962
NONRENTAL DEPRECIATION AND AMORTIZATION..... 147,637 182,783 150,571 167,226
----------- ----------- ----------- -----------
Operating income.................. 4,506,969 4,783,083 3,650,699 3,935,805
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense.......................... (1,670,707) (1,801,706) (1,303,290) (1,429,917)
Interest income........................... 28,544 23,812 11,619 20,190
Other, net................................ 93,829 121,010 112,418 258,086
----------- ----------- ----------- -----------
Total other expense, net.......... (1,548,334) (1,656,884) (1,179,253) (1,151,641)
----------- ----------- ----------- -----------
Net income........................ 2,958,635 3,126,199 2,471,446 2,784,164
PRO FORMA PROVISION FOR INCOME TAXES........ 1,239,454 1,306,480 1,044,578 1,169,665
----------- ----------- ----------- -----------
PRO FORMA NET INCOME........................ $ 1,719,181 $ 1,819,719 $ 1,426,868 $ 1,614,499
=========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-100
<PAGE> 168
RAYMOND EQUIPMENT COMPANY, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
COMMON STOCK UNREALIZED
-------------------- GAIN ON TOTAL
NUMBER OF RETAINED MARKETABLE STOCKHOLDERS'
SHARES AMOUNT EARNINGS SECURITIES EQUITY
--------- -------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, July 1, 1995................. 202,880 $256,651 $ 8,595,607 $174,455 $ 9,026,713
Issuance of common stock............ 4,770 182,465 -- -- 182,465
Distributions to stockholders....... -- -- (1,092,433) -- (1,092,433)
Net income.......................... -- -- 2,958,635 -- 2,958,635
Net increase in unrealized gain on
marketable securities............ -- -- -- 174,557 174,557
------- -------- ----------- -------- -----------
BALANCE, June 30, 1996................ 207,650 439,116 10,461,809 349,012 11,249,937
Issuance of common stock............ 2,001 105,052 -- -- 105,052
Distributions to stockholders....... -- -- (618,030) -- (618,030)
Net income.......................... -- -- 3,126,199 -- 3,126,199
Net decrease in unrealized gain on
marketable securities............ -- -- -- (76,007) (76,007)
------- -------- ----------- -------- -----------
BALANCE, June 30, 1997................ 209,651 544,168 12,969,978 273,005 13,787,151
Issuance of common stock
(unaudited)...................... 1,324 85,345 -- -- 85,345
Distributions to stockholders
(unaudited)...................... -- -- (312,029) -- (312,029)
Net income (unaudited).............. -- -- 2,784,164 -- 2,784,164
Net increase in unrealized gain on
marketable securities
(unaudited)...................... -- -- -- 236,475 236,475
------- -------- ----------- -------- -----------
BALANCE, March 31, 1998 (unaudited)... 210,975 $629,513 $15,442,113 $509,480 $16,581,106
======= ======== =========== ======== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-101
<PAGE> 169
RAYMOND EQUIPMENT COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTH PERIOD
FOR THE YEAR ENDED JUNE 30, ENDED MARCH 31,
--------------------------- --------------------------
1996 1997 1997 1998
------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................... $ 2,958,635 $ 3,126,199 $ 2,471,446 $ 2,784,164
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 3,800,226 4,380,859 3,200,343 3,732,655
Gain on sale of rental equipment............... (1,540,076) (1,385,381) (1,195,800) (867,733)
Realized gain on sale of marketable
securities................................... (27,458) (73,615) (73,615) (50,000)
Charitable contribution marketable
securities................................... -- 297,103 -- --
Changes in operating assets and liabilities:
Accounts receivable.......................... (83,880) (218,364) 1,900,804 1,410,382
Inventories.................................. (239,521) 57,740 103,038 (165,803)
Other assets................................. (3,724) (204,023) 29,620 2,444
Accounts payable............................. 497,168 (181,235) 1,210,542 90,263
Accrued expenses and other liabilities....... 48,138 (520,110) (784,978) (210,172)
------------ ------------ ----------- ------------
Net cash provided by operating
activities.............................. 5,409,508 5,279,173 6,861,400 6,726,200
------------ ------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities............... (490,000) -- -- --
Proceeds from the sale of marketable
securities..................................... 99,997 150,000 150,000 150,000
Purchases of rental equipment.................... (10,790,192) (11,300,675) (7,291,951) (7,650,313)
Purchases of property and equipment.............. (1,223,457) (217,559) (138,068) (363,494)
Proceeds from sale of rental equipment........... 4,258,338 4,678,959 4,295,084 3,947,732
Proceeds from sale of property and equipment..... 173,075 13,637 13,637 33,850
------------ ------------ ----------- ------------
Net cash used in investing activities..... (7,972,239) (6,675,638) (2,971,298) (3,882,225)
------------ ------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of
issuance costs................................. 182,465 105,052 105,052 85,345
Proceeds from debt............................... 15,404,343 15,329,825 4,907,186 9,839,377
Principal payments on debt....................... (11,416,600) (13,944,974) (9,183,049) (12,253,986)
Distributions to stockholders.................... (1,092,433) (618,030) (246,761) (312,029)
------------ ------------ ----------- ------------
Net cash provided by (used in) financing
activities.............................. 3,077,775 871,873 (4,417,572) (2,641,293)
------------ ------------ ----------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 515,044 (524,592) (527,470) 202,682
CASH AND CASH EQUIVALENTS, beginning of period..... 234,232 749,276 749,276 224,684
------------ ------------ ----------- ------------
CASH AND CASH EQUIVALENTS, end of period........... $ 749,276 $ 224,684 $ 221,806 $ 427,366
============ ============ =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest........................... $ 1,653,083 $ 1,832,804 $ 1,364,318 $ 1,407,413
============ ============ =========== ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-102
<PAGE> 170
RAYMOND EQUIPMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996 AND JUNE 30, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Raymond Equipment Company, Inc. (the "Company") was incorporated in the
state of Kentucky in 1955. The Company rents a broad array of equipment to a
diverse customer base that includes construction industry participants,
industrial companies, homeowners and others. The Company also engages in related
activities such as selling used equipment, acting as a distributor for certain
new equipment and selling related merchandise parts and supplies. The nature of
the Company's business is such that short-term obligations are typically met by
cash flow generated from long-term assets. Consequently, consistent with
industry practice, the accompanying audited and unaudited balance sheets are
presented on an unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. At June 30, 1996 and
1997 and March 31, 1998 (unaudited), the Company had no cash equivalents.
Marketable securities
In accordance with the provisions of Statement of Financial Accounting
Standards No. 115, unrealized gains and losses on investments available-for-sale
(which are stated at quoted fair value) are included as a separate component of
stockholders' equity. All of the Company's marketable securities are held as
available-for-sale.
Inventories
Inventories consist of equipment, tools, parts, fuel and related supply
items. Inventories are stated at the lower of weighted average cost or market.
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using the straight-line method. The range of
useful lives estimated by management for rental equipment is two to ten years.
Rental equipment is depreciated to a salvage value of zero to ten percent of
cost. All rental equipment is capitalized at the time of purchase. Ordinary
maintenance and repair costs are charged to operations as incurred.
Property and equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method. The range of useful lives
estimated by management are as follows:
<TABLE>
<CAPTION>
YEARS
-------
<S> <C>
Buildings and improvements.................................. 20 - 25
Automobiles and trucks...................................... 3 - 7
Office furniture and fixtures............................... 5 - 10
</TABLE>
F-103
<PAGE> 171
RAYMOND EQUIPMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Ordinary maintenance and repair costs are charged to operations as
incurred.
Impairment of long-lived assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount, the Company records impairment as required under generally
accepted accounting principles. No such impairment losses were incurred for the
periods presented.
Fair value of financial instruments
The carrying amount reported in the accompanying balance sheets for cash
and cash equivalents, accounts receivable, accounts payable, accrued expenses
and other liabilities and debt approximates fair value as of June 30, 1996 and
1997 and March 31, 1998 (unaudited).
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to rental equipment is recognized over the
contract term.
Income taxes
The Company is an S corporation for income tax purposes. Accordingly,
income, losses and related temporary differences which arise in the recording of
income and expense items for financial reporting and tax reporting purposes are
proportionally included in the individual tax returns of the stockholders.
Therefore, no provision or liability for Federal and state income taxes has been
included in the accompanying financial statements.
The pro forma adjustment to reflect income taxes in the accompanying
statements of income is for informational purposes only. The pro forma provision
for income tax has been provided at the estimated effective rate of 40% of
taxable net income.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments,
marketable securities and accounts receivable. The Company maintains cash and
cash equivalents with high quality financial institutions. Concentrations of
credit risk with respect to accounts receivable are limited because a large
number of diverse customers make up the Company's customer base. No single
customer represents greater than 10% of total accounts receivable. The Company
controls credit risk through credit approvals, credit limits and monitoring
procedures.
F-104
<PAGE> 172
RAYMOND EQUIPMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Interim financial information
In the opinion of management, the unaudited financial information as of
March 31, 1998 and for the nine month periods ended March 31, 1997 and 1998
furnished herein reflects all adjustments consisting of normal recurring
accruals that are necessary for a fair presentation of the results for the
interim periods. The results of operations for the nine months ended March 31,
1998 are not necessarily indicative of the results to be expected for the entire
year.
3. MARKETABLE SECURITIES
The cost and estimated market value of marketable securities are as
follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------------- MARCH 31,
1996 1997 1998
---------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cost................................................ $ 878,343 $504,855 $404,855
Unrealized gains.................................... 349,012 273,005 509,480
---------- -------- --------
Estimated market value.............................. $1,227,355 $777,860 $914,335
========== ======== ========
</TABLE>
4. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment............................... $35,794,948 $41,753,287 $ 44,188,277
Less -- accumulated depreciation............... (6,929,380) (9,067,500) (10,483,809)
----------- ----------- ------------
Rental equipment, net................ $28,865,568 $32,685,787 $ 33,704,468
=========== =========== ============
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------ MARCH 31,
1996 1997 1998
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture, fixtures and office equipment......... $3,615,247 $ 3,740,810 $ 3,994,517
Less -- accumulated depreciation................. (905,532) (1,021,154) (1,126,239)
---------- ----------- -----------
Property and equipment, net............ $2,709,715 $ 2,719,656 $ 2,868,278
========== =========== ===========
</TABLE>
F-105
<PAGE> 173
RAYMOND EQUIPMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------- MARCH 31,
1996 1997 1998
---------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Payroll-related..................................... $ 769,254 $279,162 $ 39,308
Accrued interest.................................... 129,231 64,308 86,812
Accrued property taxes.............................. 123,830 161,723 200,066
Other............................................... 36,815 33,827 2,662
---------- -------- --------
Accrued expenses and other liabilities.............. $1,059,130 $539,020 $328,848
========== ======== ========
</TABLE>
7. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------- MARCH 31,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Equipment notes, secured by equipment, interest
at an average of approximately 8.00% payable
in various monthly installments through March
2002.......................................... $18,977,807 $21,303,549 $19,614,353
Two installment notes with a local bank, secured
by property, interest at 8.00% and 9.00%,
payable in various monthly installments
through December 1998 and June 2006,
respectively.................................. 5,520,522 4,579,631 3,854,218
----------- ----------- -----------
$24,498,329 $25,883,180 $23,468,571
=========== =========== ===========
</TABLE>
Maturities of the Company's debt at June 30, 1997 for the year ended June
30, are as follows:
<TABLE>
<S> <C>
1998........................................................ $10,670,581
1999........................................................ 6,404,076
2000........................................................ 6,489,429
2001........................................................ 1,743,065
2002........................................................ 95,915
Thereafter.................................................. 480,114
-----------
Total............................................. $25,883,180
===========
</TABLE>
8. PROFIT SHARING PLAN
The Company has a profit sharing plan the ("Plan") that covers
substantially all employees. The Plan allows for discretionary employer
contributions as determined by the Company's Board of Directors. Employer
contributions for the years ended June 30, 1996 and 1997 and the nine months
ended March 31, 1997 and 1998 were $150,000, $150,000, $150,000 (unaudited) and
$112,000 (unaudited), respectively.
F-106
<PAGE> 174
RAYMOND EQUIPMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
From time to time, the Company may be engaged in routine litigation and
disputes incidental to its business. The Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying financial statements.
10. SUBSEQUENT EVENT
Effective May 7, 1998, the Company entered into a definitive agreement for
the sale of all of the outstanding stock of the Company to NationsRent, Inc., an
unrelated third party, in exchange for cash and debt.
F-107
<PAGE> 175
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To General Rental, Inc.:
We have audited the accompanying division balance sheet for the Florida
Panhandle and Southeast Texas Divisions of General Rental, Inc. (a Delaware
corporation) as of December 31, 1997, and the related statements of division
operations, division equity and division cash flows for the year then ended.
These division financial statements are the responsibility of the Divisions'
management. Our responsibility is to express an opinion on these division
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the division financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the division financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall division financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the division financial statements referred to above present
fairly, in all material respects, the financial position of the Florida
Panhandle and Southeast Texas Divisions of General Rental, Inc. as of December
31, 1997, and the results of their operations and their cash flows for the year
then ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 29, 1998 (except with respect
to the matter referred to in Note 11 as
to which the date is July 10, 1998).
F-108
<PAGE> 176
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS
OF GENERAL RENTAL, INC.
DIVISION BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash........................................................ $ 7,550 $ 10,100
Accounts receivable, net of allowance for doubtful accounts
of $214,626 and $150,000 (unaudited) for December 31, 1997
and June 30, 1998, respectively........................... 1,912,175 1,475,197
Inventories................................................. 381,576 246,764
Rental equipment, net....................................... 11,970,725 11,303,294
Property and equipment, net................................. 392,292 361,013
Goodwill, net............................................... 2,067,955 2,032,317
Non-compete agreements, net................................. 1,390,000 1,232,000
Prepaid expenses and other assets........................... 19,402 20,970
----------- -----------
Total assets...................................... $18,141,675 $16,681,655
=========== ===========
LIABILITIES AND DIVISION EQUITY
LIABILITIES:
Accounts payable.......................................... $ 1,462,325 $ 1,138,944
Accrued expenses and other liabilities.................... 1,837,982 1,811,321
Revolver debt............................................. 4,125,533 4,125,533
Notes payable............................................. 8,648,739 7,750,466
----------- -----------
Total liabilities................................. 16,074,579 14,826,264
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 8, 9 and 11)
DIVISION EQUITY............................................. 2,067,096 1,855,391
----------- -----------
Total liabilities and division equity............. $18,141,675 $16,681,655
=========== ===========
</TABLE>
The accompanying notes to division financial statements are an integral part of
these division balance sheets.
F-109
<PAGE> 177
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS
OF GENERAL RENTAL, INC.
STATEMENTS OF DIVISION OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTH
FOR THE YEAR PERIOD ENDED JUNE 30,
ENDED -------------------------
DECEMBER 31, 1997 1997 1998
----------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUE:
Equipment rentals.................................... $7,238,033 $2,172,055 $4,494,090
Sales of equipment, parts and supplies............... 1,875,624 639,036 656,426
---------- ---------- ----------
Total revenue................................ 9,113,657 2,811,091 5,150,516
COST OF REVENUE:
Cost of equipment rentals, excluding depreciation.... 4,017,826 1,077,561 2,721,531
Rental equipment depreciation........................ 941,665 333,806 588,669
Cost of sales of equipment, parts and supplies....... 1,203,840 402,124 370,817
---------- ---------- ----------
Total cost of revenue........................ 6,163,331 1,813,491 3,681,017
---------- ---------- ----------
Gross profit................................. 2,950,326 997,600 1,469,499
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........... 1,494,933 505,994 520,828
NONRENTAL DEPRECIATION AND AMORTIZATION................ 407,605 87,086 228,025
---------- ---------- ----------
Operating income............................. 1,047,788 404,520 720,646
INTEREST EXPENSE....................................... 703,775 211,895 585,442
---------- ---------- ----------
Income before provision for income taxes..... 344,013 192,625 135,204
PROVISION FOR INCOME TAXES............................. 137,605 77,050 54,082
---------- ---------- ----------
NET INCOME............................................. $ 206,408 $ 115,575 $ 81,122
========== ========== ==========
</TABLE>
The accompanying notes to division financial statements are an integral part of
these division statements.
F-110
<PAGE> 178
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS
OF GENERAL RENTAL, INC.
STATEMENTS OF DIVISION EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997 AND THE
SIX MONTH PERIOD ENDED JUNE 30, 1998 (UNAUDITED)
<TABLE>
<S> <C>
BALANCE, December 31, 1996.................................. $1,326,099
Net income................................................ 206,408
Net transfers from corporate.............................. 534,589
----------
BALANCE, December 31, 1997.................................. 2,067,096
Net income (unaudited).................................... 81,122
Net distributions to corporate (unaudited)................ (292,827)
----------
BALANCE, June 30, 1998 (unaudited).......................... $1,855,391
==========
</TABLE>
The accompanying notes to division financial statements are an integral part of
these division statements.
F-111
<PAGE> 179
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS
OF GENERAL RENTAL, INC.
STATEMENTS OF DIVISION CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTH
FOR THE YEAR PERIOD ENDED JUNE 30,
ENDED --------------------------
DECEMBER 31, 1997 1997 1998
----------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 206,408 $ 115,575 $ 81,122
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization............... 1,349,270 420,892 816,694
Gain on sale of rental equipment............ (221,170) (8,616) (34,877)
Changes in operating assets and liabilities:
Accounts receivable....................... (705,914) (335,340) 436,978
Inventories............................... (91,421) (24,755) 134,812
Prepaid expenses and other assets......... (19,402) (102,552) (1,568)
Accounts payable.......................... 368,097 286,347 (323,381)
Accrued expenses and other liabilities.... 243,240 120,067 (26,661)
----------- ----------- -----------
Total adjustments...................... 922,700 356,043 1,001,997
----------- ----------- -----------
Net cash provided by operating
activities........................... 1,129,108 471,618 1,083,119
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash used in acquisitions...................... (4,125,533) (2,535,956) --
Purchases of rental equipment.................. (4,191,992) (2,197,735) (71,362)
Purchases of property and equipment............ (167,407) -- (3,108)
Proceeds from sale of rental equipment......... 695,353 136,616 185,001
----------- ----------- -----------
Net cash provided by (used in) investing
activities................................ (7,789,579) (4,597,075) 110,531
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolver debt.................... 4,125,533 2,535,956 --
Proceeds from notes payable.................... 3,735,697 1,903,638 --
Repayments of notes payable.................... (1,729,748) (334,410) (898,273)
Net transfers from (distributions to)
corporate................................... 534,589 21,623 (292,827)
----------- ----------- -----------
Net cash provided by (used in)
financing activities................. 6,666,071 4,126,807 (1,191,100)
----------- ----------- -----------
NET INCREASE IN CASH............................. 5,600 1,350 2,550
CASH, beginning of period........................ 1,950 1,950 7,550
----------- ----------- -----------
CASH, end of period.............................. $ 7,550 $ 3,300 $ 10,100
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest...................... $ 703,775 $ 211,895 $ 585,442
=========== =========== ===========
</TABLE>
The accompanying notes to division financial statements are an integral part of
these division statements.
F-112
<PAGE> 180
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS
OF GENERAL RENTAL, INC.
NOTES TO DIVISION FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION
General Rental, Inc. ("General"), a Delaware corporation, was incorporated
in 1996. General operates through various geographical divisions including the
Florida Panhandle and Southeast Texas Divisions (the "Divisions"). The Divisions
consist of six stores in the Florida Panhandle and seven stores in Texas. The
principal business of the Divisions is rental of a broad array of equipment to a
diverse customer base that includes construction industry participants,
industrial companies and others in Florida and Texas. The Divisions also engage
in related activities such as selling used equipment, acting as a distributor
for certain new equipment and selling related merchandise and parts. The nature
of the Divisions' business is such that short-term obligations are typically met
by cash flow generated from long-term assets. Consequently, consistent with
industry practice, the accompanying audited and unaudited division balance
sheets are presented on an unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying division financial statements include only the Florida
Panhandle and Southeast Texas Divisions of General. These division financial
statements were carved out of the financial statements of General on a specific
identification basis or by using the following allocations, as required.
Allocations
The accompanying division balance sheets and statements of division
operations include allocations of certain liabilities and expenses where
specific identification is not practicable. Management of the Divisions believes
that the following allocation methods used are reasonable:
<TABLE>
<CAPTION>
FINANCIAL STATEMENT CAPTION ALLOCATION METHOD
- --------------------------- -----------------
<S> <C>
- - Accounts payable - Portion based on the percentage of revenues related to
the Divisions
- - Accrued expenses and - Portion based on the percentage of revenues or debt
other liabilities related to the Divisions
- - Revolver debt - Based on the cash required for acquisitions (see Note 3)
- - Notes payable - Based on the percentage of rental equipment financed
related to the Divisions
- - Selling, general and - Portion based on the percentage of revenues related to
administrative expenses the Divisions
- - Interest expense - Based on the average debt balance allocated to the
Divisions using an average interest rate of 9.5%
- - Provision for income - Provided at an assumed income tax rate of 40%, no
taxes benefit is recorded for losses
</TABLE>
Inventories
Inventories consist of equipment and parts. New equipment and parts
inventories are stated at the lower of average cost or market.
F-113
<PAGE> 181
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS
OF GENERAL RENTAL, INC.
NOTES TO DIVISION FINANCIAL STATEMENTS -- (CONTINUED)
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment on a straight-line basis. The range of useful
lives estimated by management for rental equipment is three to ten years. Rental
equipment is depreciated to a salvage value of 20% of cost. Ordinary maintenance
and repair costs are charged to operations as incurred.
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to rental equipment is recognized over the
contract term. Earned but not billed revenue included in accounts receivable was
$221,206 at December 31, 1997 and $269,193 (unaudited) at June 30, 1998,
respectively.
Property and equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using a straight-line basis. The range of useful lives
estimated by management for property and equipment is three to ten years.
Ordinary maintenance and repair costs are charged to operations as incurred.
Long-lived assets
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of "
requires that long-lived assets, including certain identifiable intangibles and
the goodwill related to those assets, be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of the asset in
question may not be recoverable. Management has reviewed the long-lived assets
of the Divisions and has determined that there are no events requiring
impairment loss recognition.
Fair value of financial instruments
The carrying amounts for accounts receivable, accounts payable and accrued
expenses and other liabilities is not significantly different than fair value
due to the short-term nature of these accounts. The fair value of revolver debt
and notes payable is determined using current applicable interest rates for
similar instruments as of December 31, 1997 and June 30, 1998 (unaudited) and is
not significantly different than the carrying value of such debt.
Division equity
Division equity represents the difference between division assets and
division liabilities. Changes in division equity result from operating results
of the Divisions and any net transfers from or net distributions to corporate.
These transfers and distributions to and from corporate consist mainly of
funding for operating losses, funding of purchases of rental equipment and fixed
assets, funding of debt service costs and distributions of excess cash.
F-114
<PAGE> 182
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS
OF GENERAL RENTAL, INC.
NOTES TO DIVISION FINANCIAL STATEMENTS -- (CONTINUED)
Concentrations of credit risk
Financial instruments that potentially subject the Divisions to significant
concentrations of credit risk consist principally of accounts receivable.
Concentrations of credit risk with respect to accounts receivable are limited
because a large number of geographically diverse customers make up the
Divisions' customer base. No single customer represents greater than 10% of
total accounts receivable. The Divisions control credit risk through credit
approvals, credit limits, and monitoring, generally without requiring
collateral.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the division financial
statements and accompanying notes. Actual results could differ from those
estimates.
Interim financial information
In the opinion of management, the unaudited interim financial information
as of June 30, 1998 and for the six month periods ended June 30, 1997 and 1998
furnished herein reflects all adjustments consisting of normal recurring
accruals that, in the opinion of management, are necessary for a fair
presentation of the results for the interim period. The results of operations
for the three months ended June 30, 1998 are not necessarily indicative of the
results to be expected for the entire year.
3. ACQUISITIONS
During 1997, General purchased the assets and assumed certain liabilities
of stores (the "Acquired Stores") which are included in the division financial
statements beginning on their dates of acquisition. The acquisitions of the
Acquired Stores were accounted for under the purchase method. As a result, the
Divisions recorded approximately $1.0 million of goodwill and $1.4 million of
non-compete agreement costs. The assets and liabilities of the Acquired Stores
at their dates of acquisition are as follows:
<TABLE>
<S> <C>
Accounts receivable, net of allowance for doubtful accounts
of $27,361................................................ $ 932,877
Inventories................................................. 45,000
Prepaid expenses and other assets........................... 100,000
Rental equipment............................................ 6,780,603
Property and equipment...................................... 51,760
Goodwill.................................................... 977,833
Non-compete agreements...................................... 1,430,000
Accounts payable............................................ (348,726)
Accrued expenses and other liabilities...................... (1,386,018)
Notes payable............................................... (4,457,796)
-----------
Cash paid for acquisitions........................ $ 4,125,533
===========
</TABLE>
F-115
<PAGE> 183
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS
OF GENERAL RENTAL, INC.
NOTES TO DIVISION FINANCIAL STATEMENTS -- (CONTINUED)
4. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Rental equipment.......................................... $12,959,442 $12,771,707
Less -- accumulated depreciation.......................... (988,717) (1,468,413)
----------- -----------
Rental equipment, net........................... $11,970,725 $11,303,294
=========== ===========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Property and equipment...................................... $ 507,909 $ 510,975
Less -- accumulated depreciation............................ (115,617) (149,962)
--------- ---------
Property and equipment, net....................... $ 392,292 $ 361,013
========= =========
</TABLE>
6. INTANGIBLE ASSETS
Goodwill and related accumulated amortization consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Goodwill................................................... $2,138,270 $2,138,270
Less -- accumulated amortization........................... (70,315) (105,953)
---------- ----------
Goodwill, net.................................... $2,067,955 $2,032,317
========== ==========
</TABLE>
Goodwill amortization expense was $47,930 for the year ended December 31,
1997 and $31,841 (unaudited) and $35,638 (unaudited) for the six months ended
June 30, 1997 and 1998, respectively.
Non-compete agreements and related accumulated amortization consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Non-compete agreements..................................... $1,580,000 $1,580,000
Less -- accumulated amortization........................... (190,000) (348,000)
---------- ----------
Non-compete agreements, net...................... $1,390,000 $1,232,000
========== ==========
</TABLE>
Non-compete agreements amortization expense was $187,500 for the year ended
December 31, 1997 and $38,333 (unaudited) and $158,000 (unaudited) for the six
months ended June 30, 1997 and 1998, respectively.
Goodwill and non-compete agreements are amortized over their estimated
useful lives of 30 years and 5 years, respectively.
F-116
<PAGE> 184
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS
OF GENERAL RENTAL, INC.
NOTES TO DIVISION FINANCIAL STATEMENTS -- (CONTINUED)
7. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Payroll-related accrued expenses........................... $ 181,893 $ 179,255
Non-payroll tax-related accrued expenses................... 144,484 142,388
Non-compete agreement liabilities.......................... 1,353,412 1,333,780
Other...................................................... 158,193 155,898
---------- ----------
Accrued expenses and other liabilities........... $1,837,982 $1,811,321
========== ==========
</TABLE>
8. REVOLVER DEBT AND NOTES PAYABLE
The revolver debt and notes payable have been allocated from General as
discussed in Note 2. All assets of the Divisions are pledged as collateral for
General's debt. As a result of cash flow difficulties at General, all such debt
is currently in default and is due on demand. The interest rate on such debt was
at a variable rate for the revolver debt and a fixed rate for the notes payable,
and approximated 9.5% for all periods presented in the accompanying division
financial statements.
9. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Divisions lease rental equipment, real estate, vehicles and certain
office equipment under noncancelable operating leases. These leases expire at
various dates through January 31, 2011. Certain real estate leases require the
Divisions to pay maintenance, insurance, taxes and certain other expenses in
addition to the stated rentals. Future minimum lease payments, by year and in
the aggregate, for noncancelable operating leases with initial or remaining
terms of one year or more are as follows at December 31, 1997:
<TABLE>
<S> <C>
1998........................................................ $ 764,393
1999........................................................ 732,495
2000........................................................ 782,424
2001........................................................ 449,930
2002........................................................ 157,550
Thereafter.................................................. 339,099
----------
$3,225,891
==========
</TABLE>
Rent expense under noncancelable operating leases was $567,163 for the year
ended December 31, 1997 and $149,127 (unaudited) and $365,104 (unaudited) for
the six months ended June 30, 1997 and 1998, respectively.
10. EMPLOYEE BENEFIT PLAN
The Divisions participate in a 401(k) plan (the "Plan") which covers
certain full-time employees over 21 years old who have worked a minimum of one
year for the Divisions. The Plan is funded by employee deferrals of income and
matching contributions by the Divisions of $.50 per $1.00 up to a matching
contribution of 3% of a participant's compensation. The Divisions' matching
F-117
<PAGE> 185
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS
OF GENERAL RENTAL, INC.
NOTES TO DIVISION FINANCIAL STATEMENTS -- (CONTINUED)
contributions totaled $8,000 for the year ended December 31, 1997, and $1,881
(unaudited) and $5,565 (unaudited) for the six months ended June 30, 1997 and
1998, respectively.
11. SUBSEQUENT EVENT
In May 1998, General entered into a definitive agreement to sell the assets
of the Divisions to NationsRent, Inc., an unrelated third party, in exchange for
cash and the assumption of certain accrued liabilities. General's management
intends to utilize the proceeds of the sale to reduce its debt obligations. Such
transaction was completed on July 10, 1998.
F-118
<PAGE> 186
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Associated Rental Equipment Management Company, Inc.:
We have audited the accompanying balance sheets of Associated Rental
Equipment Management Company, Inc. (a Texas Corporation) as of December 31, 1996
and 1997, and the related statements of income, stockholder's equity and cash
flows for each of the three years in the 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Associated Rental Equipment
Management Company, Inc. as of December 31, 1996 and 1997, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
June 11, 1998.
F-119
<PAGE> 187
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents.............................. $ 337,694 $ 828,345 $ 857,453
Accounts receivable, net of allowances for doubtful
accounts of $553,000, $461,000 and $558,000
(unaudited) for 1996, 1997 and 1998, respectively.... 2,904,093 4,436,887 4,318,353
Due from stockholder................................... 315,000 75,000 75,000
Marketable securities.................................. 2,235,030 2,612,642 2,897,167
Inventories............................................ 1,111,530 1,914,717 --
Prepaid expenses and other assets...................... 251,809 573,934 1,223,658
Rental equipment, net.................................. 35,287,240 59,982,594 77,127,029
Property and equipment, net............................ 2,561,625 4,975,581 6,567,816
----------- ----------- -----------
Total assets................................. $45,004,021 $75,399,700 $93,066,476
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable..................................... $ 1,156,178 $ 2,027,383 $ 1,552,768
Accrued expenses and other liabilities............... 2,362,396 2,915,667 2,974,918
Debt................................................. 36,017,937 61,598,630 78,601,281
----------- ----------- -----------
Total liabilities................................. 39,536,511 66,541,680 83,128,967
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
(Notes 7, 8 and 11)
STOCKHOLDER'S EQUITY:
Common stock -- no par value; 1,000 shares
authorized, issued and outstanding................ 1,000 1,000 1,000
Paid-in capital...................................... 25,134 25,134 25,134
Unrealized gains on marketable securities............ 27,934 96,677 331,546
Retained earnings.................................... 5,413,442 8,735,209 9,579,829
----------- ----------- -----------
Total stockholder's equity................... 5,467,510 8,858,020 9,937,509
----------- ----------- -----------
Total liabilities and stockholder's equity... $45,004,021 $75,399,700 $93,066,476
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-120
<PAGE> 188
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE SIX-MONTH PERIOD
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Equipment rentals........... $20,726,189 $18,930,099 $24,261,338 $10,095,345 $15,241,684
Sales of equipment.......... 4,167,919 4,827,389 16,527,647 8,809,907 7,431,821
----------- ----------- ----------- ----------- -----------
24,894,108 23,757,488 40,788,985 18,905,252 22,673,505
----------- ----------- ----------- ----------- -----------
COST OF REVENUE:
Cost of equipment rentals,
excluding depreciation... 2,390,006 2,341,976 4,972,991 2,733,388 4,999,032
Rental equipment
depreciation............. 5,867,435 6,369,939 8,625,665 4,604,572 5,815,385
Cost of sales of
equipment................ 3,041,939 4,233,657 13,463,673 6,483,611 5,698,587
----------- ----------- ----------- ----------- -----------
11,299,380 12,945,572 27,062,329 13,821,571 16,513,004
----------- ----------- ----------- ----------- -----------
Gross profit........ 13,594,728 10,811,916 13,726,656 5,083,681 6,160,501
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES..... 8,114,872 6,751,686 6,144,202 1,593,754 2,250,012
NON-RENTAL DEPRECIATION AND
AMORTIZATION................ 300,697 385,806 466,240 213,577 239,523
----------- ----------- ----------- ----------- -----------
Operating income.... 5,179,159 3,674,424 7,116,214 3,276,350 3,670,966
----------- ----------- ----------- ----------- -----------
OTHER (EXPENSE) INCOME:
Investment earnings......... 62,767 227,717 344,301 19,762 71,713
Interest expense............ (2,290,370) (2,803,824) (3,748,335) (1,737,625) (2,803,998)
Other, net.................. (66,316) (14,093) 13,358 16,735 5,939
----------- ----------- ----------- ----------- -----------
Other (expense)
income, net....... (2,293,919) (2,590,200) (3,390,676) (1,701,128) (2,726,346)
----------- ----------- ----------- ----------- -----------
Income before
benefit for income
taxes............. 2,885,240 1,084,224 3,725,538 1,575,222 944,620
BENEFIT FOR INCOME TAXES...... (836,000) -- -- -- --
----------- ----------- ----------- ----------- -----------
NET INCOME.................... 3,721,240 1,084,224 3,725,538 1,575,222 944,620
PRO FORMA PROVISION FOR INCOME
TAXES....................... 1,990,096 433,690 1,490,215 890,088 377,848
----------- ----------- ----------- ----------- -----------
PRO FORMA NET INCOME.......... $ 1,731,144 $ 650,534 $ 2,235,323 $ 685,134 $ 566,772
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-121
<PAGE> 189
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
NO PAR VALUE
------------------ UNREALIZED
NUMBER PAID-IN GAINS ON RETAINED
OF SHARES AMOUNT CAPITAL SECURITIES EARNINGS TOTAL
--------- ------ ------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995............................. 1,000 $1,000 $25,134 $ -- $1,144,683 $ 1,170,817
Net income......................................... -- -- -- -- 3,721,240 3,721,240
----- ------ ------- -------- ---------- -----------
BALANCE, December 31, 1995........................... 1,000 1,000 25,134 -- 4,865,923 4,892,057
Unrealized gains on marketable securities.......... -- -- -- 27,934 -- 27,934
Dividends to stockholder........................... -- -- -- -- (536,705) (536,705)
Net income......................................... -- -- -- -- 1,084,224 1,084,224
----- ------ ------- -------- ---------- -----------
BALANCE, December 31, 1996........................... 1,000 1,000 25,134 27,934 5,413,442 5,467,510
Unrealized gains on marketable securities.......... -- -- -- 68,743 -- 68,743
Dividends to stockholder........................... -- -- -- -- (403,771) (403,771)
Net income......................................... -- -- -- -- 3,725,538 3,725,538
----- ------ ------- -------- ---------- -----------
BALANCE, December 31, 1997........................... 1,000 1,000 25,134 96,677 8,735,209 8,858,020
Unrealized gains on marketable securities
(unaudited)...................................... -- -- -- 234,869 -- 234,869
Dividends to stockholder (unaudited)............... -- -- -- -- (100,000) (100,000)
Net income (unaudited)............................. -- -- -- -- 944,620 944,620
----- ------ ------- -------- ---------- -----------
BALANCE, June 30, 1998 (unaudited)................... 1,000 $1,000 $25,134 $331,546 $9,579,829 $ 9,937,509
===== ====== ======= ======== ========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-122
<PAGE> 190
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX-MONTH PERIOD
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------ ---------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 3,721,240 $ 1,084,224 $ 3,725,538 $ 1,575,222 $ 944,620
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization................ 6,168,132 6,755,745 9,091,905 4,818,149 6,054,908
Gain on sale of rental equipment............. (1,125,980) (593,732) (3,063,974) (2,326,296) (1,733,234)
Changes in operating assets and liabilities:
Accounts receivable........................ (259,253) 182,134 (1,532,794) (871,313) 118,534
Prepaid expenses and other assets.......... (117,912) (45,002) (322,125) (257,201) (649,724)
Accounts payable........................... (679,218) 351,343 871,205 (93,614) (474,615)
Accrued expenses and other liabilities..... 199,573 (73,953) 553,271 687,236 59,251
------------ ------------ ------------ ------------ ------------
Net cash provided by operating
activities............................. 7,906,582 7,660,759 9,323,026 3,532,183 4,319,740
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............ (641,045) (1,548,066) (2,880,196) (2,066,946) (1,831,758)
Proceeds from sale of rental equipment......... 4,167,919 4,827,389 16,527,647 8,809,907 7,431,821
Marketable securities.......................... 16,954 (2,207,096) (308,869) (7,481) (49,656)
------------ ------------ ------------ ------------ ------------
Net cash provided by investing activities.... 3,543,828 1,072,227 13,338,582 6,735,480 5,550,407
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt............................. 469,999 1,718,414 12,326,137 2,521,625 4,305,120
Repayments of debt............................. (10,671,000) (11,758,122) (34,333,323) (12,261,899) (14,046,159)
Dividends to stockholder....................... -- (536,705) (403,771) -- (100,000)
Due from stockholder........................... (191,450) 18,133 240,000 -- --
------------ ------------ ------------ ------------ ------------
Net cash used in financing activities.... (10,392,451) (10,558,280) (22,170,957) (9,740,274) (9,841,039)
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... 1,057,959 (1,825,294) 490,651 527,389 29,108
CASH AND CASH EQUIVALENTS, beginning of period... 1,105,029 2,162,988 337,694 337,694 828,345
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of period......... $ 2,162,988 $ 337,694 $ 828,345 $ 865,083 $ 857,453
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest, net of capitalization
of $150,000 in 1997........................ $ 2,290,405 $ 2,798,349 $ 3,419,630 $ 1,616,841 $ 2,941,867
============ ============ ============ ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Rental equipment financing with debt......... $ 7,846,334 $ 17,830,405 $ 47,587,879 $ 24,585,645 $ 26,743,690
============ ============ ============ ============ ============
Transfers of rental equipment to (from)
inventory, net............................. $ -- $ 1,111,530 $ 803,187 $ 14,119 $ (1,914,717)
============ ============ ============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-123
<PAGE> 191
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Associated Rental Equipment Management Company, Inc. (the "Company") was
incorporated on July 28, 1989 in the state of Texas. The Company rents a broad
array of equipment to a diverse customer base that includes construction
industry participants, industrial companies and others in the states of Texas
and Louisiana. The Company also engages in related activities such as selling
used rental equipment. The nature of the Company's business is such that
short-term obligations are typically met by cash flows generated from long-term
assets. Consequently, consistent with industry practice, the accompanying
balance sheets are presented on an unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. At December 31, 1996
and 1997 and June 30, 1998 (unaudited), the Company had no cash equivalents.
Marketable Securities
In accordance with the provisions of Statement of Financial Accounting
Standards No. 115, unrealized gains and losses on investments available-for-sale
(which are stated at quoted fair value) are included as a separate component of
stockholder's equity. All of the Company's marketable securities are held as
available-for-sale.
Inventories
Inventories consist of used rental equipment held for resale and are stated
at the lower of cost or market.
Rental Equipment
Rental equipment is recorded at cost and depreciated to zero salvage value
over the estimated useful lives of the equipment on a straight-line basis. The
average useful life estimated by management for rental equipment is seven years.
Ordinary maintenance and repair costs are charged to operations as incurred.
Significant improvements that extend the useful life of rental equipment are
capitalized.
Revenue Recognition
Revenue related to the sale of rental equipment is recognized at the point
of sale. Revenue related to rental equipment is recognized over the contract
term.
Property and Equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using accelerated methods. The range of useful lives
estimated by management for property and equipment is five to forty years.
Property and equipment is depreciated to a salvage value of zero to twenty
percent. Ordinary maintenance and repair costs are charged to operations as
incurred. Interest costs incurred during the construction period are capitalized
in accordance with generally accepted accounting principles.
F-124
<PAGE> 192
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Impairment of Long-Lived Assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount, the Company records impairment as required under generally
accepted accounting principles. No such impairment losses were incurred for the
periods presented.
Fair Value of Financial Instruments
The carrying amounts reported in the accompanying balance sheets for
accounts receivable, due from stockholder, accounts payable, accrued expenses
and other liabilities approximate fair value due to the short-term nature of
these accounts. The fair value of debt is determined using current interest
rates for similar instruments as of December 31, 1996 and 1997 and June 30, 1998
(unaudited) and approximates the carrying value of these obligations due to the
fact that the underlying instruments bear interest at market rates or include
provisions to adjust note balances and interest rates to approximate fair market
value.
Income Taxes
The Company has been an S corporation for income tax purposes since January
1, 1995. Accordingly, income, losses and related temporary differences which
arise in the recording of income and expense items for financial reporting and
tax reporting purposes are included in the individual tax return of the
stockholder. Therefore, no historical provision or liability for Federal and
state income taxes has been included in the accompanying financial statements
for the years ended December 31, 1996 and 1997.
Included in the accompanying statement of income for the year ended
December 31, 1995 is a benefit for income taxes of $836,000, which represents
the reversal of the deferred income tax liability balance as of December 31,
1994 due to the change in the Company's tax status to an S corporation. The
deferred income tax liability as of December 31, 1994 arose due to the use of
accelerated depreciation methods for income tax reporting purposes.
An enterprise that changes from taxable C corporation status to nontaxable
S corporation status should continue to recognize a deferred tax liability to
the extent that the enterprise would be subject to a corporate-level tax on net
unrecognized built-in gains, as defined by Federal tax rules. At the time of the
change in tax status, the Company determined that it had no net unrecognized
built-in gains.
The pro forma adjustment to reflect income taxes in the accompanying
statements of income is for informational purposes only. The pro forma provision
for income taxes has been provided so that the estimated effective Federal and
state income rate will be 40% for all periods presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-125
<PAGE> 193
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of geographically diverse
customers make up the Company's customer base. No single customer represents
greater than 10% of total accounts receivable. The Company controls credit risk
through credit approvals, credit limits, and monitoring procedures.
Interim Financial Information
In the opinion of management, the unaudited financial information as of
June 30, 1998 and for the six-month periods ended June 30, 1997 and 1998
furnished herein reflects all adjustments, consisting of normal recurring
accruals that are necessary for a fair presentation of the results for the
interim periods. The results of operations for the six months ended June 30,
1998 are not necessarily indicative of the results to be expected for the entire
year.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"). This statement establishes standards for reporting and display of
comprehensive income. Comprehensive income is defined as the change in equity
during the financial reporting period of a business enterprise resulting from
non-owner sources. Comprehensive income was $3,721,240, $1,112,158, $3,794,281,
$1,774,539 (unaudited) and $1,179,489 (unaudited) for the years ended December
31, 1995, 1996 and 1997 and the six months ended June 30, 1997 and 1998,
respectively.
3. MARKETABLE SECURITIES
The cost and estimated fair market value of marketable securities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cost............................................. $2,207,096 $2,515,965 $2,565,621
Unrealized gains................................. 27,934 96,677 331,546
---------- ---------- ----------
Estimated market value........................... $2,235,030 $2,612,642 $2,897,167
========== ========== ==========
</TABLE>
The Company uses the specific identification method to determine cost of
securities upon sale. The net change in unrealized appreciation on the
securities available for sale of $27,934, $68,743 and $234,869 (unaudited) for
the years ended December 31, 1996 and 1997 and the six-month period ended June
30, 1998, respectively, has been reflected in the accompanying statements of
stockholder's equity.
F-126
<PAGE> 194
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- JUNE 30,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment............................. $ 46,551,847 $ 69,017,032 $ 88,319,802
Less -- accumulated depreciation............. (11,264,607) (9,034,438) (11,192,773)
------------ ------------ ------------
Rental equipment, net.............. $ 35,287,240 $ 59,982,594 $ 77,127,029
============ ============ ============
</TABLE>
Net rental equipment under rental equipment financing obligations was
$27,801,496, $43,501,198 and $63,116,616 (unaudited) as of December 31, 1996 and
1997 and June 30, 1998, respectively.
5. PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land..................................................... $ -- $ 144,013 $ 144,013
Buildings................................................ 39,244 2,703,212 2,696,472
Leaseholds............................................... 553,616 980,102 963,847
Furniture and fixtures................................... 206,051 383,720 383,720
Machinery and equipment.................................. 120,912 171,876 194,876
Vehicles................................................. 1,915,599 2,175,748 2,650,465
Construction in process.................................. 849,507 -- 1,410,878
---------- ---------- ----------
3,684,929 6,558,671 8,444,271
Less -- accumulated depreciation and amortization........ (1,123,304) (1,583,090) (1,876,455)
---------- ---------- ----------
Property and equipment, net............................ $2,561,625 $4,975,581 $6,567,816
========== ========== ==========
</TABLE>
Buildings include structures and improvements constructed on land that is
leased from the stockholder (see Note 9). Interest costs of $150,000 were
capitalized in 1997.
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued payroll and related expenses..................... $ 125,334 $ 161,089 $ 67,086
Interest accrual......................................... 25,440 354,145 216,276
Accrued taxes............................................ 1,621,679 1,293,892 1,229,114
Bank overdrafts.......................................... 584,740 1,096,046 1,435,826
Other.................................................... 5,203 10,495 26,616
---------- ---------- ----------
Total accrued expenses and other liabilities... $2,362,396 $2,915,667 $2,974,918
========== ========== ==========
</TABLE>
F-127
<PAGE> 195
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
7. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
LINES OF CREDIT:
Rental equipment financing line of credit from a
financing company with borrowings up to $4,000,000
(increased to $5,484,000 on March 26, 1998); interest
at 1.25% over the greater of prime or commercial
paper rates (changed to 3.25% over the commercial
paper rate effective March 26, 1998) and payable
monthly; collateralized by equipment held for sale
and personally guaranteed by the stockholder......... $ -- $ 2,258,900 $ 55,188
Working capital line of credit from a bank with
borrowings up to $2,000,000; interest at prime plus
1/2% with interest payable monthly; collateralized by
accounts receivable, inventory and property and
equipment and personally guaranteed by the
stockholder; the underlying credit agreement expires
September 1, 1998.................................... 768,207 1,231,407 1,607,907
Working capital line of credit from a financial
services institution with borrowings up to
$2,000,000; interest at 2.40% over the 30-day
commercial paper rate; collateralized by marketable
securities; the underlying credit agreement expires
October 31, 1999..................................... -- -- --
----------- ----------- -----------
Subtotal..................................... 768,207 3,490,307 1,663,095
NOTES PAYABLE:
Various notes payable, secured by equipment, payable in
monthly principal and interest installments; interest
ranging from 3.99% to 7.9%; due between April 1997
and January 2002..................................... 8,055,522 15,364,724 14,480,226
</TABLE>
(CONTINUED)
F-128
<PAGE> 196
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
RENTAL EQUIPMENT FINANCING OBLIGATIONS:
Rental equipment financing obligations, secured by
equipment, payable in monthly installments,
capitalized at the Company's incremental borrowing
rate of approximately 8%, due between January 1998
and October 2002..................................... 27,194,208 42,743,599 62,457,960
----------- ----------- -----------
Total debt................................... $36,017,937 $61,598,630 $78,601,281
=========== =========== ===========
</TABLE>
Maturities of the Company's debt at December 31, 1997 for the years ended
December 31, are as follows:
<TABLE>
<CAPTION>
RENTAL EQUIPMENT
FINANCING
LINES OF CREDIT NOTES PAYABLE OBLIGATIONS TOTAL
--------------- ------------- ---------------- -----------
<S> <C> <C> <C> <C>
1998.................... $ 3,490,307 $ 4,069,770 $30,934,508 $38,494,585
1999.................... -- 5,271,727 6,446,122 11,717,849
2000.................... -- 4,058,990 5,393,486 9,452,476
2001.................... -- 1,951,908 4,114,374 6,066,282
2002.................... -- 12,329 1,863,571 1,875,900
----------- ----------- ----------- -----------
$ 3,490,307 $15,364,724 48,752,061 67,607,092
=========== ===========
Less amount representing interest (6,008,462) (6,008,462)
----------- -----------
$42,743,599 $61,598,630
=========== ===========
</TABLE>
Each of the above lines of credit agreements subject the Company to certain
restrictive covenants including financial ratios, minimum net worth requirements
and payment of dividend restrictions. As of December 31, 1997, the Company was
not in compliance with certain of these restrictive covenants. The existence of
these events of default permits the lenders to take certain actions, including
increasing interest rates and accelerating repayment of the debt obligations.
Although the lenders have not exercised any of these rights, there is no
assurance that they will not do so in the future.
Rental equipment financing obligations include leases and rental purchase
option agreements, both of which meet the criteria for treatment as capital
leases under generally accepted accounting principles. The rental purchase
option agreements are noncancellable and have terms up to one year.
Substantially all rental equipment is purchased during or at the conclusion of
the option period and subsequently refinanced through third party leasing
arrangements with terms up to 60 months.
Interest expense related to rental equipment under rental equipment
financing leases for the years ended December 31, 1995, 1996 and 1997 and for
the six month period ended June 30, 1998 was $1,884,180, $2,142,810, $2,746,663
and $2,219,911 (unaudited), respectively.
F-129
<PAGE> 197
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases real estate, certain office equipment and vehicles under
noncancelable operating leases. These leases expire at various dates through
September 30, 2002. Certain real estate leases require the Company to pay
maintenance, insurance, taxes and certain other expenses in addition to the
stated rentals. Future minimum lease payments, by year and in the aggregate, for
noncancelable operating leases with initial or remaining terms of one year or
more are as follows at December 31, 1997:
<TABLE>
<S> <C>
1998............................................. $ 396,813
1999............................................. 414,886
2000............................................. 329,701
2001............................................. 378,199
2002............................................. 295,796
2003 and thereafter.............................. 94,046
----------
$1,909,441
==========
</TABLE>
Rent expense under noncancelable operating leases for the years ended
December 31, 1995, 1996 and 1997 was $312,083, $329,776 and $403,226,
respectively.
Sales and Use Tax Audit
During the three years ended December 31, 1997, various taxing authorities
conducted and completed audits of sales and use tax with respect to the
Company's equipment rental activities. The additional sales and use tax payable
by the Company resulting from the ultimate audit settlements was less than the
amounts accrued during the periods covered by the audits. The Company recorded
these differences in the period in which the settlements were reached. Included
in selling, general and administrative expenses for the year ended December 31,
1997 is a $655,000 credit that arose from the reversal of sales and use tax
provided for in 1995. The Company believes that its remaining sales and use tax
accruals are adequate.
Litigation, Claims and Disputes
The Company is involved in routine litigation, claims and disputes arising
in the normal course of business. Management has reviewed these matters with
legal counsel and believes that the ultimate liability, if any, resulting from
these matters will not have a material adverse effect on the Company's financial
position, results of operations or cash flows.
9. RELATED PARTY TRANSACTIONS
The Company leases land and buildings used in its operations from its
stockholder. The leases cover several operating locations and expire annually on
December 31. The total rent paid related to these leases for the years ended
December 31, 1995, 1996 and 1997 was $252,000, $262,500 and $240,000,
respectively.
The Company leases rental equipment from an affiliated company. The total
rent paid for the years ended December 31, 1995, 1996 and 1997 was $322,648,
$361,742 and $288,687, respectively.
F-130
<PAGE> 198
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company also guarantees certain debt of the affiliate. Such debt had a
balance of $226,295 at December 31, 1997.
The Company had the following balances due from/payable to affiliated
companies at December 31, 1996 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
-------- -------
<S> <C> <C>
Due from........................................ $108,861 $62,028
======== =======
Payable to...................................... $ 58,624 $61,684
======== =======
</TABLE>
10. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) plan (the "Plan") which covers full-time
employees over 21 years old who have worked a minimum of one year for the
Company. The Plan is funded by employee deferrals of income and discretionary
contributions by the Company. The Company's matching contributions totaled
$20,998, $25,741 and $27,675 for the years ended December 31, 1995, 1996 and
1997, respectively. Amounts due to the Plan at December 31, 1996 and 1997 were
$25,127 and $29,020, respectively.
11. SUBSEQUENT EVENT
In June 1998, the stockholder entered into an asset purchase agreement
whereby substantially all of the Company's operating assets and liabilities,
except for real property and certain equipment, will be purchased by
NationsRent, Inc., an unrelated third party, in exchange for cash and a
convertible promissory note. Completion of this transaction is subject to
customary closing conditions.
F-131
<PAGE> 199
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Revco Equipment Rentals, Inc.:
We have audited the accompanying balance sheet of Revco Equipment Rentals,
Inc. (a Florida corporation) as of December 31, 1997, and the related statements
of income, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Revco Equipment Rentals,
Inc. as of December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
July 11, 1998.
F-132
<PAGE> 200
REVCO EQUIPMENT RENTALS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 104,038 $ 70,576
Accounts receivable......................................... 283,747 269,246
Inventories................................................. 42,600 51,527
Other assets................................................ 51,797 50,629
Rental equipment, net....................................... 1,831,082 1,693,161
Property and equipment, net................................. 303,335 302,575
---------- ----------
Total assets...................................... $2,616,599 $2,437,714
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accrued expenses and other liabilities.................... 11,680 11,243
Debt...................................................... 1,525,991 1,336,347
---------- ----------
Total liabilities................................. 1,537,671 1,347,590
COMMITMENTS AND CONTINGENCIES (Notes 6 and 7)
STOCKHOLDERS' EQUITY:
Common stock -- $10 par value, 1,000 shares authorized,
100 issued and outstanding............................. 1,000 1,000
Treasury stock, at cost................................... (150,000) (150,000)
Additional paid-in capital................................ 131,243 131,243
Retained earnings......................................... 1,096,685 1,107,881
---------- ----------
Total stockholders' equity........................ 1,078,928 1,090,124
---------- ----------
Total liabilities and stockholders' equity........ $2,616,599 $2,437,714
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-133
<PAGE> 201
REVCO EQUIPMENT RENTALS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE FOR THE THREE MONTH PERIOD
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, --------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUE:
Equipment rentals...................................... $2,128,701 $566,346 $492,627
Sales of rental equipment, parts and supplies.......... 495,146 154,380 40,314
---------- -------- --------
2,623,847 720,726 532,941
COST OF REVENUE:
Cost of equipment rentals.............................. 1,004,217 240,983 189,115
Rental equipment depreciation.......................... 612,634 133,993 139,390
Cost of sales of rental equipment, parts and
supplies............................................ 222,818 65,172 27,216
---------- -------- --------
1,839,669 440,148 355,721
---------- -------- --------
Gross profit................................... 784,178 280,578 177,220
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................................... 312,470 79,465 79,246
NONRENTAL EQUIPMENT DEPRECIATION......................... 24,743 5,438 760
---------- -------- --------
Operating income............................... 446,965 195,675 97,214
---------- -------- --------
OTHER INCOME (EXPENSE), net:
Interest expense....................................... (122,252) (32,885) (31,010)
Interest income........................................ 3,304 -- --
---------- -------- --------
Total other income (expense), net.............. (118,948) (32,885) (31,010)
---------- -------- --------
Net income..................................... 328,017 162,790 66,204
PRO FORMA PROVISION FOR INCOME TAX....................... 131,207 65,116 26,482
---------- -------- --------
PRO FORMA NET INCOME..................................... $ 196,810 $ 97,674 $ 39,722
========== ======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-134
<PAGE> 202
REVCO EQUIPMENT RENTALS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------
NUMBER TREASURY ADDITIONAL RETAINED
OF SHARES AMOUNT STOCK, AT COST PAID-IN CAPITAL EARNINGS TOTAL
--------- ------ -------------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997..... 100 $1,000 $(150,000) $131,243 $ 932,030 $ 914,273
Distributions.............. -- -- -- -- (163,362) (163,362)
Net income................. -- -- -- -- 328,017 328,017
--- ------ --------- -------- ---------- ----------
BALANCE, December 31, 1997... 100 1,000 (150,000) 131,243 1,096,685 1,078,928
Distributions
(unaudited)............. -- -- -- -- (55,008) (55,008)
Net income (unaudited)..... -- -- -- -- 66,204 66,204
--- ------ --------- -------- ---------- ----------
BALANCE, March 31, 1998
(unaudited)................ 100 $1,000 $(150,000) $131,243 $1,107,881 $1,090,124
=== ====== ========= ======== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-135
<PAGE> 203
REVCO EQUIPMENT RENTALS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE FOR THE THREE MONTH PERIOD
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, ---------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 328,017 $ 162,790 $ 66,204
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation..................................... 637,377 139,431 140,150
Gain on sale of rental equipment................. (229,374) (93,176) (10,584)
Changes in operating assets and liabilities:
Accounts receivable............................ (49,063) (47,463) 14,501
Inventories.................................... (17,942) (21,300) (8,927)
Other assets................................... (714) 26 1,168
Accrued expenses and other liabilities......... 1,372 85 (437)
--------- --------- ---------
Net cash provided by operating activities... 669,673 140,393 202,075
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of rental equipment....................... (948,004) (140,698) (9,198)
Purchases of property and equipment................. (13,716) -- --
Proceeds from sales of rental equipment............. 458,514 150,034 18,313
--------- --------- ---------
Net cash provided by (used in) investing
activities................................ (503,206) 9,336 9,115
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of distributions............................ (126,792) (60,212) (55,008)
Additional borrowings of debt....................... 716,630 179,158 --
Repayments of debt.................................. (702,694) (256,730) (189,644)
--------- --------- ---------
Net cash used in financing activities....... (112,856) (137,784) (244,652)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................... 53,611 11,945 (33,462)
CASH AND CASH EQUIVALENTS, beginning of period........ 50,427 50,427 104,038
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period.............. $ 104,038 $ 62,372 $ 70,576
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF
NON-CASH TRANSACTIONS:
Distributions of property and equipment............. $ 36,570 $ 36,570 $ --
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest.............................. $ 122,252 $ 32,885 $ 31,010
========= ========= =========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-136
<PAGE> 204
REVCO EQUIPMENT RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Revco Equipment Rentals, Inc. (the "Company") was incorporated on April 15,
1980, as a Florida S Corporation. The Company rents a broad array of equipment
to a customer base that includes principally construction industry participants
and industrial companies. The Company also engages in related activities such as
selling used rental equipment and selling related merchandise and parts. The
nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the accompanying audited and unaudited
balance sheets are presented on an unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. The Company had no
cash equivalents at December 31, 1997 and March 31, 1998 (unaudited).
Inventories
Inventories consist of equipment, tools, parts, fuel and related supply
items and are stated at the lower of weighted average cost or market.
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using an accelerated method. The range of useful
lives estimated by management for rental equipment is five to ten years.
Ordinary maintenance and repair costs are charged to operations as incurred.
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to rental equipment is recognized over the
contract term.
Property and equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using an accelerated method. The range of useful lives
estimated by management for property and equipment is five to thirty-nine years.
Ordinary maintenance and repair costs are charged to operations as incurred.
Fair value of financial instruments
The carrying amounts reported in the balance sheets for accounts
receivable, accounts payable and accrued expenses and other liabilities
approximate fair value due to the short-term nature of these accounts. The fair
value of debt is determined using current applicable interest rates as of
F-137
<PAGE> 205
REVCO EQUIPMENT RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1997 and March 31, 1998 (unaudited) and approximates the carrying
value of such debt.
Income taxes
The Company is an S Corporation for income tax purposes. Accordingly,
income, losses, and related temporary differences which arise in the recording
of income and expense items for financial reporting and tax reporting purposes
are included in the individual tax returns of the stockholders. Therefore, no
provision or liability for Federal and state income taxes has been included in
the accompanying financial statements.
The pro forma adjustment to reflect income taxes in the accompanying
statements of income is for information purposes only. The pro forma provision
for income tax has been provided at the estimated rate of 40%.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of diverse customers make
up the Company's customer base.
3. RENTAL EQUIPMENT
Rental equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Rental equipment............................................ $ 3,582,745 $ 3,567,215
Less -- accumulated depreciation............................ (1,751,663) (1,874,054)
----------- -----------
Rental equipment, net............................. $ 1,831,082 $ 1,693,161
=========== ===========
</TABLE>
F-138
<PAGE> 206
REVCO EQUIPMENT RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Furniture, fixtures and office equipment.................... $ 33,396 $ 33,396
Vehicles.................................................... 241,528 241,528
Buildings................................................... 176,810 176,810
Leasehold improvements...................................... 27,750 27,750
Land........................................................ 101,600 101,600
--------- ---------
581,084 581,084
Less -- accumulated depreciation............................ (277,749) (278,509)
--------- ---------
Property and equipment, net....................... $ 303,335 $ 302,575
========= =========
</TABLE>
5. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Term loans, secured by accounts receivable, inventories and
rental equipment, interest at rates ranging from 6.32% to
10.9%, payable in monthly installments.................... $1,322,456 $1,137,672
Mortgage, secured by building and land, interest at 8.25%,
Payable in monthly installments through December 1,
2007...................................................... 120,130 118,167
Unsecured note payable to a former stockholder, interest at
8.5%, payable in monthly installments through August 25,
2003...................................................... 83,405 80,508
---------- ----------
Total debt........................................ $1,525,991 $1,336,347
========== ==========
</TABLE>
Debt maturities at December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 607,270
1999........................................................ 435,368
2000........................................................ 235,259
2001........................................................ 135,976
2002........................................................ 28,051
Thereafter.................................................. 84,067
----------
Total............................................. $1,525,991
==========
</TABLE>
F-139
<PAGE> 207
REVCO EQUIPMENT RENTALS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment used for rental purposes under a
noncancellable operating lease. Future minimum lease payments, by year and in
the aggregate, for this lease are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 37,740
1999........................................................ 37,740
2000........................................................ 37,740
2001........................................................ 37,740
2002........................................................ 31,422
--------
Total............................................. $182,382
========
</TABLE>
7. SUBSEQUENT EVENT
Effective April 3, 1998, substantially all of the Company's operating
assets and liabilities were purchased by NationsRent, Inc. in exchange for cash
and debt.
F-140
<PAGE> 208
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To High Reach Company, Inc. and
High Reach Leasing Company:
We have audited the accompanying combined balance sheet of High Reach
Company, Inc. (a Florida corporation) and High Reach Leasing Company (an
unincorporated entity wholly owned by Rodger A. Renzulli) as of September 30,
1997 and the related combined statements of income, stockholder's equity and
owner's capital, and cash flows for the year then ended. These financial
statements are the responsibility of the companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of High Reach Company,
Inc. and High Reach Leasing Company as of September 30, 1997 and the combined
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
September 4, 1998.
F-141
<PAGE> 209
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 1,314,872 $ 1,642,254
Accounts receivable, net of allowances for doubtful accounts
of $90,000 and $110,000 (unaudited) at September 30, 1997
and June 30, 1998, respectively........................... 2,630,784 3,315,566
Inventories................................................. 355,128 565,973
Trading securities.......................................... -- 1,986,971
Due from affiliates......................................... 773,043 1,093,982
Rental equipment, net....................................... 33,678,259 40,677,638
Land, property and equipment, net........................... 4,047,129 5,176,161
Other assets................................................ 326,702 166,439
----------- -----------
Total assets...................................... $43,125,917 $54,624,984
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
AND OWNER'S CAPITAL
LIABILITIES:
Accounts payable.......................................... $ 573,521 $ 421,540
Accrued expenses and other liabilities.................... 889,036 870,423
Debt...................................................... 31,071,691 40,663,144
Deferred income taxes..................................... 2,815,780 3,416,855
----------- -----------
Total liabilities................................. 35,350,028 45,371,962
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 3, 8 and 11)
STOCKHOLDER'S EQUITY AND OWNER'S CAPITAL:
Common stock - $1 par value; 7,500 shares authorized;
100 shares issued and outstanding.................... 100 100
Additional paid-in capital............................. 41,406 41,406
Retained earnings...................................... 7,734,383 9,211,516
----------- -----------
Total stockholder's equity and owner's capital.... 7,775,889 9,253,022
----------- -----------
Total liabilities and stockholder's equity and
owner's capital................................. $43,125,917 $54,624,984
=========== ===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined balance sheets.
F-142
<PAGE> 210
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE MONTH PERIOD
ENDED ENDED JUNE 30,
SEPTEMBER 30, -------------------------
1997 1997 1998
------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revenue:
Equipment rentals..................................... $15,138,252 $11,048,680 $14,977,675
Sales of equipment, parts and supplies................ 2,551,688 2,223,083 1,787,415
Other................................................. 532,689 197,831 75,658
----------- ----------- -----------
18,222,629 13,469,594 16,840,748
Cost of revenue:
Cost of equipment rentals, excluding depreciation..... 6,007,162 4,224,494 5,264,014
Rental equipment depreciation......................... 3,152,484 2,313,396 3,021,190
Cost of sales of equipment, parts and supplies........ 1,703,227 1,449,352 1,294,022
----------- ----------- -----------
10,862,873 7,987,242 9,579,226
----------- ----------- -----------
Gross profit....................................... 7,359,756 5,482,352 7,261,522
Selling, general and administrative expenses............ 2,739,286 2,071,330 2,961,852
Nonrental depreciation and amortization................. 343,627 239,627 267,859
----------- ----------- -----------
Operating income................................... 4,276,843 3,171,395 4,031,811
----------- ----------- -----------
Other income (Expense), net:
Interest expense...................................... (2,185,187) (1,563,294) (2,163,455)
Interest income....................................... 13,014 -- 57,042
Net gain on sale of trading securities................ -- -- 152,810
----------- ----------- -----------
(2,172,173) (1,563,294) (1,953,603)
----------- ----------- -----------
Income before provision for income taxes........... 2,104,670 1,608,101 2,078,208
Provision for income taxes.............................. 720,603 456,000 601,075
----------- ----------- -----------
Net income.............................................. 1,384,067 1,152,101 1,477,133
Pro forma provision for income taxes.................... 220,624 198,759 211,867
----------- ----------- -----------
Pro forma net income.................................... $ 1,163,443 $ 953,342 $ 1,265,266
=========== =========== ===========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-143
<PAGE> 211
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
AND OWNER'S CAPITAL
<TABLE>
<CAPTION>
COMMON STOCK RETAINED EARNINGS
------------------ ADDITIONAL -------------------------------
NUMBER PAID-IN HIGH REACH HIGH REACH
OF SHARES AMOUNT CAPITAL COMPANY, INC. LEASING COMPANY TOTAL
--------- ------ ---------- ------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, October 1, 1996.................. 100 $100 $41,406 $5,170,712 $1,179,604 $6,391,822
Net income.............................. -- -- -- 832,508 551,559 1,384,067
--- ---- ------- ---------- ---------- ----------
BALANCE, September 30, 1997............... 100 100 41,406 6,003,220 1,731,163 7,775,889
Net income (unaudited).................. -- -- -- 947,464 529,669 1,477,133
--- ---- ------- ---------- ---------- ----------
BALANCE, June 30, 1998 (unaudited)........ 100 $100 $41,406 $6,950,684 $2,260,832 $9,253,022
=== ==== ======= ========== ========== ==========
</TABLE>
The accompanying notes to combined financial statements are an integral part of
these combined statements.
F-144
<PAGE> 212
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTH PERIOD
FOR THE YEAR ENDED ENDED JUNE 30,
SEPTEMBER 30, --------------------------
1997 1997 1998
------------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................... $ 1,384,067 $ 1,152,101 $ 1,477,133
Adjustments to reconcile net income to net cash
Provided by operating activities-
Depreciation and amortization............... 3,496,111 2,553,023 3,289,049
Deferred income tax provision............... 720,603 456,000 601,075
Gain on sale of assets...................... (660,854) (605,423) (296,577)
Unrealized loss on trading securities....... -- -- 91,616
Changes in operating assets and liabilities:
Accounts receivable...................... (182,467) (5,544) (684,782)
Inventories.............................. (58,376) (35,065) (210,845)
Other assets............................. (264,762) 19,100 151,448
Accounts payable......................... (1,753) (178,780) (151,981)
Accrued expenses and other liabilities... 206,718 20,441 (18,613)
------------ ----------- ------------
Net cash provided by operating
activities............................. 4,639,287 3,375,853 4,247,523
------------ ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchases of trading securities................ -- -- (2,078,587)
Purchases of property and equipment................ (1,314,334) (715,555) (1,413,134)
Proceeds from sale of property and equipment....... 15,234 1,500 32,250
Purchases of rental equipment...................... (12,222,032) (8,324,695) (10,582,060)
Proceeds from sale of rental equipment............. 1,600,529 1,401,367 861,659
------------ ----------- ------------
Net cash used in investing activities.... (11,920,603) (7,637,383) (13,179,872)
------------ ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt, net of costs................... 17,288,784 12,817,335 11,545,773
Repayments of debt................................. (8,624,596) (7,638,280) (1,965,103)
Advances to affiliates, net........................ (422,661) (463,369) (320,939)
------------ ----------- ------------
Net cash provided by financing activities... 8,241,527 4,715,686 9,259,731
------------ ----------- ------------
Net increase in cash and cash equivalents.......... 960,211 454,156 327,382
Cash and cash equivalents, beginning of period..... 354,661 354,661 1,314,872
------------ ----------- ------------
Cash and cash equivalents, end of period........... $ 1,314,872 $ 808,817 $ 1,642,254
============ =========== ============
Supplemental disclosure of cash flow information:
Cash paid for interest........................ $ 2,131,616 $ 1,549,882 $ 2,170,418
============ =========== ============
Cash paid for income taxes.................... $ 173,200 $ 127,800 $ 8,400
============ =========== ============
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these combined statements.
F-145
<PAGE> 213
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
September 30, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
High Reach Company, Inc. was incorporated in 1978 in the State of Florida
and High Reach Leasing Company, an unincorporated entity wholly-owned by Rodger
A. Renzulli, was formed in the same year. High Reach Company, Inc. and High
Reach Leasing Company, collectively referred to as the "Companies", do business
in Florida as High Reach, a dealer/distributor of off-road, hydraulic
self-propelled aerial work platforms. The Companies rent, sell and service
self-propelled aerial work platforms. Operations are conducted throughout
Florida from operating facilities in Sanford, Tampa, Jacksonville, and Deerfield
Beach. The customer base includes the construction trades employed in all types
of vertical building. Other customers include those in the business of
maintaining existing residential, commercial and industrial structures,
including Central Florida area attractions and the motion picture and television
industries. Rental periods are generally less than one year and the related
contracts are cancelable at the discretion of the customer. The nature of the
Companies' business is such that short-term obligations are typically met by
cash flow generated from long-term assets. Consequently, consistent with
industry practice, the accompanying combined balance sheets are presented on an
unclassified basis.
The combined financial statements include High Reach Company, Inc. and High
Reach Leasing Company, both of which are wholly owned by the same person. All
significant intercompany accounts and transactions have been eliminated in
combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash Equivalents
The Companies consider all highly liquid instruments with an original
maturity of three months or less when purchased to be cash equivalents. As of
September 30, 1997 and June 30, 1998, $963,314 and $1,000,990 (unaudited),
respectively, of the total cash and cash equivalents was interest bearing.
Marketable Securities
In accordance with the provisions of Statement Financial Accounting
Standards No. 115, unrealized gains and losses on trading securities (which are
stated at quoted fair value) are included in income. All of the Companies
marketable securities are classified as trading securities.
Inventories
Inventories consist of equipment, tools, parts, fuel and related rental
equipment supplies and accessories. Inventories are stated at the lower of cost,
using the first-in, first-out method, or market.
Rental Equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using the straight-line method. The useful lives
estimated by management for rental
F-146
<PAGE> 214
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
equipment is seven or ten years. Ordinary maintenance and repair costs are
charged to operations as incurred. Betterments which substantially extend the
useful life of rental equipment are capitalized.
Land, Property and Equipment
Land is stated at cost. Property and equipment are stated at cost less
accumulated depreciation and are depreciated on the straight-line method using
the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................................. 7-40 years
Transportation equipment.................................... 5-10 years
Office and shop equipment................................... 3-7 years
</TABLE>
The cost of additions and improvements which substantially extend the
useful life of a particular asset are capitalized. Upon sale, the cost and
related accumulated depreciation are removed from the accounts and any gain or
loss is included in other income.
Loan Costs
Loan costs are amortized on a straight-line basis over the term of the
related loan or mortgage, which range from 12 to 120 months.
Impairment of Long-Lived Assets
The Companies periodically review their valuation for long-lived assets
used in operations when indicators of impairment are present. If the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount, the Companies record impairment as required under
generally accepted accounting principles. No such impairment losses were
incurred for the periods presented.
Fair Value of Financial Instruments
The carrying amounts reported in the accompanying combined balance sheets
for cash and cash equivalents, accounts receivable, accounts payable and accrued
expenses approximate fair value as of September 30, 1997 and June 30, 1998
(unaudited) due to the short-term nature of these amounts. The fair value of
debt is determined using current applicable interest rates as of September 30,
1997 and June 30, 1998 (unaudited) and approximates the carrying value of such
debt.
Revenue Recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Equipment rental revenue is recognized as earned over the
respective contract term.
Income Taxes
High Reach Leasing Company, a proprietorship, is not a tax paying entity
for purposes of federal and state income taxes. Accordingly, income, losses and
related temporary differences which arise in the recording of income and expense
items for financial reporting and tax reporting purposes are
F-147
<PAGE> 215
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
included in the individual tax return of the proprietor. Therefore, no provision
or liability for Federal and state income taxes has been included in the
accompanying combined financial statements.
The pro forma adjustment to reflect income taxes in the accompanying
combined statements of income is for informational purposes only. The pro forma
provision for income tax has been provided at the estimated effective rate of
40% on the proprietorship's income only.
High Reach Company, Inc. follows Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires, among other
things, recognition of future tax effects measured at enacted rates attributable
to deductible temporary differences between the financial statement and income
tax bases of assets and liabilities to the extent that realization of said
effects is more likely than not.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the combined financial
statements and accompanying notes. Actual results could differ from those
estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Companies to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of diverse customers make
up the Companies' customer base. No single customer represents greater than 10%
of total accounts receivable. The Companies control credit risk through credit
approvals, credit limits and monitoring procedures.
Interim Financial Information
In the opinion of management, the unaudited interim financial information
as of June 30, 1998 and for the nine month periods ended June 30, 1997 and 1998
furnished herein reflects all adjustments consisting of normal recurring
accruals that, in the opinion of management, are necessary for a fair
presentation of the results for the interim periods. The results of operations
for the nine months ended June 30, 1998 are not necessarily indicative of the
results to be expected for the year ended December 31, 1998.
F-148
<PAGE> 216
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
3. RENTAL EQUIPMENT, NET
Rental equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
Rental equipment, at cost........................... $42,265,893 $51,656,967
Less- Accumulated depreciation...................... (8,587,634) (10,979,329)
----------- -----------
Rental equipment, net............................. $33,678,259 $40,677,638
=========== ===========
</TABLE>
Through September 4, 1998, the Companies had purchased or committed to
purchase approximately $3,000,000 of additional rental equipment.
4. LAND, PROPERTY AND EQUIPMENT, NET
Land, property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
Land................................................. $ 977,623 $1,074,485
Buildings and improvements........................... 1,430,499 2,178,503
Transportation equipment............................. 2,019,086 2,151,203
Office and shop equipment............................ 355,274 394,531
Construction in progress............................. 574,371 884,611
----------- ----------
5,356,853 6,683,333
Less - accumulated depreciation...................... (1,309,724) (1,507,172)
----------- ----------
Land, property and equipment, net.................... $ 4,047,129 $5,176,161
=========== ==========
</TABLE>
As of September 30, 1997, the Companies were in the process of expanding
their Sanford operating facility and were obtaining the permits necessary to
begin construction of a Tampa operating facility. The Sanford operating facility
was completed in January, 1998 for a total cost of $785,050, excluding land. The
total cost incurred on the Tampa facility as of September 4, 1998 was
$1,268,969.
Construction in progress includes $13,346 of capitalized interest in
conjunction with the expansion of the Companies' Sanford facilities.
F-149
<PAGE> 217
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
Personal property taxes............................... $102,547 $282,244
Payroll-related....................................... 212,876 252,310
Interest.............................................. 208,523 224,655
Real estate property taxes............................ 268,470 28,830
Other................................................. 96,620 82,384
-------- --------
Accrued expenses and other liabilities.............. $889,036 $870,423
======== ========
</TABLE>
6. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
Revolving credit facility with borrowings up to $27,000,000
based on specified assets; collateralized by substantially
all assets of the Companies and the personal guarantee of
the sole owner of the
Companies; interest payable monthly at LIBOR plus 2.25%
(7.97% at September 30, 1997); maturing in June 1999...... $24,065,646 $25,923,660
Equipment obligations with total borrowings up to $7,850,000
and $22,850,000 for 1997 and 1998, respectively;
collateralized by the related equipment and the personal
guarantee of the sole owner of the Companies; interest
payable monthly at rates ranging from 7.97% to 8.50%;
maturing through September 2004........................... 6,632,261 13,969,902
Mortgage loans; collateralized by land, buildings and
improvements; payable in monthly installments of $7,788
and $19,539 as of September 30, 1997 and June 30, 1998,
respectively; interest at LIBOR plus 2.56% (8.28% at
September 30, 1997); maturities to May 2003............... 373,784 769,582
----------- -----------
$31,071,691 $40,663,144
=========== ===========
</TABLE>
A substantial portion of the Companies' rental fleet is financed under the
$27,000,000 revolver. The revolver is renewable annually at the option of the
lender. Should the revolver not be renewed, the loan agreement specifies the
lender may convert the outstanding balance into a five-year term loan at a
mutually agreed upon interest rate.
The Companies were in compliance with all debt covenants as of September
30, 1997 and June 30, 1998 (unaudited).
F-150
<PAGE> 218
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
Maturities of the Companies' debt at September 30, 1997, are as follows:
<TABLE>
<S> <C>
1998........................................................ $25,716,530
1999........................................................ 1,525,887
2000........................................................ 1,399,251
2001........................................................ 1,290,905
2002........................................................ 645,833
2003 and thereafter....................................... 493,285
-----------
$31,071,691
===========
</TABLE>
7. INCOME TAXES
The provision for federal and state income taxes for High Reach Company,
Inc. is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1997
-------------
<S> <C>
Current..................................................... $ --
Deferred.................................................... 720,603
--------
$720,603
========
Federal..................................................... $629,181
State....................................................... 91,422
--------
$720,603
========
</TABLE>
A reconciliation of the difference between the expected provision for
income taxes using the statutory federal income tax rate of 34% and High Reach
Company, Inc.'s actual provision is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
1997
-------------
<S> <C>
Income tax at federal statutory rate........................ $715,588
Exclusion of proprietorship income.......................... (187,530)
State income tax............................................ 45,788
Other, net.................................................. 146,757
--------
$720,603
========
</TABLE>
Deferred income taxes arise primarily due to the carryforward of net
operating losses and tax credits, temporary differences in recognizing certain
revenues and expenses for tax purposes and the
F-151
<PAGE> 219
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
use of accelerated depreciation for tax purposes. The components of the deferred
income taxes are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 26,341
Accrued expenses.......................................... 29,601
Federal and state net operating loss carryforwards........ 978,382
Alternative minimum tax credit carryforwards.............. 666,726
----------
1,701,050
Deferred tax liability:
Depreciation.............................................. 4,491,953
Other..................................................... 24,877
----------
4,516,830
----------
Net deferred tax liability.................................. $2,815,780
==========
</TABLE>
The Corporation has available federal and state net operating loss
carryforwards of $351,752 and $2,282,189, which expire in 2011 and 2012,
respectively, and federal and state alternative minimum tax credit carryforwards
of $593,022 and $73,704, respectively, which do not expire and therefore may be
carried forward indefinitely, to reduce regular federal and state income taxes.
8. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Companies lease certain office and service facilities in Tampa and
Jacksonville, Florida under operating leases. The Tampa lease was canceled
during September 1998 as operations were moved to new Company-owned facilities.
Certain real estate leases require the Company to pay maintenance, insurance,
taxes, and certain other expenses in addition to the stated rentals.
Future minimum lease payments to unrelated third parties at September 30,
1997 for the noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
- -----------
<S> <C>
1998........................................................ $ 76,860
1999........................................................ 38,340
2000........................................................ 6,390
--------
Total............................................. $121,590
========
</TABLE>
Under the terms of the above operating leases and other short-term,
month-to-month rentals, rent expenses amounted to $71,594 for the year ended
September 30, 1997.
Litigation, Claims and Assessments
From time to time, the Companies may be engaged in routine litigation and
disputes incidental to their business. The Companies do not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying combined financial statements.
F-152
<PAGE> 220
HIGH REACH COMPANY, INC.
AND
HIGH REACH LEASING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
Self-Insurance
Due to the rising cost of insurance, the Companies have elected to be
self-insured for a substantial portion of the risk of rental and transportation
equipment damage or loss. As of September 30, 1997, coverage by insurance
companies for such equipment was $8,000,000.
9. RELATED PARTY TRANSACTIONS
Various personal expenses and cash advances are periodically paid to the
shareholder and the employees of the Companies and are included as due from
affiliates in the accompanying combined balance sheets. The receivable from the
shareholder is an interest bearing open credit arrangement. Amounts due from
affiliates consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER JUNE 30,
30, 1997 1998
--------- -----------
(UNAUDITED)
<S> <C> <C>
Shareholder................................................. $728,866 $ 56,063
Employees................................................... 44,177 1,037,919
-------- ----------
$773,043 $1,093,982
======== ==========
</TABLE>
10. EMPLOYEE BENEFIT PLAN
High Reach Company, Inc. has adopted a defined contribution employee
benefit plan under Section 401(k) of the Internal Revenue Code. All employees
who have met minimum age and length of service requirements are qualified to
participate. Employee contributions are voluntary and employer contributions are
made at the discretion of the Board of Directors in an amount not to exceed the
amount deductible for income tax purposes. Plan expense was $68,918 for fiscal
year 1997.
11. SUBSEQUENT EVENT
Effective September 4, 1998, all of the outstanding stock of High Reach
Company, Inc. and substantially all of the operating assets and related
liabilities of High Reach Leasing Company were purchased by NationsRent, Inc.,
an unrelated third party, in exchange for cash.
F-153
<PAGE> 221
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Reliable Rental & Supply Co., Inc.:
We have audited the accompanying balance sheet of Reliable Rental & Supply
Co., Inc. (an Alabama S corporation) as of December 31, 1997, and the related
statements of income, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Reliable Rental & Supply
Co., Inc. as of December 31, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
September 18, 1998.
F-154
<PAGE> 222
RELIABLE RENTAL & SUPPLY CO., INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 202,074 $ --
Accounts receivable, net of allowances for doubtful accounts
of $25,000 for both December 31, 1997 and June 30, 1998
(unaudited)............................................... 1,041,815 1,392,179
Inventories................................................. 120,241 191,163
Rental equipment, net....................................... 4,838,244 7,284,873
Property and equipment, net................................. 744,682 917,811
Other assets................................................ 800 78,192
---------- ----------
Total assets...................................... $6,947,856 $9,864,218
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable.......................................... $ 390,661 $ 673,117
Accrued expenses and other liabilities.................... 375,076 455,998
Debt...................................................... 4,602,766 6,859,316
---------- ----------
Total liabilities................................. 5,368,503 7,988,431
COMMITMENTS AND CONTINGENCIES (Notes 7 and 9)
STOCKHOLDERS' EQUITY:
Common stock $1.00 par value, 5,000 shares authorized,
1,666 shares issued and outstanding.................... 1,666 1,666
Additional paid-in capital................................ 343,333 343,333
Retained earnings......................................... 1,234,354 1,530,788
---------- ----------
Total stockholders' equity........................ 1,579,353 1,875,787
---------- ----------
Total liabilities and stockholders' equity........ $6,947,856 $9,864,218
========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-155
<PAGE> 223
RELIABLE RENTAL & SUPPLY CO., INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE SIX MONTH PERIOD
FOR THE YEAR ENDED ENDED JUNE 30,
DECEMBER 31, -------------------------
1997 1997 1998
------------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Revenue:
Equipment rentals................................... $8,315,475 $3,896,252 $5,110,775
Sales of equipment, parts and supplies.............. 1,150,832 456,788 552,610
---------- ---------- ----------
9,466,307 4,353,040 5,663,385
Cost of revenue:
Cost of equipment rentals, excluding depreciation... 4,183,338 1,867,855 2,306,355
Rental equipment depreciation....................... 1,291,306 652,543 844,370
Cost of sales of equipment, parts and supplies...... 625,438 222,450 282,461
---------- ---------- ----------
6,100,082 2,742,848 3,433,186
---------- ---------- ----------
Gross profit..................................... 3,366,225 1,610,192 2,230,199
Selling, general and administrative
expenses............................................ 2,040,860 917,709 1,237,401
Nonrental depreciation and amortization............... 297,649 144,000 182,000
---------- ---------- ----------
Operating income................................. 1,027,716 548,483 810,798
---------- ---------- ----------
Other income (expense), net:
Interest expense.................................... (419,379) (196,128) (228,346)
Other, net.......................................... 15,350 12,446 13,982
---------- ---------- ----------
Total other income (expense), net........... (404,029) (183,682) (214,364)
---------- ---------- ----------
Net income............................................ 623,687 364,801 596,434
Pro forma provision for income taxes.................. 249,475 145,920 238,574
---------- ---------- ----------
Pro forma net income.................................. $ 374,212 $ 218,881 $ 357,860
========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-156
<PAGE> 224
RELIABLE RENTAL & SUPPLY CO., INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL
NUMBER PAID-IN RETAINED
OF SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996.................. 1,666 $1,666 $343,333 $1,151,489 $1,496,488
Net income................................ -- -- -- 623,687 623,687
Distributions............................. -- -- -- (540,822) (540,822)
----- ------ -------- ---------- ----------
Balance, December 31, 1997.................. 1,666 1,666 343,333 1,234,354 1,579,353
Net income (unaudited).................... -- -- -- 596,434 596,434
Distributions (unaudited)................. -- -- -- (300,000) (300,000)
----- ------ -------- ---------- ----------
Balance, June 30, 1998 (unaudited).......... 1,666 $1,666 $343,333 $1,530,788 $1,875,787
===== ====== ======== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-157
<PAGE> 225
RELIABLE RENTAL & SUPPLY CO., INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTH PERIOD
FOR THE YEAR ENDED ENDED JUNE 30,
DECEMBER 31, -------------------------
1997 1997 1998
------------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 623,687 $ 364,801 $ 596,434
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation and amortization................ 1,588,955 796,543 1,026,370
(Gain) loss on sale of assets................ (435,347) (280,834) 108,554
Changes in operating assets and liabilities:
Accounts receivable....................... (240,171) (102,542) (350,364)
Inventories............................... (25,404) 3,687 (70,922)
Other assets.............................. 21,045 2,227 (77,392)
Accounts payable.......................... (179,692) (329,188) 607,730
Accrued expenses and other liabilities.... 177,006 (13,712) 80,922
------------------ ----------- -----------
Net cash provided by operating
activities.............................. 1,530,079 440,982 1,921,332
------------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................. (277,061) (89,206) (198,178)
Proceeds from sale of property and equipment........ 124,771 7,507 6,398
Purchases of rental equipment....................... (1,397,815) (1,201,054) (3,875,379)
Proceeds from sale of rental equipment.............. 684,670 293,948 312,477
------------------ ----------- -----------
Net cash used in investing activities..... (865,435) (988,805) (3,754,682)
------------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt.................................. $ 3,037,983 $ 1,246,698 $ 6,032,687
Repayments of debt................................ (2,974,559) (388,935) (4,101,411)
Distributions..................................... (540,822) (245,916) (300,000)
------------------ ----------- -----------
Net cash provided by (used in) financing
activities.............................. (477,398) 611,847 1,631,276
------------------ ----------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... 187,246 64,024 (202,074)
Cash and cash equivalents, beginning of period...... 14,828 14,828 202,074
------------------ ----------- -----------
Cash and cash equivalents, end of period............ $ 202,074 $ 78,852 $ --
================== =========== ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest......................... $ 410,629 $ 192,265 $ 194,124
================== =========== ===========
Supplemental schedule of noncash
investing and financing activities:
Rental equipment acquired under capital lease
obligations.................................. $ 543,517 $ -- $ --
================== =========== ===========
Transfers of property and equipment to rental
equipment.................................... $ 131,044 $ -- $ --
================== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-158
<PAGE> 226
RELIABLE RENTAL & SUPPLY CO., INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Reliable Rental & Supply Co., Inc. (the "Company") was incorporated in
Alabama for the purpose of creating a local diversified equipment rental company
in Birmingham, Alabama. The Company rents a broad array of equipment to a
diverse customer base that includes construction industry participants,
industrial companies, homeowners and others. The Company also engages in related
activities such as selling used rental equipment and related merchandise and
parts. The nature of the Company's business is such that short-term obligations
are typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the accompanying balance sheets are presented
on an unclassified basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. At December 31, 1997
and June 30, 1998 (unaudited), the Company had no cash equivalents.
Inventories
Inventory consists of equipment, tools, parts, fuel and related supply
items. Inventories are stated at the lower of cost, using the first-in,
first-out method, or market.
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using the straight-line method. The range of
useful lives estimated by management for rental equipment is five to seven
years. Ordinary maintenance and repair costs are charged to operations as
incurred.
Property and equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method. The range of useful lives
estimated by management for property and equipment is three to ten years.
Ordinary maintenance and repair costs are charged to operations as incurred.
Impairment of long-lived assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount, the Company records impairment as required under generally
accepted accounting principles. No such impairment losses were incurred for the
periods presented.
F-159
<PAGE> 227
RELIABLE RENTAL & SUPPLY CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Fair value of financial instruments
The carrying amounts reported in the accompanying balance sheets for cash
and cash equivalents, accounts receivable, accounts payable and accrued expenses
and other liabilities approximate fair value as of December 31, 1997 and June
30, 1998 (unaudited) due to the short-term nature of these accounts. The fair
value of debt at December 31,1997 and June 30, 1998 (unaudited) approximate the
carrying value of debt.
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to rental equipment is recognized over the
contract term.
Income taxes
The Company is an S Corporation for income tax purposes. Accordingly,
income, losses, and related temporary differences which arise in the recording
of income and expense items for financial reporting and tax reporting purposes
are included in the individual tax returns of the stockholders. Therefore, no
provision or liability for Federal and state income taxes has been included in
the accompanying financial statements.
The pro forma adjustment to reflect income taxes in the accompanying
statements of income is for information purposes only. The pro forma provision
for income taxes has been provided at the estimated rate of 40%.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of diverse customers make
up the Company's customer base. No single customer represents greater than 10%
of total accounts receivable. The Company controls credit risk through credit
approvals, credit limits and monitoring procedures.
Interim financial information
In the opinion of management, the unaudited interim financial information
as of June 30, 1998 and for the six months ended June 30, 1997 and 1998
furnished herein reflects all adjustments consisting of normal recurring
accruals that, in the opinion of management, are necessary for a fair
presentation of the results for the interim periods. The results of operations
for the six months ended June 30, 1998 are not necessarily indicative of the
results to be expected for the year ending December 31, 1998.
F-160
<PAGE> 228
RELIABLE RENTAL & SUPPLY CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. RENTAL EQUIPMENT, NET
Rental equipment and related accumulated depreciation consist of the
following:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1997 1998
----------------- -----------
(UNAUDITED)
<S> <C> <C>
Rental equipment................................. $8,147,662 $11,068,825
Less - accumulated depreciation.................. (3,309,418) (3,783,952)
---------- -----------
Rental equipment, net.......................... $4,838,244 $ 7,284,873
========== ===========
</TABLE>
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1997 1998
----------------- -----------
(UNAUDITED)
<S> <C> <C>
Furniture, fixtures and office equipment.......... $ 636,813 $ 647,647
Vehicles.......................................... 892,451 1,071,109
Less - accumulated depreciation................... (784,582) (800,945)
----------------- ----------
Property and equipment, net..................... $ 744,682 $ 917,811
================= ==========
</TABLE>
5. ACCRUED EXPENSES AND OTHER LIABILITIES:
Accrued expenses and other liabilities consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1997 1998
----------------- -----------
(UNAUDITED)
<S> <C> <C>
Personal property taxes............................ $ 155,151 $178,217
Payroll-related.................................... 167,557 200,676
Sales and rental taxes............................. 34,019 42,941
Other.............................................. 18,349 34,164
----------------- --------
Accrued expenses and other liabilities........ $ 375,076 $455,998
================= ========
</TABLE>
6. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, 1997 1998
----------------- -----------
(UNAUDITED)
<S> <C> <C>
Notes payable, secured by equipment and vehicles, interest
at 8.50% to 9.67%, payable in various monthly installments
through June 2001......................................... $3,561,932 $5,535,168
Capital lease obligation, secured by equipment, with monthly
payments of $6,728 plus interest at 6.98%, maturing in
January 2006.............................................. 543,517 521,559
Notes payable to related parties, unsecured, interest at 8%
to 10%, payable in annual or semi-annual installments
through December 2000..................................... 497,317 477,315
Bank overdraft.............................................. -- 325,274
---------- ----------
$4,602,766 $6,859,316
========== ==========
</TABLE>
F-161
<PAGE> 229
RELIABLE RENTAL & SUPPLY CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of the Company's debt at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASE
NOTES PAYABLE OBLIGATION TOTAL
------------- ------------- ----------
<S> <C> <C> <C>
1998..................................................... $1,253,623 $ 80,738 $1,334,361
1999..................................................... 892,296 80,738 973,034
2000..................................................... 1,141,969 80,738 1,222,707
2001..................................................... 771,361 80,738 852,099
2002..................................................... -- 80,738 80,738
2003 and thereafter...................................... -- 328,877 328,877
---------- --------- ----------
4,059,249 732,567 4,791,816
Less- amounts representing interest...................... -- (189,050) (189,050)
---------- --------- ----------
$4,059,249 $ 543,517 $4,602,766
========== ========= ==========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases real estate for storage and office space and rental
equipment under operating leases. Certain real estate leases require the Company
to pay maintenance, insurance, taxes and certain other expenses in addition to
the stated rentals. The real estate leases cover several operating locations and
expire at various dates through December 2002. The rental equipment leases
expire at various dates through September 2005. Future minimum lease payments to
related and unrelated third parties, by year and in the aggregate, at December
31, 1997 for noncancelable operating leases with initial or remaining terms of
one year or more are as follows:
<TABLE>
<CAPTION>
RELATED UNRELATED
PARTIES THIRD PARTIES TOTAL
---------- ------------- ----------
<S> <C> <C> <C>
1998...................................................... $ 252,000 $ 450,754 $ 702,754
1999...................................................... 252,000 403,969 655,969
2000...................................................... 252,000 403,969 655,969
2001...................................................... 252,000 377,278 629,278
2002...................................................... 252,000 377,278 629,278
2003 and thereafter....................................... -- 571,191 571,191
---------- ---------- ----------
Total........................................... $1,260,000 $2,584,439 $3,844,439
========== ========== ==========
</TABLE>
Rent expense for the storage and office space under noncancellable
operating leases for the year ended December 31, 1997 and for the six months
ended June 30, 1998 (unaudited) is $293,604 and $141,114, respectively. Included
in total rent expense for the year ended December 31, 1997 and for the six
months ended June 30, 1998 (unaudited) is rent to a related party of
approximately $216,000 and $126,000, respectively.
Litigation, Claims and Assessments
From time to time, the Company may be engaged in routine litigation and
disputes incidental to its business. The Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying financial statements.
F-162
<PAGE> 230
RELIABLE RENTAL & SUPPLY CO., INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) defined contribution profit-sharing plan under
which employees having worked a minimum of twelve months are eligible to
participate. Employer contributions, which are discretionary and depend on the
Company's profitability, were approximately $33,882 and $18,145 for the year
ended December 31, 1997 and the six months ended June 30, 1998 (unaudited),
respectively.
9. SUBSEQUENT EVENT
Effective September 4, 1998, substantially all of the Company's operating
assets and related liabilities were purchased by NationsRent, Inc., an unrelated
third party, in exchange for cash and debt.
F-163
<PAGE> 231
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To Ray L. O'Neal, Inc. and Arenco, LLC:
We have audited the accompanying combined balance sheets of Ray L. O'Neal,
Inc. (a Texas S corporation) and Arenco, LLC (a Texas limited liability company)
as of December 31, 1996 and 1997, and the related combined statements of income,
stockholders' and members' equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Companies' management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ray L. O'Neal, Inc. and
Arenco, LLC as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
September 4, 1998.
F-164
<PAGE> 232
RAY L. O'NEAL, INC. AND ARENCO, LLC
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1996 1997 1998
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................... $ 2,217,546 $ 2,073,743 $ 252,334
Accounts receivable, net of allowances for doubtful
accounts of $235,000, $300,000 and $384,000
(unaudited) for December 31, 1996, 1997, and September
30, 1998, respectively................................ 3,998,540 5,593,499 7,010,391
Inventories............................................. 2,015,560 1,689,786 2,230,794
Rental equipment, net................................... 23,156,614 30,316,374 38,277,607
Property, plant and equipment, net...................... 2,421,920 2,735,947 2,970,875
Other assets............................................ 461,503 718,131 1,919,802
----------- ----------- -----------
Total assets.................................. $34,271,683 $43,127,480 $52,661,803
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' AND MEMBERS' EQUITY
LIABILITIES:
Accounts payable...................................... $ 954,419 $ 820,004 $ 920,011
Accrued expenses and other liabilities................ 1,398,433 2,685,278 3,018,734
Debt.................................................. 9,880,862 14,190,466 14,682,708
----------- ----------- -----------
Total liabilities............................. 12,233,714 17,695,748 18,621,453
</TABLE>
<TABLE>
COMMITMENTS AND CONTINGENCIES
(Notes 8 and 10)
<S> <C> <C> <C>
STOCKHOLDERS' AND MEMBERS' EQUITY:
Voting common stock; no par value, 100,000 shares
authorized, 60,200 shares issued in 1996; 10,000
shares authorized, 6,020 shares issued in 1997 and
1998............................................... 62,000 6,200 6,200
Nonvoting common stock; 90,000 shares authorized,
54,180 shares issued in 1997 and 1998.............. -- 55,800 55,800
Members' contributed capital.......................... 200,000 200,000 200,000
Retained earnings..................................... 21,870,944 25,264,707 33,873,325
Less: treasury stock-at cost: Voting common
stock -- 838 shares in 1996 and 84 shares in 1997
and 1998; nonvoting common stock -- 754 shares in
1997 and 1998...................................... (94,975) (94,975) (94,975)
----------- ----------- -----------
Total stockholders' and members' equity....... 22,037,969 25,431,732 34,040,350
----------- ----------- -----------
Total liabilities and stockholders' and
members' equity............................. $34,271,683 $43,127,480 $52,661,803
=========== =========== ===========
</TABLE>
The accompanying notes to combined financial statements are
an integral part of these combined balance sheets.
F-165
<PAGE> 233
RAY L. O'NEAL, INC. AND ARENCO, LLC
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED NINE MONTH PERIOD ENDED
DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Equipment rentals....................... $31,388,940 $33,326,317 $40,690,605 $30,141,995 $37,439,537
Sales of equipment, parts and
supplies.............................. 4,799,559 6,784,677 7,390,683 4,928,679 7,166,127
Other................................... 31,615 33,641 159,098 143,555 140,282
----------- ----------- ----------- ----------- -----------
36,220,114 40,144,635 48,240,386 35,214,229 44,745,946
COST OF REVENUE:
Cost of equipment rentals, excluding
depreciation.......................... 9,503,785 10,629,936 14,514,537 10,136,211 12,713,436
Rental equipment depreciation........... 9,732,033 11,383,135 14,740,582 11,115,205 13,761,737
Cost of sales of equipment, parts and
supplies.............................. 2,079,980 3,200,905 3,608,098 2,294,080 1,957,702
----------- ----------- ----------- ----------- -----------
21,315,798 25,213,976 32,863,217 23,545,496 28,432,875
----------- ----------- ----------- ----------- -----------
Gross profit.......................... 14,904,316 14,930,659 15,377,169 11,668,733 16,313,071
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................ 9,942,586 9,806,372 11,241,495 2,935,079 3,744,783
NONRENTAL DEPRECIATION AND AMORTIZATION... 258,507 390,030 372,108 247,659 238,326
----------- ----------- ----------- ----------- -----------
Operating income...................... 4,703,223 4,734,257 3,763,566 8,485,995 12,329,962
OTHER INCOME (EXPENSE), net
Interest expense........................ (602,032) (524,004) (698,175) (550,592) (788,634)
Interest income......................... 163,220 266,681 292,536 117,648 124,929
Other, net.............................. 71,118 113,046 35,836 92,461 172,361
----------- ----------- ----------- ----------- -----------
NET INCOME................................ 4,335,529 4,589,980 3,393,763 8,145,512 11,838,618
PRO FORMA PROVISION FOR INCOME TAXES...... 1,734,212 1,835,992 1,357,505 3,258,205 4,735,447
----------- ----------- ----------- ----------- -----------
PRO FORMA NET INCOME...................... $ 2,601,317 $ 2,753,988 $ 2,036,258 $ 4,887,307 $ 7,103,171
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to combined financial statements are
an integral part of these combined statements.
F-166
<PAGE> 234
RAY L. O'NEAL, INC. AND ARENCO, LLC
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
AND MEMBERS' CAPITAL
<TABLE>
<CAPTION>
COMMON STOCK - NO PAR VALUE
-----------------------------------------
NUMBER OF NUMBER OF
VOTING NONVOTING MEMBERS' RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
--------- ------- --------- ------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995............ 60,200 $62,000 -- $ - $ - $12,945,435 $(94,975) $12,912,460
Net income........................ -- -- -- -- -- 4,335,529 -- 4,335,529
-------- ------- ------- ------- -------- ----------- -------- -----------
Balance, December 31, 1995.......... 60,200 62,000 -- -- -- 17,280,964 (94,975) 17,247,989
Contributions..................... -- -- -- -- 200,000 -- -- 200,000
Net income........................ -- -- -- -- -- 4,589,980 -- 4,589,980
-------- ------- ------- ------- -------- ----------- -------- -----------
Balance, December 31, 1996.......... 60,200 62,000 -- -- 200,000 21,870,944 (94,975) 22,037,969
Recapitalization.................. (54,180) (55,800) 54,180 55,800 -- -- -- --
Net income........................ -- -- -- -- -- 3,393,763 -- 3,393,763
-------- ------- ------- ------- -------- ----------- -------- -----------
Balance, December 31, 1997.......... 6,020 6,200 54,180 55,800 200,000 25,264,707 (94,975) 25,431,732
Distributions (unaudited)......... -- -- -- -- -- (3,230,000) -- (3,230,000)
Net income (unaudited)............ -- -- -- -- -- 11,838,618 -- 11,838,618
-------- ------- ------- ------- -------- ----------- -------- -----------
Balance, September 30, 1998
(unaudited)....................... 6,020 $ 6,200 54,180 $55,800 $200,000 $33,873,325 $(94,975) $34,040,350
======== ======= ======= ======= ======== =========== ======== ===========
</TABLE>
The accompanying notes to combined financial statements are
an integral part of these combined statements.
F-167
<PAGE> 235
RAY L. O'NEAL, INC. AND ARENCO, LLC
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
NINE MONTH PERIOD ENDED
FOR THE YEAR ENDED SEPTEMBER 30,
------------------------------------------ --------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 4,335,529 $ 4,589,980 $ 3,393,763 $ 8,145,512 $11,838,618
Adjustments to reconcile net income to net cash
provided by operating activities --
Depreciation and amortization.................... 9,990,540 11,773,165 15,112,690 11,362,864 14,000,063
(Gain) loss on sale of assets.................... (2,721,534) (3,723,363) (3,640,008) (1,369,650) (4,375,680)
Changes in operating assets and liabilities:
Accounts receivable........................... (957,026) 201,512 (1,594,959) (3,192,318) (1,416,892)
Inventories................................... (95,524) (697,742) 325,774 255,439 (541,008)
Other assets.................................. 22,768 (26,462) (256,628) (241,811) (1,201,671)
Accounts payable.............................. 1,022,092 (635,211) (134,415) (128,828) 100,007
Accrued expenses and other liabilities........ 53,286 100,974 1,286,845 1,864,227 333,456
------------ ------------ ------------ ------------ -----------
Net cash provided by operating activities..... 11,650,131 11,582,853 14,493,062 16,695,435 18,736,893
------------ ------------ ------------ ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment............ (391,093) (1,011,024) (630,768) (525,079) (473,254)
Purchases of rental equipment......................... (13,828,294) (15,711,033) (22,853,187) (18,543,953) (23,311,151)
Proceeds from sale of rental equipment................ 2,826,187 4,410,066 4,537,486 2,695,154 5,963,861
------------ ------------ ------------ ------------ -----------
Net cash used in investing activities......... (11,393,200) (12,311,991) (18,946,469) (16,373,878) (17,820,544)
------------ ------------ ------------ ------------ -----------
</TABLE>
(Continued)
F-168
<PAGE> 236
RAY L. O'NEAL, INC. AND ARENCO, LLC
COMBINED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED NINE MONTH PERIOD ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------------- -------------------------
1995 1996 1997 1997 1998
---------- ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt........................................ $5,883,634 $5,710,619 $10,354,246 $6,112,025 $23,299,072
Repayments of debt........................................ (4,505,071) (5,575,127) (6,044,642) (4,481,432) (22,806,830)
Capital contribution...................................... -- 200,000 -- -- --
Distributions to owners................................... -- -- -- -- (3,230,000)
---------- ---------- ----------- ---------- -----------
Net cash provided by (used in) financing activities.... 1,378,563 335,492 4,309,604 1,630,593 (2,737,758)
---------- ---------- ----------- ---------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS...................................... 1,635,494 (393,646) (143,803) 1,952,150 (1,821,409)
CASH AND CASH EQUIVALENTS, beginning of period.............. 975,698 2,611,192 2,217,546 2,217,546 2,073,743
---------- ---------- ----------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of period.................... $2,611,192 $2,217,546 $ 2,073,743 $4,169,696 $ 252,334
========== ========== =========== ========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest................................. $ 600,092 $ 519,407 $ 654,503 $ 456,444 $ 532,759
========== ========== =========== ========== ===========
Cash paid for income taxes............................. $ 121,017 $ 211,966 $ 233,772 $ 233,772 $ 207,432
========== ========== =========== ========== ===========
</TABLE>
The accompanying notes to combined financial statements are
an integral part of these combined statements.
F-169
<PAGE> 237
RAY L. O'NEAL, INC. AND ARENCO, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
Ray L. O'Neal, Inc. was incorporated on December 23, 1968 in the State of
Texas and Arenco, LLC was formed on August 19, 1996 as a limited liability
corporation in the State of Texas. Ray L. O'Neal, Inc. and Arenco, LLC, do
business collectively as A-1 Rental (the "Company"). The Company operates
thirteen stores in the Dallas/Fort Worth metropolitan area renting a broad array
of equipment to a diverse customer base that includes construction industry
participants, industrial companies, homeowners and others. The Company also
engages in related activities such as selling new and used rental equipment and
related merchandise and parts. Rental periods are generally less than one year
and the related contracts are cancelable at the discretion of the customer. The
nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the accompanying combined balance sheets are
presented on an unclassified basis.
The accompanying combined financial statements include Ray L. O'Neal, Inc.
and Arenco, LLC. Ownership of both entities is closely held. All significant
intercompany accounts and transactions have been eliminated in combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. Cash in
interest-bearing accounts was $2,178,170 and $1,254,579 as of December 31, 1996
and 1997 at interest rates in the ranges of 3%-5.07% and 3.18%-5.28%,
respectively. At December 31, 1996 and 1997 and September 30, 1998 (unaudited),
the Company had no cash equivalents.
Inventories
Inventories consist of equipment, tools, parts, fuel and related
merchandise supply items. Inventories are stated at the lower of cost or market.
Cost is determined using the weighted average method.
Rental equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using an accelerated method. The useful life
estimated by management for rental equipment is five years. Rental equipment
having a cost below a capitalization threshold is charged to rental equipment
depreciation expense at the time of purchase. Ordinary maintenance and repair
costs are charged to operations as incurred.
Property, plant and equipment
Property is stated at cost. Plant and equipment are recorded at cost and
depreciated over their estimated useful lives using an accelerated method. The
range of useful lives estimated by management for plant and equipment is five to
thirty nine years. The cost of additions and improvements which substantially
extend the useful life of a particular asset is capitalized. Upon sale,
F-170
<PAGE> 238
RAY L. O'NEAL, INC. AND ARENCO, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the cost and related accumulated depreciation are removed from the accounts and
any gain or loss is included in other income. Ordinary maintenance and repair
costs are charged to expense as incurred.
Impairment of long-lived assets
The Company periodically reviews its valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amount, the Company records impairment as required under generally
accepted accounting principles. No such impairment losses were incurred for the
periods presented.
Fair value of financial instruments
The carrying amounts reported in the accompanying combined balance sheets
for cash and cash equivalents, accounts receivable, accounts payable and accrued
expenses and other liabilities approximate fair value as of December 31, 1996
and 1997 and September 30, 1998 (unaudited) due to the short term nature of
these accounts. The carrying amount of the vendor financing debt approximates
fair value due to their short maturity of up to one year. The fair value of
notes payable is determined using current applicable interest rates as of
December 31, 1996 and 1997 and September 30, 1998 (unaudited) and approximates
the carrying value of such debt.
Revenue recognition
Revenue related to the sale of equipment, parts and supplies is recognized
at the point of sale. Revenue related to rental equipment is recognized over the
contract term.
Income taxes
Ray L. O'Neal, Inc. became an S Corporation for tax purposes effective
November 1, 1987. Arenco, LLC is classified as a partnership for income tax
purposes. Accordingly, income, losses and related temporary differences which
arise in the recording of income and expense items for financial reporting and
tax reporting purposes are included in the tax returns of the stockholders of
Ray L. O'Neal, Inc. and the members of Arenco, LLC. Therefore, no provision or
liability for Federal and state income taxes has been included in the
accompanying combined financial statements.
The pro forma adjustment to reflect income taxes in the accompanying
combined statements of income is for informational purposes only. The pro forma
provision for income taxes has been provided at the estimated effective rate of
40%.
Ray L. O'Neal, Inc. was liable for income taxes imposed on any built-in
gain resulting from the disposition, within 10 years, of any asset held on the
first day of the S Corporation election. A built-in gain is the difference
between the net book value and the fair market value of an asset, on hand, as of
the S Corporation election date. The income tax on the built-in gains is
computed at the highest corporate tax rate effective for that year. Provisions
for the built-in gains income tax are made in the accompanying combined balance
sheet in accrued expenses and other liabilities for the year ended December 31,
1996. No further provision is required for disposition of assets after October
31, 1997.
F-171
<PAGE> 239
RAY L. O'NEAL, INC. AND ARENCO, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of credit risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions. Concentrations of credit risk with respect to
accounts receivable are limited because a large number of diverse customers make
up the Company's customer base. No single customer represents greater than 10%
of total accounts receivable. The Company controls credit risk through credit
approvals, credit limits and monitoring procedures.
Interim Financial Information
In the opinion of management, the unaudited interim financial information
as of September 30, 1998 and for the nine months ended September 30, 1997 and
1998 furnished herein reflects all adjustments consisting of normal recurring
accruals that, in the opinion of management, are necessary for a fair
presentation of the results for the interim periods. The results of operations
for the nine months ended September 30, 1998 are not necessarily indicative of
the results to be expected for the year ending December 31, 1998.
3. RENTAL EQUIPMENT, NET
Rental equipment and related accumulated depreciation consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1996 1997 1998
----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment................................ $57,292,733 $71,891,633 $83,834,303
Less -- accumulated depreciation................ 34,136,119 41,575,259 45,556,696
----------- ----------- -----------
Rental equipment, net......................... $23,156,614 $30,316,374 $38,277,607
=========== =========== ===========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1996 1997 1998
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Land.............................................. $ 78,567 $ 78,567 $ 78,567
Building and leasehold Improvements............... 3,961,651 4,363,848 4,686,937
Office equipment.................................. 1,006,514 1,236,742 1,389,294
Less- accumulated depreciation and amortization... 2,624,812 2,943,210 3,183,923
---------- ---------- ----------
Property, plant and equipment, net........... $2,421,920 $2,735,947 $2,970,875
========== ========== ==========
</TABLE>
F-172
<PAGE> 240
RAY L. O'NEAL, INC. AND ARENCO, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- SEPTEMBER 30,
1996 1997 1998
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Payroll and related benefits...................... $ 432,952 $ 519,098 $ 428,170
Employee benefit plan............................. 447,817 1,559,100 1,335,846
Sales taxes payable............................... 223,538 276,385 369,410
Accrual for income tax on built-in gains.......... 36,535 -- --
Accrued interest.................................. 18,352 62,024 317,899
Other............................................. 239,239 268,671 567,409
---------- ---------- ----------
Accrued expenses and other liabilities.......... $1,398,433 $2,685,278 $3,018,734
========== ========== ==========
</TABLE>
6. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ SEPTEMBER 30,
1996 1997 1998
---------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable, secured by specific equipment,
interest at prime minus 50 basis points (8.0%
at December 31, 1997), payable in monthly
installments ranging from $21,667 to $77,930
through March 2002............................. $4,581,799 $ 8,447,429 $ 2,941,640
Vendor financing, secured by specific equipment,
non-interest bearing, payable within one
year........................................... 1,749,063 2,443,037 2,691,068
Notes payable to a related parties substantially
unsecured, interest at 7.5% and 8.0%, payable
through January 2002........................... 3,550,000 3,300,000 3,500,000
Lines of credit, with borrowings up to $11.5
million, secured by specific equipment,
interest at prime less .50%, payable in monthly
installments through August 1, 1999............ -- -- 5,550,000
---------- ----------- -----------
$9,880,862 $14,190,466 $14,682,708
========== =========== ===========
</TABLE>
The indebtedness with the related party is, in the opinion of management,
at terms not more or less favorable than could have been obtained if the
indebtedness was with an unrelated party.
Maturities of the Company's debt at December 31, 1997, are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 5,086,558
1999........................................................ 4,456,019
2000........................................................ 2,393,520
2001........................................................ 1,934,719
2002........................................................ 319,650
-----------
Total debt........................................ $14,190,466
===========
</TABLE>
F-173
<PAGE> 241
RAY L. O'NEAL, INC. AND ARENCO, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. RECAPITALIZATION
Effective December 29, 1997, the articles of incorporation for Ray L.
O'Neal, Inc. were amended to authorize the issuance of voting and nonvoting
shares of common stock in lieu of a single class of common stock. The 60,200
common shares issued prior to the amendment were changed and reclassified to
6,020 shares of voting common stock and 54,180 shares of nonvoting common stock.
The stated capital of the corporation was not changed by the amendment.
8. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases real estate under operating leases from related parties
and from a third party on a month to month basis. Certain real estate leases
require the Company to pay maintenance, insurance, taxes and certain other
expenses in addition to the stated rentals. The leases cover several operating
locations and expire at various dates through July 31, 2005. Future minimum
lease payments to related parties, by year and in the aggregate, at December 31,
1997 for noncancelable operating leases with initial or remaining terms of one
year or more are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 987,616
1999........................................................ 918,684
2000........................................................ 692,684
2001........................................................ 772,116
2002........................................................ 704,066
2003 and thereafter......................................... 741,516
----------
Total............................................. $4,816,682
==========
</TABLE>
Rent expense under noncancellable operating leases for the years ended
December 31, 1995, 1996 and 1997 was $781,400, $804,476 and $1,027,525,
respectively, all of which was paid to related parties, except for $30,000 paid
to an unrelated third party in 1997.
Litigation, Claims and Assessments
From time to time, the Company may be engaged in routine litigation and
disputes incidental to its business. The Company does not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying combined financial statements.
9. EMPLOYEE BENEFIT PLANS
The Company has adopted a defined contribution employee benefit plan under
Section 401(k) of the Internal Revenue Code. All employees who have met minimum
age and length of service requirements are qualified to participate. Employee
contributions are voluntary and employer contributions are made at the
discretion of the Board of Directors in an amount not to exceed the amount
deductible for income tax purposes. Plan expense was $225,000, $250,000 and
$320,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
The Company had a defined benefit pension plan covering substantially all
of its employees which was terminated effective December 31, 1997. The benefits
were based on years of service and compensation of the employee. Payment of
accrued benefits under the plan was only available upon death, disability or
retirement. The Company's policy was to annually expense and contribute a
F-174
<PAGE> 242
RAY L. O'NEAL, INC. AND ARENCO, LLC
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
minimum required contribution as determined by a consulting actuary. Annual
expenses and contributions related to the pension plan were $337,370, $459,768
and $552,796 for the years ended December 31, 1995, 1996 and 1997, respectively.
In addition, the estimated cost of terminating the plan of $906,985 was expensed
in 1997 and is included in accrued expenses and other liabilities on the
accompanying combined balance sheet as of December 31, 1997.
10. SUBSEQUENT EVENT
Effective September 9, 1998, substantially all of the Company's operating
assets and liabilities were purchased by NationsRent, Inc. an unrelated third
party, in exchange for cash and debt.
F-175
<PAGE> 243
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Action Equipment Company, Inc.
and Action Supply Co., Inc.:
We have audited the accompanying combined balance sheet of Action Equipment
Company, Inc. and Action Supply Co., Inc. (the "Companies"), both New Hampshire
S Corporations, as of December 31, 1997 and the related combined statements of
operations, stockholders' deficit and cash flows for the year then ended. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Action
Equipment Company, Inc. and Action Supply Co., Inc. as of December 31, 1997 and
the combined results of their operations and their cash flows for the year then
ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts,
November 13, 1998.
F-176
<PAGE> 244
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS................................... $ 190,171 $ 265,543
ACCOUNTS RECEIVABLE, net of allowances for doubtful accounts
of $435,000 and $329,000 at December 31, 1997 and
September 30, 1998 (unaudited), respectively.............. 2,899,637 2,832,781
INVENTORIES................................................. 1,353,174 1,557,659
DUE FROM AFFILIATES......................................... 27,514 461,444
RENTAL EQUIPMENT, NET....................................... 4,267,389 8,649,446
PROPERTY AND EQUIPMENT, NET................................. 722,989 857,301
OTHER ASSETS, NET........................................... 170,087 404,365
----------- -----------
Total assets...................................... $ 9,630,961 $15,028,539
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
DEBT........................................................ $ 6,642,922 $ 9,398,776
OBLIGATIONS UNDER CAPITAL LEASES............................ 297,484 259,425
ACCOUNTS PAYABLE............................................ 1,574,026 4,162,889
ACCRUED EXPENSES AND OTHER LIABILITIES...................... 291,186 511,585
SUBORDINATED DEBT........................................... 1,229,978 1,247,497
----------- -----------
Total liabilities................................. 10,035,596 15,580,172
COMMITMENTS AND CONTINGENCIES (Notes 7, 8, 9 and 13)
PUT WARRANTS................................................ 278,700 1,875,000
----------- -----------
STOCKHOLDERS' DEFICIT:
Stockholders' investment.................................. 1,529,648 1,633,650
Accumulated deficit....................................... (2,212,983) (4,060,283)
----------- -----------
Total stockholders' deficit....................... (683,335) (2,426,633)
----------- -----------
Total liabilities and stockholders' deficit....... $ 9,630,961 $15,028,539
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-177
<PAGE> 245
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR NINE MONTHS ENDED
ENDED SEPTEMBER 30,
DECEMBER 31, ------------------------
1997 1997 1998
------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUE:
Equipment rentals................................... $ 6,114,187 $4,203,380 $ 5,626,434
Sale of equipment, parts and supplies............... 7,396,734 5,001,628 5,249,394
Service and Other................................... 334,751 196,791 215,029
----------- ---------- -----------
Total Revenue............................... 13,845,672 9,401,799 11,090,857
COST OF REVENUE:
Cost of equipment rentals, excluding depreciation... 3,187,304 2,376,958 2,657,283
Rental equipment depreciation....................... 660,750 314,014 598,236
Cost of sales of equipment, parts and supplies...... 6,315,063 4,224,843 4,689,604
----------- ---------- -----------
Total Cost of Revenue....................... 10,163,117 6,915,815 7,945,123
----------- ---------- -----------
Gross profit................................ 3,682,555 2,485,984 3,145,734
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......... 3,432,129 2,456,364 2,450,721
NONRENTAL DEPRECIATION AND AMORTIZATION............... 189,636 90,122 153,378
----------- ---------- -----------
Operating income (loss)............................. 60,790 (60,502) 541,635
OTHER INCOME (EXPENSE), NET:
Interest expense.................................... (779,796) (524,745) (2,393,725)
Interest income..................................... 27,608 21,058 4,790
----------- ---------- -----------
Total other expense......................... (752,188) (503,687) (2,388,935)
----------- ---------- -----------
Loss before extraordinary item.............. (691,398) (564,189) (1,847,300)
EXTRAORDINARY ITEM :
Gain on extinguishment of debt...................... 651,354 -- --
----------- ---------- -----------
NET LOSS.............................................. $ (40,044) $ (564,189) $(1,847,300)
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-178
<PAGE> 246
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC.
COMBINED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
TOTAL
STOCKHOLDERS' ACCUMULATED STOCKHOLDERS'
INVESTMENT DEFICIT DEFICIT
------------- ----------- -------------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1997.......................... $1,015,163 $(2,172,939) $(1,157,776)
Capital contribution............................ 514,485 -- 514,485
Net loss........................................ -- (40,044) (40,044)
---------- ----------- -----------
BALANCE, DECEMBER 31, 1997........................ 1,529,648 (2,212,983) (683,335)
Capital contribution (unaudited)................ 104,002 -- 104,002
Net loss (unaudited)............................ -- (1,847,300) (1,847,300)
---------- ----------- -----------
BALANCE, SEPTEMBER 30, 1998 (unaudited)........... $1,633,650 $(4,060,283) $(2,426,633)
---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-179
<PAGE> 247
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, -------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................ $ (40,044) $ (564,189) $(1,847,300)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities --
Depreciation and amortization.................. 850,386 404,136 751,614
Gain on extinguishment of debt................. (651,354) -- --
Accretion of put warrants...................... -- -- 1,596,300
Accretion of subordinated debt................. 8,678 -- 17,519
Changes in assets and liabilities --
Accounts receivable......................... (1,020,433) (331,889) 66,856
Inventories................................. (79,330) 17,841 (204,485)
Due from affiliates......................... 557,788 (117,635) (433,930)
Other assets................................ 33,803 (136,802) (234,278)
Accounts payable............................ (136,172) (498,608) 2,588,863
Accrued expenses and other liabilities...... 91,391 (89,948) 220,399
----------- ----------- -----------
Net cash provided by (used in) operating
activities............................. (385,287) (1,317,094) 2,521,558
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchase of rental equipment.................... (205,215) (156,000) (2,200,000)
Net purchase of property and equipment.............. (66,649) (50,000) (197,432)
----------- ----------- -----------
Net cash used in investing activities..... (271,864) (206,000) (2,397,432)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) of debt................. (719,967) 91,431 (48,754)
Proceeds from subordinated debt issuance............ 1,221,300 1,221,300 --
Issuance of put warrants............................ 278,700 278,700 --
----------- ----------- -----------
Net cash provided by (used in) financing
activities............................. 780,033 1,591,431 (48,754)
----------- ----------- -----------
Net increase in cash and cash
equivalents............................ 122,882 68,337 75,372
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........ 67,289 67,289 190,171
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.............. $ 190,171 $ 135,626 $ 265,543
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Acquisition of equipment financed by debt and
capital leases................................... $ 1,061,398 $ 760,188 $ 2,870,551
=========== =========== ===========
Conversion of debt to capital....................... $ 514,485 $ 514,485 $ 104,002
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for taxes................................. $ 14,500 $ 7,107 $ 12,950
=========== =========== ===========
Cash paid for interest.............................. $ 817,485 $ 612,509 $ 712,852
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-180
<PAGE> 248
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) ORGANIZATION AND BASIS OF PRESENTATION
Action Equipment Company, Inc. was incorporated in 1980 in the state of New
Hampshire. Action Supply Co., Inc. was incorporated in 1985 in the state of New
Hampshire. Action Equipment Company, Inc. and Action Supply Co., Inc.,
collectively referred to hereafter as the "Companies," do business in New
Hampshire, Massachusetts, Vermont and Maine. The Companies rent and sell a broad
array of equipment to a customer base that includes principally construction
industry participants and industrial companies. The nature of the Companies'
business is such that short-term obligations are typically met by cash flow
generated from long-term assets. Consequently, consistent with industry
practice, the accompanying audited and unaudited balance sheets are presented on
an unclassified basis.
The combined financial statements include Action Equipment Company, Inc.
and Action Supply Co., Inc., both of which are closely held by the same
shareholder group. All significant intercompany accounts and transactions have
been eliminated in combination.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Interim Financial Information
The accompanying combined financial statements as of September 30, 1998 and
for the nine-month periods ended September 30, 1997 and 1998 are unaudited, but
in the opinion of management, include all adjustments consisting of normal
recurring adjustments necessary for a fair presentation of results for the
interim periods. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted with respect to the interim periods,
although the Companies believe that the disclosures included are adequate to
make the information presented not misleading. Results for the nine months ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
(b) Cash and Cash Equivalents
The Companies consider all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents. As of December 31,
1997, $82,022 of the total cash and cash equivalents was interest bearing at
approximately 2.5%, of which $51,449 was restricted to comply with loan
covenants (see Note 6).
(c) Inventories
Inventories consist of equipment, tools, parts and related rental equipment
supplies and accessories. Inventories are stated at the lower of cost, using the
specific identification method, or market.
(d) Rental Equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment using the straight-line method. The useful lives
estimated by management for rental equipment are 3 to 12 years. Ordinary
maintenance and repair costs are charged to operations as incurred. Betterments,
which substantially extend the useful life of rental equipment, are capitalized.
F-181
<PAGE> 249
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Upon sale of rental equipment, the cost and related accumulated depreciation are
removed from the accounts and any gain or loss is included in income.
(e) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
are depreciated on the straight-line method using the following estimated useful
lives:
<TABLE>
<S> <C>
3 -- 12
Transportation equipment............................... years
5 -- 12
Furniture and fixtures................................. years
3 -- 5
Computer equipment..................................... years
Leasehold improvements................................. 5 years
</TABLE>
The cost of additions and improvements, which substantially extend the
useful life of a particular asset, is capitalized.
(f) Other Assets
Included in other assets are deferred financing costs and costs incurred in
relation to the possible sale of the Companies (Note 15). Deferred financing
costs are amortized on a straight-line basis over the term of the related loan
or mortgage, which ranges from 24 to 84 months.
(g) Impairment of Long-Lived Assets
The Companies periodically review the valuation for long-lived assets used
in operations when indicators of impairment are present. If the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amounts, the Companies record impairment as required under generally
accepted accounting principles. No such impairment losses were incurred for the
periods presented.
(h) Fair Value of Financial Instruments
The carrying amounts reported in the accompanying balance sheets for cash
and cash equivalents, accounts receivable, accounts payable, accrued expenses
and other liabilities approximate fair value as of December 31, 1997 and
September 30, 1998 (unaudited) due to the short-term nature of these amounts.
The fair value of debt is determined using current applicable interest rates as
of December 31, 1997 and September 30, 1998 (unaudited) and approximates the
carrying value of such debt.
(i) Revenue Recognition
Revenues from the sales and service of equipment, parts and accessories are
recognized upon shipment or as the services are provided. Rental revenues are
recognized ratably over the contractual periods, which are typically less than
one year. Allowances are established to recognize estimated bad debts and
adjustments to revenues.
(j) Income Taxes
The Companies have elected under the Internal Revenue Code to be S
corporations. For federal income tax purposes, income, losses and other tax
attributes are primarily passed through to the stockholders. Therefore, no
provision or liability for federal income taxes has been included in the
F-182
<PAGE> 250
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
combined financial statements. The Companies have operating facilities in
various states and provide for state income tax liability based upon the
respective taxable income and statutory requirements of each state.
The Companies follow Statement of Financial Accounting Standards (SFAS) No.
109, Accounting for Income Taxes, which requires, among other things,
recognition of future tax effects measured at enacted rates attributable to
deductible temporary differences between the financial statement and income tax
bases of assets and liabilities to the extent that realization of said effects
is more likely than not.
As of December 31, 1997, the Companies had net operating loss carryforwards
of approximately $300,000 and tax credits of $20,000, which begin to expire in
1998. The deferred tax asset associated with these tax attributes has a 100%
offsetting valuation allowance due to the uncertainty of usage prior to
expiration.
(k) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(l) Concentrations of Credit Risk
Financial instruments that potentially subject the Companies to significant
concentrations of credit risk consist primarily of cash equivalents and accounts
receivable. The Companies maintain cash and cash equivalents with high-quality
financial institutions. Concentrations of credit risk with respect to accounts
receivable are limited because a large number of diverse customers make up the
Companies' customer base. No single customer represents greater than 10% of
total accounts receivable. The Companies control credit risk through credit
approvals, credit limits and monitoring procedures.
(3) RENTAL EQUIPMENT
Rental equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Rental equipment....................................... $ 6,102,028 $10,790,160
Less accumulated depreciation.......................... (1,834,639) (2,140,714)
----------- -----------
Rental equipment, net.................................. $ 4,267,389 $ 8,649,446
=========== ===========
</TABLE>
F-183
<PAGE> 251
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(4) PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Transportation equipment............................... $ 921,322 $ 1,091,689
Furniture and fixtures................................. 303,265 303,883
Computer equipment..................................... 48,195 52,956
Leasehold improvements................................. 38,731 123,609
----------- -----------
1,311,513 1,572,137
Less accumulated depreciation.......................... (588,524) (714,836)
----------- -----------
Property and equipment, net............................ $ 722,989 $ 857,301
=========== ===========
</TABLE>
(5) ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Interest............................................... $ 39,241 $ 97,617
Professional Fees...................................... 136,181 197,699
Payroll-related........................................ 37,793 21,130
Deferred Taxes......................................... 30,000 30,000
Inventory received, but not invoiced................... 24,604 113,081
Other.................................................. 23,367 52,058
----------- -----------
$ 291,186 $ 511,585
=========== ===========
</TABLE>
F-184
<PAGE> 252
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(6) DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(UNAUDITED)
<S> <C> <C>
Lines of credit. Revolving loan with borrowings up to
$2,000,000 ($1,996,780 at December 31, 1997); final
maturity November 1999; variable rate (10% at
December 31, 1997); collateralized by all personal
property; guaranteed by stockholders and Action
Supply Co., Inc...................................... $ 1,996,780 $ 1,985,274
Demand note ($154,000 at December 31, 1997) with
variable rate (10.5% at December 31, 1997);
collateralized by inventories and receivables;
guaranteed by stockholders........................... 154,000 140,000
Equipment obligations; collateralized by the related
equipment and the personal guarantee of the majority
owner of the Companies; interest payable monthly at
rates ranging from 3.21% to 22.91% at December 31,
1997................................................. 3,604,993 6,484,197
Note Payable; interest at prime plus 1.5% (10.0% at
December 31, 1997); monthly payments of $10,000
principal plus interest maturing March 2002;
collateralized by equipment, life insurance policy
and certificate of deposit; guaranteed by stockholder
and affiliated companies............................. 887,149 789,305
----------- -----------
Debt......................................... $ 6,642,922 $ 9,398,776
=========== ===========
</TABLE>
The terms of some of the Companies' debt instruments contain financial
covenants with respect to total net worth, current ratio, debt to equity ratio,
debt service coverage and other debt and capital ratios. As of December 31, 1997
the Companies are not in compliance with such requirements. The Companies have
received waivers from their creditors with respect to compliance with these
covenants.
Maturities of long-term debt for each of the next five years as of December
31, 1997 are as follows:
<TABLE>
<S> <C>
1998..................................................... $4,026,469
1999..................................................... 1,244,401
2000..................................................... 696,227
2001..................................................... 497,107
2002..................................................... 178,718
----------
Total.......................................... $6,642,922
==========
</TABLE>
F-185
<PAGE> 253
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(7) LEASE OBLIGATIONS
(a) Capital Leases
The Companies have entered into long-term capital lease agreements related
to certain revenue-earning equipment. As of December 31, 1997, the present value
of future minimum lease payments under the capital leases was as follows:
<TABLE>
<S> <C>
1998..................................................... $ 79,086
1999..................................................... 79,086
2000..................................................... 79,086
2001..................................................... 79,086
2002..................................................... 58,959
---------
Total future minimum lease payments...................... 375,303
Less amounts representing interest....................... (77,819)
---------
Present value of net minimum capital lease payments...... $ 297,484
=========
</TABLE>
(b) Operating Leases
The Companies have obligations under operating leases primarily for office
space and equipment that expire through August 2001 including obligations to
related parties. Rent expense for 1997 amounted to $251,720, including $184,600
paid to a related party.
Minimum future rental obligations for noncancellable operating leases as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
EQUIPMENT PROPERTY RELATED
YEAR ENDED LEASES LEASES TOTAL PARTY
---------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C>
1998.................................... $ 497,506 $223,300 $ 720,806 $247,420
1999.................................... 479,526 229,300 708,826 253,420
2000.................................... 411,064 218,100 629,164 242,220
2001.................................... 381,255 107,100 488,355 131,220
2002.................................... 150,374 -- 150,374 20,100
---------- -------- ---------- --------
Total future minimum lease payments....... $1,919,725 $777,800 $2,697,525 $894,380
========== ======== ========== ========
</TABLE>
(8) SUBORDINATED DEBT AND COMMON STOCK PUT WARRANTS
In August 1997, the Company issued 12% subordinated debentures maturing
August 2004 to a venture capital firm. Principal payments, which are subordinate
to all senior debt, are subject to mandatory or optional prepayment under
certain conditions, as defined. In conjunction with the debentures, common stock
purchase warrants were issued for 39,588 shares of common stock for each
company, respectively. Both the exercise price ($10.93 per share for Action
Equipment Company, Inc. and $2.19 per share for Action Supply Co., Inc.) and the
number of shares available are subject to adjustment based upon certain terms.
The warrant certificates fully expire in August 2007.
Under the warrant agreement, the warrant holder may put the warrant back to
the Companies at any time after August 31, 2004, or earlier if the debenture has
been repaid in full. The put feature expires at the earlier of the event of an
initial public offering of stock by the Companies from which the Companies
receive net proceeds in excess of $10,000,000 and in which the price per share
of common stock would yield net proceeds in respect of shares covered by the
warrants in excess of
F-186
<PAGE> 254
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
$3,000,000, or the expiration date. The redemption price, in the event of a put,
is equal to the appraised fair market value of the Companies multiplied by the
shares issuable under the warrant, divided by the total shares outstanding at
the time of the put, plus the number of shares represented by the warrant, or
will be based on a formula in which the fair value of the Companies is
determined based on six times EBITDA, less the amount of outstanding debt at the
time of redemption.
The initial allocation of value assigned to the notes and warrants was
determined using the Black-Scholes option valuation model. The assumptions used
were as follows: dividend yield of 0%, risk-free interest rate of 6.13%,
expected warrant life of 10 years, and expected volatility of 25%.
As a result of this valuation of the warrants, the Companies have recorded
a discount on the subordinated note and are accreting this discount using the
effective yield method over the term of the debt. The Companies recognize
changes in the estimated fair value of the warrants in earnings. During the
period ended September 30, 1998 the Company recognized $1,596,300 of interest
related to an increase in the estimated fair value of the warrants.
(9) COMMITMENTS AND CONTINGENCIES
Litigation, Claims and Assessments
From time to time, the Companies may be engaged in routine litigation and
disputes incidental to their business. The Companies do not believe that the
ultimate resolution of any of these matters will have a material adverse effect
on the accompanying combined financial statements.
(10) RELATED PARTY TRANSACTIONS AND BALANCES
By virtue of common ownership and/or control, the Companies have several
relationships with certain entities. Some entities are involved in services or
sales within the construction industry, while others provide administrative
services or lease real estate. Sales and services charged to related parties
were approximately $1.4 million for 1997, while approximately $3.3 million in
products and services were purchased from related parties in 1997 and included
as cost of equipment rentals. Management believes these to be arm's-length
transactions done at fair market value.
In addition, the Companies hold various notes receivable, a note payable,
and open accounts with related parties, which are included within due to/from
related parties.
(11) CAPITAL STOCK
Common stock consists of the following:
<TABLE>
<CAPTION>
ACTION
EQUIPMENT ACTION SUPPLY
COMPANY, INC. CO., INC.
---------------- ----------------
<S> <C> <C>
Common stock, no par value:
Authorized....................................... 1,000,000 shares 1,000,000 shares
Issued and outstanding........................... 65,000 shares 65,000 shares
</TABLE>
In August 1997, both Companies increased their authorized common stock, no
par value, from 300 shares to 1,000,000 shares. In conjunction with the
subordinated debt and common stock warrant issuance (Note 8), the Companies
declared a stock split (303.3 shares for each share held by Action Equipment
Company, Inc. stockholders; 650 shares for each share held by Action Supply,
Inc. stockholders), and each company reserved 39,588 shares for common stock
warrants.
F-187
<PAGE> 255
ACTION EQUIPMENT COMPANY, INC. AND
ACTION SUPPLY CO., INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In 1997, the majority stockholder assumed $514,485 of debt owed by the
Companies to related parties. In 1998, the majority stockholder forgave $104,002
of the Companies' debt. Both transactions are recorded as capital contributions
in the combined statements of stockholders' deficit.
(12) EXTRAORDINARY ITEM
In 1997, a settlement of an outstanding note payable was negotiated with
the lender, resulting in a gain of $651,354, included as extraordinary income.
(13) CHAPTER 11 PLAN OF REORGANIZATION
On October 18, 1990, Action Equipment Company, Inc. filed a petition for
relief under Chapter 11 of the federal bankruptcy laws in the United States
Bankruptcy Court for the District of New Hampshire. On January 31, 1992, the
Bankruptcy Court confirmed the Plan of Reorganization, which included provision
for installment payments on certain priority tax claims and equipment
obligations, pro-rata payout on unsecured obligations, and subordinated debt
issuance of $514,485. Future installments of approximately $20,000 for tax
claims are included within accrued expenses at December 31, 1997.
(14) EMPLOYEE BENEFIT PLAN
The Companies have adopted a defined contribution employee benefit plan
under Section 401(k) of the Internal Revenue Code. All employees who have met
minimum age and length of service requirements are qualified to participate.
Employee contributions are voluntary and the Companies do not match employee
contributions.
(15) SUBSEQUENT EVENTS
In August 1998, the Companies purchased certain rental equipment assets
from related parties for approximately $2.5 million. Prior to the acquisition,
the Companies leased the equipment from the sellers which were used in the
Companies' operations. The Companies issued debt to the sellers as
consideration. This asset purchase is subject to a call provision if the
Companies do not enter into an agreement to be acquired by November 15, 1998.
Under the terms of this call provision, the seller has the option to reacquire
these assets in return for the consideration received from the Companies. This
feature is subject to certain requirements and expires on October 31, 1998.
Included in the December 31, 1997 and September 30, 1998 statement of operations
is $1,459,200 and $844,420, respectively, of rent expense related to the
operating leases of these assets.
Effective October 1998, the Companies signed a letter of intent for
substantially all of the Companies' operating assets and liabilities to be
purchased by NationsRent, Inc., an unrelated third party, in exchange for cash
and debt.
F-188
<PAGE> 256
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Logan Equipment Corporation:
We have audited the accompanying balance sheet of Logan Equipment
Corporation (the Company) as of December 31, 1997, and the related statements of
income, changes in stockholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Logan Equipment Corporation
at December 31, 1997, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
February 20, 1998,
Boston, Massachusetts.
F-189
<PAGE> 257
LOGAN EQUIPMENT CORPORATION
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1998
------- -------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash........................................................ $ 240 $ 1,760
Accounts receivable, net of allowance for doubtful accounts
of $33 and $274 for December 31, 1997 and September 30,
1998, respectively........................................ 6,068 8,169
Inventories................................................. 2,735 5,871
Other assets................................................ 105 785
Rental equipment inventory, net of accumulated depreciation
of $3,505 and $5,950 for December 31, 1997 and September
30, 1998, respectively.................................... 18,439 35,343
Property and equipment, net of accumulated depreciation of
$380 and $1,109 for December 31, 1997 and September 30,
1998, respectively........................................ 978 2,396
Goodwill, net of accumulated amortization of $31............ -- 1,831
------- -------
Total assets...................................... $28,565 $56,155
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and other accrued expenses................. $ 3,011 $ 8,882
Bank debt and other obligations............................. 22,871 42,359
------- -------
Total liabilities................................. 25,882 51,241
------- -------
Redeemable preferred stock.................................. 200 --
STOCKHOLDERS' EQUITY:
Common stock, no par value; 100 shares authorized, issued
and outstanding........................................ 5 5
Additional paid-in capital................................ 507 507
Retained earnings......................................... 1,971 4,402
------- -------
Total stockholders' equity........................ 2,483 4,914
------- -------
Total liabilities and stockholders' equity........ $28,565 $56,155
======= =======
</TABLE>
See Accompanying Notes.
F-190
<PAGE> 258
LOGAN EQUIPMENT CORPORATION
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -----------------
1997 1997 1998
------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Equipment rentals......................................... $ 5,882 $ 4,536 $12,881
Sales of equipment........................................ 7,297 4,419 13,250
Sales of merchandise, parts and service................... 2,335 1,382 4,798
------- ------- -------
Total revenues.................................... 15,514 10,337 30,929
COST OF REVENUES:
Depreciation, equipment rentals........................... 1,297 927 3,253
Cost of sales equipment................................... 6,200 3,659 10,779
Cost of sales of merchandise, parts and service........... 1,018 714 2,709
Cost of equipment rentals, excluding depreciation......... 358 310 360
Direct operating expenses................................. 839 616 1,747
------- ------- -------
Total cost of revenues............................ 9,712 6,226 18,848
------- ------- -------
Gross profit...................................... 5,802 4,111 12,081
Selling, general and administrative expense................. 3,466 2,463 7,518
Nonrental depreciation and amortization..................... 74 52 176
------- ------- -------
Operating income............................................ 2,262 1,596 4,387
Interest expense............................................ 922 606 1,912
------- ------- -------
Income before income taxes.................................. 1,340 990 2,475
Provision for income taxes.................................. -- -- 44
------- ------- -------
Net income........................................ $ 1,340 $ 990 $ 2,431
======= ======= =======
</TABLE>
See Accompanying Notes.
F-191
<PAGE> 259
LOGAN EQUIPMENT CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996........................ 100 $5 $507 $ 631 $1,143
Net income........................................ -- -- -- 1,340 1,340
---- -- ---- ------ ------
Balance at December 31, 1997........................ 100 5 507 1,971 2,483
Net income (unaudited)............................ -- -- -- 2,431 2,431
---- -- ---- ------ ------
Balance at September 30, 1998 (unaudited)........... 100 $5 $507 $4,402 $4,914
==== == ==== ====== ======
</TABLE>
See Accompanying Notes.
F-192
<PAGE> 260
LOGAN EQUIPMENT CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTH
FOR THE PERIOD ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -------------------
1997 1997 1998
------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................... $ 1,340 $ 990 $ 2,431
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization....................... 1,371 979 3,429
Gain on sale of equipment........................... (1,099) (367) (875)
Provision for losses on accounts receivable......... 18 -- --
Changes in operating assets and liabilities, net of
effects of asset acquisition:
Accounts receivable................................. (1,880) (350) (1,341)
Inventories......................................... 321 (6) (2,701)
Other current assets................................ (91) (5) (534)
Accounts payable and other accrued expenses......... 1,291 760 5,571
-------- -------- --------
Net cash provided by operating activities........... 1,271 2,001 5,980
INVESTING ACTIVITIES
Purchases of equipment................................... (10,126) (4,944) (16,361)
Cash acquired from asset acquisition..................... 134 -- 242
Capital expenditures..................................... (187) (133) (749)
Proceeds from sale of equipment.......................... 7,320 1,810 4,818
-------- -------- --------
Net cash used in investing activities.......... (2,859) (3,267) (12,050)
FINANCING ACTIVITIES
Payments to preferred stockholders....................... -- -- (200)
Proceeds from bank debt and long-term obligations........ 1,635 1,343 7,790
-------- -------- --------
Net cash provided by financing activities................ 1,635 1,343 7,590
-------- -------- --------
Net increase in cash and cash equivalents................ 47 77 1,520
Cash and cash equivalents at beginning of year........... 193 193 240
-------- -------- --------
Cash and cash equivalents at end of year................. $ 240 $ 270 $ 1,760
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................ $ 919 $ 606 $ 1,912
======== ======== ========
Income taxes........................................ $ 37 $ -- $ 44
======== ======== ========
Noncash investing and financing activities:
Acquisition of assets, net of cash received............ $ 13,963 $ -- $ 11,757
======== ======== ========
Liabilities incurred as a result of asset acquisition.... $ 14,097 $ -- $ 11,998
======== ======== ========
</TABLE>
See Accompanying Notes.
F-193
<PAGE> 261
LOGAN EQUIPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Logan Equipment Corporation (Logan or Company), was founded in 1963. The
Company operates in a single industry segment: the short-term rental and sale of
equipment, including sales of parts, supplies and service through a network of
full service center locations in Massachusetts, Rhode Island, Vermont and Maine.
The nature of the Company's business is such that short-term obligations are
generally met by cash flow generated from long-term assets. Consequently,
consistent with industry practice, the accompanying balance sheet is presented
on an unclassified basis.
Revenue Recognition
Equipment rental revenue is recorded as earned over the contract term.
Revenue from the sale of equipment, parts and service is recorded at the time of
delivery to or pick-up by the customer.
Inventory and Rental Equipment
Inventory consists of new equipment, parts and accessories held for sale.
Fleet rental equipment inventory is depreciated to a salvage value of 20% of
cost. Depreciation is provided on the fleet rental equipment using the
straight-line method over the estimated useful lives of the assets, generally 5
to 7 years. Inventory is recorded at the lower of cost using the first-in,
first-out (FIFO) method or market.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is provided using
the straightline method over the estimated useful lives of the assets, generally
3 to 10 years.
Income Taxes
The Company uses the liability method of accounting for income taxes as set
forth in the Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Under this method, deferred taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Recognition of deferred tax assets is
limited to amounts considered by management to be more likely than not to be
realized in future periods.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for cash, accounts
receivable, and accounts payable and other accrued expenses approximate fair
value because of the immediate or short-term maturity of these financial
instruments. The fair value of the revolving credit agreement is determined
using current interest rates as of the balance sheet date and approximates the
carrying value of such debt because the underlying instruments are at variable
rates which are repriced frequently.
F-194
<PAGE> 262
LOGAN EQUIPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concentrations of Credit Risk
The Company maintains cash with various financial institutions. The Company
performs periodic evaluations of the relative credit standing of these
institutions and limits the amount of exposure with any institution.
The Company's customers are located throughout New England and are
concentrated in the construction industry. No single customer accounted for
greater than 10% of the Company's revenues and there were no accounts receivable
from any single customer greater than 10% of total accounts receivable. The
Company reviews a customer's credit history before extending credit. The
Company's allowance for doubtful accounts is based upon factors surrounding the
credit risk of its customers, historical trends and other information.
Collective Bargaining Agreements
At December 31, 1997, the Company had approximately 115 employees.
Approximately 15% of the Company's employees are covered by collective
bargaining agreements negotiated with a local union that is affiliated with an
international union. The Agreement has a three-year term that expires in August
2000. The Company is currently negotiating with the same local union to cover an
additional 15% of its employees. The Company considers its relationship with its
employees and the representatives of the union to be excellent.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in its financial statements and
accompanying notes. Actual results could differ from these estimates.
2. ACQUISITION OF BUSINESS
On January 31, 1998, the Company completed its acquisition of a company
that sells and rents equipment to the construction industry. The effective date
of the acquisition was December 31, 1997.
F-195
<PAGE> 263
LOGAN EQUIPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following pro forma balance sheet reflects the purchase accounting
adjustments included in the December 31, 1997 balance sheet. The following pro
forma balance sheet also reflects the borrowings entered into on January 31,
1998 to effect the transaction as more fully described in Note 4:
PRO FORMA BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONSOLIDATED
LOGAN ACQUIRED LOGAN PRO FORMA
EQUIPMENT COMPANY EQUIPMENT ADJUSTMENTS PRO FORMA
DECEMBER 31, DECEMBER 31, DECEMBER 31, FOR DECEMBER 31,
1997 1997 1997 REFINANCING 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash..................................... $ 106 $ 134(a) $ 240 $ 240
Accounts receivable, net................. 3,289 2,779(a) 6,068 6,068
Inventories.............................. 1,016 1,719(a) 2,735 2,735
Other current assets..................... 100 5(a) 105 105
Rental equipment, net.................... 9,282 9,157(a) 18,439 18,439
Property and equipment, net.............. 675 303(a) 978 978
------- ------- ------- -------
Total assets..................... $14,468 $14,097(a) $28,565 $28,565
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other accrued
expenses............................... $ 2,411 $ 600(b) $ 3,011 $ (320)(b) $ 2,691
Long-term debt/revolving credit
agreement.............................. 9,374 13,497(c) 22,871 520(c) 23,391
------- ------- ------- ------- -------
Total liabilities................ 11,785 14,097 25,882 200 26,082
Redeemable preferred stock............... 200 200 (200)(d) 0
Stockholder's equity:
Common stock, no par value; 100 shares
authorized, issued and outstanding... 5 5 5
Additional paid-in capital............. 507 507 507
Retained earnings...................... 1,971 1,971 1,971
------- ------- ------- -------
Total stockholders' equity....... 2,483 2,483 2,483
------- ------- ------- -------
Total liabilities and
stockholders' equity........... $14,468 $14,097 $28,565 $28,565
======= ======= ======= =======
</TABLE>
F-196
<PAGE> 264
LOGAN EQUIPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following pro forma income statement is intended to reflect the results
of operations of the Company as if the transaction had occurred at the beginning
of the year:
PRO FORMA INCOME STATEMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
LOGAN ACQUIRED
EQUIPMENT COMPANY PRO FORMA
DECEMBER 31, DECEMBER 31, PRO FORMA DECEMBER 31,
1997 1997 ADJUSTMENTS 1997
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Equipment rentals............... $ 5,882 $ 4,848 $10,730
Sales of equipment.............. 7,297 10,177 17,474
Sales of merchandise, parts and
service...................... 2,335 4,367 6,702
------- ------- ------- -------
Total revenues.......... 15,514 19,392 34,906
COST OF REVENUES:
Depreciation, equipment
rentals...................... 1,297 3,141 $(1,786)(e) 2,652
Cost of sales equipment......... 6,200 7,237 13,437
Cost of sales of merchandise,
parts and service............ 1,018 2,944 3,962
Cost of equipment rentals,
excluding depreciation....... 358 358
Direct operating expenses....... 839 841 1,680
------- ------- ------- -------
Total cost of
revenues.............. 9,712 14,163 (1,786) 22,089
------- ------- ------- -------
Gross Profit...................... 5,802 5,229 1,786 12,817
Selling, general and
administrative costs............ 3,466 3,789 7,255
Nonrental depreciation and
amortization.................... 74 114 188
------- ------- ------- -------
Operating income........ 2,262 1,326 1,786 5,374
Interest expense.................. 922 441 717(f) 2,080
------- ------- ------- -------
Income before income taxes........ 1,340 885 1,069(g) 3,294
Provision for income taxes........ -- 250 250
------- ------- ------- -------
Net income.............. $ 1,340 $ 635 $ 1,069 $ 3,044
======= ======= ======= =======
</TABLE>
- ---------------
(a) All current assets were recorded at their respective fair values on the date
of acquisition and the remaining purchase price of $9,157,000 has been
allocated to rental equipment.
(b) Reflects expenses incurred in connection with the purchase of which $320,000
was paid with proceeds from the financing described in Note (c) below.
(c) Reflects payment of $9,273,000 in various debt instruments bearing interest
at rates ranging from 8% to 11.25% payable in various installments through
2001. Adjustment also reflects the issuance of $23,290,000 in new debt in
the form of a revolving credit facility of $21,290,000 bearing interest at
the Prime Rate (currently 8.5%) with payment of interest only until maturity
in February 2001, and $2,000,000 in subordinated debt bearing interest at
the LIBOR rate plus 4% (currently 10%) with payment of interest only until
maturity in February 2000.
F-197
<PAGE> 265
LOGAN EQUIPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) Reflects the payment of $200,000 in preferred stock.
(e) Adjustments reflect charges to conform acquired company depreciation
policies to those of Logan Equipment.
(f) Reflects interest expense under the new credit facilities, assuming they had
been in place since January 1, 1997.
(g) There has been no pro forma income tax provision due to the Company's net
operating loss carryforwards.
3. REVOLVING LINE OF CREDIT AGREEMENT
The Company had a $600,000 revolving line of credit agreement with First
Massachusetts Bank, of which $600,000 was outstanding at December 31, 1997.
Under the terms of the agreement, the Company could borrow 80% of accounts
receivable less than 90 days old at the Prime Rate plus 1.5% (10.0% at December
31, 1997). The line is secured by accounts receivable and parts inventory. This
loan was repaid with the initial advance from the revolving credit facility
described in Note 2.
4. BANK DEBT AND LONG-TERM OBLIGATIONS
Prior to the refinancing described in Note 2, the Company had $9,374,000 in
bank debt and other long-term obligations payable to ten lenders and related
parties with interest rates ranging from 0% to 12% and various maturities
through December 2002. Subsequent to December 31, 1997, all of the above loans
were repaid with the initial advance from the line described in Note 2.
Based on the borrowing rates currently available to the Company for loans
with similar terms and average maturities, the fair value of the long-term debt
approximates its carrying value.
On January 31, 1998, the Company entered into a Credit Facilities Agreement
with Deutsche Financial Services Corp. The total amount of credit available
under the Agreement is limited to the lesser of $25 million or a borrowing base
consisting of eligible receivables, inventory and vehicles. The credit facility
bears interest at the prime rate as defined in the agreement (currently 8.5%).
The Agreement expires on January 31, 2001. The obligation of the lender to make
advances under the Agreements is subject to certain customary conditions. In
addition the Agreement contains financial covenants for the Company regarding
interest coverage, maximum indebtedness, minimum net worth, maximum inventory
and capital expenditures and minimum fleet utilization. Borrowings under the
Agreement are secured by all the real and personal property of the Company. The
Agreement also restricts the Company from making certain distributions,
including cash dividends. on its common stock.
F-198
<PAGE> 266
LOGAN EQUIPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT
Fixed assets consist of the following at December 31, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Motor vehicles.............................................. $ 380
Furniture and fixtures...................................... 33
Communications and computer equipment....................... 190
Shop equipment.............................................. 35
Leasehold improvements...................................... 720
------
1,358
Less accumulated depreciation and amortization.............. (380)
------
$ 978
======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases certain operating premises and equipment under operating
leases. The property leases require the Company to pay maintenance, insurance,
taxes and other expenses in addition to the rental amounts. Rental expense under
such operating leases totaled $306,000 for the year ended December 31, 1997.
Future minimum lease payments, by year and in the aggregate, for noncancellable
operating leases with initial or remaining terms of one year or more are as
follows at December 31, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS)
YEAR ENDING AMOUNT
----------- --------------
<S> <C>
1998........................................................ $201
1999........................................................ 183
2000........................................................ 124
2001........................................................ 106
2002........................................................ 30
Thereafter.................................................. 6
----
Total............................................. $650
====
</TABLE>
7. INCOME TAXES
The components of income tax expense for the year ended December 31, 1997
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
AMOUNT
--------------
<S> <C>
Current:
Federal................................................... $ 42
State..................................................... 35
----
Total............................................. 77
Deferred:
Federal................................................... (42)
State..................................................... (35)
----
(77)
----
Income tax expense................................ $ 0
====
</TABLE>
F-199
<PAGE> 267
LOGAN EQUIPMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred taxes are principally attributable to temporary differences
relating to basis differences of the rental fleet, resulting in a deferred tax
liability of $1,200,000, and net operating loss carryforwards, resulting in a
deferred tax asset of $1,280,000. The Company has recorded a 100% valuation
allowance on the net deferred tax assets. For federal income tax purposes, the
Company has net operating loss carryforwards of approximately $3,200,000 and tax
credit carryforwards of approximately $200,000 at December 31, 1997.
Accordingly, because of the use of the net operating loss carryforwards, there
is no tax provision recorded for the year ended December 31, 1997. These
carryforwards will expire at various times from 2005 to 2008.
8. RELATED-PARTY TRANSACTIONS
At December 31, 1994, $395,203 of related-party debt was converted to
equity along with $111,600 of loans payable to officers. This amount of $506,803
has been classified in the equity section of the balance sheet at December 31,
1997 as "Additional Paid-In Capital."
Included in long-term debt are $322,689 of notes payable to related parties
of the stockholders of the Company at December 31, 1997 which were paid off as
part of the refinancing described in Notes 2 and 4.
The Company leases its headquarters in Shrewsbury, Massachusetts and a
branch facility in Boston, Massachusetts from one of its stockholders. These
leases are on a "tenant-at-will" arrangement. Real estate taxes and operating
costs are included in the base monthly rent. Rental expense for 1997 was
approximately $101,000,
9. REDEEMABLE PREFERRED STOCK
As part of a debt restructuring with Concord Commercial Corporation, the
Company issued 200 shares of $.01 par value preferred stock on April 27, 1992.
The stock was redeemable upon the termination of the debt with the lender, and
was repaid subsequent to December 31, 1997, with the initial advance from the
revolving credit facility described in Note 2.
10. SUBSEQUENT EVENT
On January 20, 1998, the Articles of Incorporation of the Company were
amended to change the authorized number of shares outstanding from 100 shares of
no par common stock and 200 shares of $.01 preferred stock to 100,000 shares of
no par common stock.
F-200
<PAGE> 268
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. UNDER NO CIRCUMSTANCES SHALL THE DELIVERY OF
THIS PROSPECTUS OR ANY SALE MADE PURSUANT TO THIS PROSPECTUS CREATE ANY
IMPLICATION THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 8
Use of Proceeds...................... 14
Dividend Policy...................... 14
Selected Consolidated Historical and
Pro Forma Financial Information and
Operations Data.................... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 17
Business............................. 26
Management........................... 36
Certain Relationships and
Transactions....................... 42
Principal Stockholders............... 45
Selling Stockholders................. 46
Description of Certain
Indebtedness....................... 49
Description of Capital Stock......... 52
Plan of Distribution................. 54
Legal Matters........................ 55
Experts.............................. 55
Additional Information............... 55
Index to Pro Forma Consolidated
Financial Statements............... PF-1
Index to Financial Statements........ F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
50,981,785 SHARES
NATIONSRENT, INC. LOGO
COMMON STOCK
----------------------------
PROSPECTUS
----------------------------
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 269
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth expenses and costs payable by the Company
(other than underwriting discounts and commissions) expected to be incurred in
connection with the issuance and distribution of the securities described in
this Registration Statement. All amounts are estimated except for the SEC
registration fee.
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
Registration fee under Securities Act....................... $ 26,123.39
Legal fees and expenses..................................... 15,000.00*
Accounting fees and expenses................................ 10,000.00*
Printing and engraving expenses............................. 15,000.00*
Miscellaneous expenses...................................... 3,000.00*
-----------
Total............................................. $ 69,123.39*
===========
</TABLE>
--------------------
* estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate provides that the Company shall indemnify to the fullest
extent permitted by Section 145 of the DGCL, each person who is involved in any
litigation or other proceeding because such person is or was a director or
officer of the Company, against all expense, loss or liability reasonably
incurred or suffered in connection therewith. The Bylaws provides that a
director or officer may be paid expenses incurred in defending any proceeding in
advance of its final disposition upon receipt by the Company of an undertaking,
by or on behalf of the director or officer, to repay all amounts so advanced if
it is ultimately determined that such director or officer is not entitled to
indemnification.
Section 145 of the DGCL permits a corporation to indemnify any director or
officer of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in connection with any action, suit or proceeding brought by reason of the fact
that such person is or was a director or officer of the corporation, if such
person acted in good faith and in a manner that he reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, if he had no reason to believe his conduct
was unlawful. In a derivative action, (i.e., one brought by or on behalf of the
corporation), indemnification may be made only for expenses, actually and
reasonably incurred by any director or officer in connection with the defense or
settlement of such an action or suit, if such person acted in good faith and in
a manner that he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made if
such person shall have been adjudged to be liable to the corporation, unless and
only to the extent that the court in which the action or suit was brought shall
determine that the defendant is fairly and reasonably entitled to indemnity for
such expenses despite such adjudication of liability.
Pursuant to Section 102(b)(7) of the DGCL, the Certificate eliminates the
liability of a director to the corporation or its stockholders for monetary
damages for such breach of fiduciary duty as a director, except for liabilities
arising (i) from any breach of the director's duty of loyalty to the
II-1
<PAGE> 270
corporation or its stockholders, (ii) from acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL, or (iv) from any transaction from which the
director derived an improper personal benefit.
The Company intends to obtain primary and excess insurance policies
insuring the directors and officers of the Company and its subsidiaries against
certain liabilities they may incur in their capacity as directors and officers.
Under such policies, the insurer, on behalf of the Company, may also pay amounts
for which the Company has granted indemnification to the directors or officers.
Additionally, reference is made to the Underwriting Agreement filed as
Exhibit 1.1 hereto, which provides for indemnification by the Underwriters of
the Company, its directors and officers who sign the Registration Statement and
persons who control the Company, under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since its formation in August 1997, the Company has issued securities in
the following transactions. Each of these transactions was intended to be exempt
from the registration requirements of the Securities Act by virtue of either
Section 4(2) thereunder based on being issued in a transaction not involving a
public offering to a limited number of accredited investors or Section 3(b)
thereunder based on being issued to a limited number of non-executive employees
pursuant to written contracts relating to compensation of such persons.
In September 1997, the Company issued 12,000,000 shares of Common Stock to
H. Family Investments, Inc. and 12,000,000 shares to James L. Kirk in exchange
for an aggregate of approximately $47.1 million of equity capital which was
funded at various times from September 1997 through June 2, 1998 as required to
complete acquisitions.
In September 1997, in connection with the acquisition of Sam's Equipment
Rental, Inc. and Gabriel Trotter Manufacturing Company, Inc., the Company issued
promissory notes in an aggregate principal amount of $7,690,000, which are
convertible into shares of Common Stock at the option of the holder at the
initial public offering price.
From November 1997 to April 1998, the Company granted options to certain of
its employees to purchase an aggregate of 1,087,571 shares of Common Stock at
exercise prices ranging from $2.96 to $6.69 per share and a weighted average
exercise price of $5.33 per share. These options vest over a four year period at
the rate of 25% per year beginning on the first anniversary of the date of
grant.
In December 1997, in connection with the acquisition of certain assets of
C&E Rental Services, Inc., the Company issued a promissory note in the principal
amount of $2,000,000, which is convertible into shares of Common Stock at the
option of the holder at the initial public offering price.
In December 1997, in connection with the acquisition of certain assets of
Titan Rentals, Inc., the Company issued promissory notes in an aggregate
principal amount of $1,399,998, which are convertible into shares of Common
Stock at the option of the holders at the initial public offering price.
In April 1998, in connection with the acquisition of certain assets of
Revco Equipment Rentals, Inc., the Company issued a promissory note in the
principal amount of $900,000, which is convertible into shares of Common Stock
at the option of the holder at the initial public offering price.
In April 1998, in connection with the acquisition of certain assets of
Naples Rent-All and Sales Company, Inc., the Company issued a promissory note in
the principal amount of $1,000,000, which
II-2
<PAGE> 271
is convertible into shares of Common Stock at the option of the holder at the
initial public offering price.
In May 1998, in connection with the acquisition of The Bode-Finn Company,
the Company issued promissory notes in an aggregate principal amount of
$10,000,000, which are convertible into shares of Common Stock at the option of
the holder at the initial public offering price. The Company also issued
warrants to purchase a number of shares of Common Stock equal to $800,000
divided by the initial public offering price at an exercise price equal to the
initial public offering price and with a term of five years commencing 18 months
following the consummation of the Offering.
In May 1998, in connection with the acquisition of certain assets of
U-Rent-It Company, Inc., the Company issued a promissory note in the principal
amount of $500,000, which is convertible into shares of Common Stock at the
option of the holder at the initial public offering price.
In June 1998, the Company issued an aggregate of 5,118,694 shares of Common
Stock to accredited investors in a private placement transaction for aggregate
proceeds of $27.6 million.
In June 1998, in connection with the acquisition of A-Action Rentals, Inc.,
the Company issued a promissory note in the principal amount of $1,000,000,
which is convertible into shares of Common Stock at the option of the holder at
the initial public offering price.
In June 1998, in connection with the acquisition of Jobs Rentals, the
Company issued promissory notes with an aggregate principal amount of
$12,000,000, which are convertible into shares of Common Stock at the option of
the holder at the initial public offering price.
In July 1998, in connection with the acquisition of J. Kelly Co., the
Company issued a promissory note in the principal amount of $2,500,000, which is
convertible into shares of Common Stock at the option of the holder at the
initial public offering price.
In July 1998, in connection with the acquisition of certain assets of
Associated Rental Equipment Management Company, Inc., the Company issued a
promissory note in the principal amount of $10,000,000, which is convertible
into shares of Common Stock at the option of the holder at the initial public
offering price.
In September 1998, in connection with the acquisition of Agstar, Inc. and
Lightnin' Truck Rental, Inc., the Company issued 827,827 shares of Common Stock.
In September 1998, in connection with the acquisition of Reliable Rental &
Supply Co., Inc., the Company issued a promissory note in the principal amount
of $2,500,000, which is convertible into shares of Common Stock at the option of
the holder at a price of $9.43 per share.
In September 1998, in connection with the acquisition of Sheffield
Equipment Co., Inc., the Company issued a promissory note in the principal
amount of $850,000, which is convertible into shares of Common Stock at the
option of the holder at a price of $7.76 per share.
In September 1998, in connection with the acquisition of Villella Holding
Company and Gold Coast Aerial Lift, Inc., the Company issued 413,814 shares of
Common Stock.
In September 1998, in connection with the acquisition of Tennessee Tool and
Supply, Inc., the Company issued a promissory note in the principal amount of
$3,100,000, which is convertible into shares of Common Stock at the option of
the holders at a price of $8.23 per share.
In October 1998, in connection with the acquisition of Southeast Rental &
Leasing, Inc., the Company issued promissory notes in the aggregate principal
amount of $675,000, which are convertible into shares of Common Stock at the
option of the holders at a price of $8.21 per share.
II-3
<PAGE> 272
In November 1998, in connection with the acquisition of Acme Rental, Inc.,
the Company issued a promissory note in the principal amount of $1,095,017.39,
which is convertible into shares of Common Stock at the option of the holder at
a price of $10.00 per share.
In December 1998, in connection with the acquisition of Logan Equipment
Corp., the Company issued 3,270,000 shares of Common Stock and promissory notes
in the aggregate principal amount of $8,442,775, which are convertible into
shares of Common Stock at the option of the holders at a price of $12.50 per
share.
In December 1998, in connection with the acquisition of certain assets of
Action Supply Company, Inc. and Action Equipment Company, Inc., the Company
issued 433,600 shares of Common Stock and promissory notes in the aggregate
principal amount of $3,098,000, which are convertible into shares of Common
Stock at the option of the holders at a price of $12.50 per share.
In December 1998, in connection with the acquisition of Ray L. O'Neal, Inc.
and Arenco LLC, collectively doing business as A-1 Rentals, the Company issued
promissory notes in the aggregate principal amount of $50,000,000, which were
converted into 6,956,517 shares of Common Stock on December 16, 1998.
In December 1998, in connection with the acquisition of certain assets of
EP Company, Inc., the Company issued a promissory note in the principal amount
of $1,000,000 which is convertible into shares of Common Stock at the option of
the holder at a price of $8.40 per share.
In December 1998, in connection with the acquisition of certain assets of
River City Rentals, Inc., the Company issued 597,572 shares of Common Stock and
a promissory note in the principal amount of $5,500,000 which is convertible
into shares of Common Stock at the option of the holder at a price of $10.00 per
share.
In December 1998, in connection with the acquisition of Advanced
Construction Equipment, Inc., the Company issued a promissory note in the
principal amount of $610,000, which is convertible into shares of Common Stock
at the option of the holder at a price of $8.00 per share.
In December 1998, in connection with the acquisition of certain assets of
Prime Enterprises, Inc., the Company issued a promissory note in the amount of
$1,050,000 which is convertible into shares of Common Stock at the option of the
holder at a price of $8.34 per share.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are filed as exhibits to this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------
<C> <S>
3.1** Amended and Restated Certificate of Incorporation of the
Company.
3.2* Amended and Restated By-Laws of the Company.
4.1****** 10 3/8% Global Senior Subordinated Note due 2008.
4.2*** Form of 10 3/8% Senior Subordinated Notes to be issued upon
consummation of the Exchange Offer.
4.3****** Senior Subordinated Guarantee dated December 11, 1998 of the
Guarantors.
4.4****** Indenture dated December 11, 1998, between the Company, the
Guarantors and The Bank of New York, including table of
contents and cross-reference table.
4.5****** Registration Rights Agreement dated December 11, 1998,
between the Company, the Guarantors and the Initial
Purchasers.
</TABLE>
II-4
<PAGE> 273
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------
<C> <S>
4.6**** Second Amended and Restated Revolving Credit Agreement,
dated as of September 24, 1998, by and among the Company,
BankBoston, N.A., LaSalle National Bank, Fleet Bank N.A.,
NationsBank, N.A., BancBoston Securities, Inc. and other
lending institutions named therein.
4.7****** Amendment No. 1 and Consent to Second Amendment and Restated
Revolving Credit and Term Loan Agreement dated as of October
9, 1998 among the Company, its named subsidiaries therein
and BankBoston, N.A., LaSalle National Bank, and other
lending institutions and parties named therein.
4.8****** Second Amendment to the Second Amended and Restated
Revolving Credit Agreement dated as of November 2, 1998 by
and among the Company, its named subsidiaries therein and
Citicorp Del-Lease, Erste Bank Der Oesterreichischen
Sparkassen AG and other lending institutions and parties
named therein.
4.9****** Amendment No. 3 to the Second Amended and Restated Revolving
Credit and Term Loan Agreement dated as of November 4, 1998
among the Company, its subsidiaries named therein and
BankBoston, N.A. and lending institutions and other parties
named therein.
4.10* Security Agreement, dated as of March 18, 1998, between the
Company and Bank Boston, N.A.
4.11* Omnibus Amendment to Security Documents, dated as of June
29, 1998, among the Company, its subsidiaries and Bank
Boston, N.A.
4.12**** Omnibus Amendment No. 2 to Security Documents, dated as of
September 24, 1998, among the Company, its subsidiaries and
Bank Boston, N.A.
5.1 Opinion of Akerman, Senterfitt & Eidson, P.A.
10.1* Stock Purchase Agreement dated August 15, 1997, among the
Company, Sam's and the shareholders of Sam's, together with
Amendment Nos. 1 - 6.
10.2* Form of Unsecured Subordinated Promissory Notes -- Sam's
10.3* Form of Unsecured Convertible Subordinated Promissory
Note -- Sam's
10.4* Form of Unsecured Contingent Convertible Subordinated
Promissory Notes -- Sam's
10.5* Agreement, dated September 22, 1997, between the Company and
Gary L. Gabriel
10.6* Asset Purchase Agreement dated December 8, 1997 among
NationsRent of Ohio, Inc., R&R and the shareholder of R&R,
together with an Amendment dated December 10, 1997.
10.7* Form of Unsecured Subordinated Promissory Note -- R&R
10.8* Asset Purchase Agreement dated December 8, 1997, as amended,
among NationsRent of Indiana, Inc. and C&E, together with an
Amendment dated December 23, 1997.
10.9* Form of Unsecured Convertible Subordinated Promissory
Note -- C&E
10.10* Stock Purchase Agreement dated December 20, 1997, as
amended, among NationsRent of West Virginia, Inc., Titan and
the shareholders of Titan, together with an Amendment dated
December 31, 1997.
10.11* Form of Unsecured Convertible Subordinated Promissory
Notes -- Titan
10.12* Stock Purchase Agreement dated March 24, 1998 among the
Company, Bode-Finn and the shareholders of Bode-Finn,
together with Amendment No. 1 dated April 6, 1998 and
Amendment No. 2 dated April 17, 1998.
10.13* Form of Unsecured Convertible Subordinated Promissory
Notes -- Bode-Finn
10.14* Form of Warrant -- Bode-Finn
</TABLE>
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<PAGE> 274
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------
<C> <S>
10.15* Registration Rights Agreement dated May 5, 1998 among the
Company, Bode-Finn, L.P. and Raymond E. Mason Foundation
10.16* Asset Purchase Agreement dated March 25, 1998 among
NationsRent of Indiana, Inc., RFL and the shareholder of RFL
10.17* Asset Purchase Agreement dated April 21, 1998 among
NationsRent of Florida, Inc. and Naples
10.18* Form of Unsecured Convertible Subordinated Promissory
Note -- Naples
10.19* Stock Purchase Agreement dated May 7, 1998 among the
Company, Jobs and the shareholders of Jobs
10.20* Form of Unsecured Subordinated Promissory Notes -- Jobs
10.21* Form of Unsecured Convertible Subordinated Promissory
Note -- Jobs
10.22* Asset Purchase Agreement dated May 14, 1998 among the
Company and General Rental
10.23* Stock Purchase Agreement dated May 30, 1998 among the
Company, J. Kelly and the shareholders of J. Kelly
10.24* Form of Unsecured Convertible Subordinated Promissory
Note -- J. Kelly
10.25* Form of Registration Rights Agreement among the Company and
the shareholders of J. Kelly
10.26* Asset Purchase Agreement dated June 7, 1998 among the
Company, Associated and the sole shareholder of Associated
10.27* Form of Unsecured Convertible Subordinated Promissory
Note -- Associated
10.28* Form of Registration Rights Agreement -- Associated
10.29* Form of Subscription Agreement, dated May 1998, between the
Company and certain subscribers
10.30* NationsRent 1998 Stock Option Plan
10.31* Form of Stock Option Agreement
10.32***** Amended and Restated Purchase Agreement dated as of
September 9, 1998, by and among NationsRent, Inc., Ray L.
O'Neal, Inc., Arenco, L.L.C., Don R. O'Neal, Elizabeth M.
O'Neal and the O'Neal Revocable Trust dated December 29,
1987.
10.33***** Unsecured Convertible Subordinated Promissory Note dated as
of October 23, 1998 from NationsRent, Inc. to Ray L. O'Neal,
Inc.
12.1****** Statement of Computation of Ratio of Earnings to Fixed
Charges
21.1****** Subsidiaries of the Company
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Ernst & Young LLP
23.3 Consent of Akerman, Senterfitt & Eidson, P.A. (included in
Exhibit 5.1 above)
24.1 Powers of Attorney (included as part of the signature page
hereto)
</TABLE>
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<PAGE> 275
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------
<C> <S>
25.1****** Form T-1 Statement of Eligibility of Trustee
</TABLE>
- ---------------
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1, as amended, Commission File No. 333-56233.
** Incorporated by reference to the Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 1998.
*** Included in Exhibit 4.3 hereto as Exhibit A.2.
**** Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1998.
***** Incorporated by reference to the Company's Current Report on Form 8-K
filed on November 9, 1998.
****** Incorporated by reference to the Company's Registration Statement on Form
S-4, Commission File No. 333-69691.
(B) Financial Statement Schedule. The following financial statement
schedule together with report of independent certified public accountants is
filed on pages S-1 and S-2 herewith:
Financial Statement Schedule II, Valuation and Qualifying Accounts and
Reserves, for the Period Ended December 31, 1997.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the aggregate
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value
of the securities offered would not
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<PAGE> 276
exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than a
20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment, any of the securities being registered which remain unsold at
the termination of the offering.
II-8
<PAGE> 277
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fort Lauderdale, State of
Florida, on December 30, 1998.
NATIONSRENT, INC.
By: /s/ JAMES L. KIRK
------------------------------------
James L. Kirk
Chairman of the Board and Chief
Executive Officer
Know all persons by these presents, that each person whose signature
appears below hereby severally constitutes and appoints Gene J. Ostrow and Kris
E. Hansel, and each of them, his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution for him or her and in
his or her name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to the registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that each said attorneys-in-fact and agents or any of them or
their or his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JAMES L. KIRK Chairman of the Board and December 30, 1998
- --------------------------------------------------- Chief Executive Officer
James L. Kirk (principal executive
officer)
/s/ GENE J. OSTROW Executive Vice President December 30, 1998
- --------------------------------------------------- and Chief Financial
Gene J. Ostrow Officer (principal
financial officer)
/s/ KRIS E. HANSEL Vice President and December 30, 1998
- --------------------------------------------------- Controller (principal
Kris E. Hansel accounting officer)
/s/ THOMAS H. BRUINOOGE Director December 30, 1998
- ---------------------------------------------------
Thomas H. Bruinooge
/s/ GARY L. GABRIEL Director December 30, 1998
- ---------------------------------------------------
Gary L. Gabriel
/s/ H. WAYNE HUIZENGA Director December 30, 1998
- ---------------------------------------------------
H. Wayne Huizenga
/s/ HARRIS W. HUDSON Director December 30, 1998
- ---------------------------------------------------
Harris W. Hudson
</TABLE>
II-9
<PAGE> 278
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS ON SCHEDULE
To the Stockholders of NationsRent, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of NationsRent, Inc., and subsidiaries
included in this registration statement and have issued our report thereon dated
June 3, 1998, except with respect to the matters referred to in the third and
fifth paragraphs of Note 10 as to which the date is July 15, 1998. Our audit was
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule included under Item 16(b) is the responsibility
of the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
June 3, 1998.
S-1
<PAGE> 279
NATIONSRENT, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO ACCOUNTS BALANCE AT
BEGINNING COSTS AND WRITTEN END
DESCRIPTIONS OF PERIOD(1) EXPENSES OFF OTHER(2) OF YEAR
------------ ------------ ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Period ended December 31, 1997
Allowance for Doubtful Accounts..... $ -- -- (40) 627 $587
</TABLE>
- ---------------
(1) August 14, 1997 (inception).
(2) Represents the historical allowances of the acquired companies.
S-2
<PAGE> 1
EXHIBIT 5.1
AKERMAN, SENTERFITT & EIDSON, P.A.
ONE SOUTHEAST THIRD AVENUE
MIAMI, FLORIDA 33131
(305) 374-5600
December 30, 1998
NationsRent, Inc.
450 East Las Olas Boulevard
Ft. Lauderdale, FL 33301
Gentlemen:
NationsRent, Inc., a Delaware corporation (the "Company"), has filed with
the Securities and Exchange Commission a Registration Statement on Form S-1,
(the "Registration Statement"), under the Securities Act of 1933, as amended
(the "Act"). Such Registration Statement relates to the sale by certain persons
named herein (the "Selling Stockholders") of up to 51,529,357 shares (the
"Shares") of the Company's Common Stock, $0.01 par value per share, including
8,911,332 shares which have been reserved for issuance upon the conversion of
certain convertible promissory notes and the exercise of certain warrants. We
have acted as counsel to the Company in connection with the preparation and
filing of the Registration Statement.
In connection with the Registration Statement, we have examined, considered
and relied upon copies of the following documents: (i) the Company's Certificate
of Incorporation, as amended to date, and the Company's Amended and Restated
Bylaws; (ii) resolutions of the Company's Board of Directors authorizing the
offering and the issuance of the Shares to be sold by the Company and related
matters; (iii) the Registration Statement and schedules and exhibits thereto;
and (iv) such other documents and instruments that we have deemed necessary for
the expression of the opinions herein contained. In making the foregoing
examinations we have assumed, without investigation, the genuineness of all
signatures and the authenticity of all documents submitted to us as originals,
the conformity to authentic original documents of all documents submitted to us
as copies, and the veracity of the documents. As to various questions of fact
material to the opinion expressed below, we have relied solely upon the
representations or certificates of officers and/or directors of the Company and
upon documents, records and instruments furnished to us by the Company, without
independently verifying the accuracy of such certificates, documents, records or
instruments.
Based upon the foregoing examination, and subject to the qualifications set
forth below, we are of the opinion that the Shares are, or when issued against
payment therefor in accordance with the terms of the applicable convertible
promissory note or warrant will be, duly authorized, validly issued, fully paid
and non-assessable.
<PAGE> 2
Although we have acted as counsel to the Company in connection with the
preparation and filing of the Registration Statement, our engagement has been
limited to certain matters about which we have been consulted. Consequently,
there may exist matters of a legal nature involving the Company in which we have
not been consulted and have not represented the Company. We express no opinion
as to the laws of any jurisdiction other than the General Corporation Law of the
State of Delaware and the laws of the States of Florida. The opinions expressed
herein concern only the effect of the General Corporation Law of the State of
Delaware and of the laws (excluding the principles of conflict of laws) of the
State of Florida and as currently in effect. This opinion letter is limited to
the matters stated herein and no opinions may be implied or inferred beyond the
matters expressly stated herein. The opinions expressed herein are given as of
this date, and we assume no obligation to update or supplement our opinions to
reflect any facts or circumstances that may come to our attention or any change
in law that may occur or become effective at a later date.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the caption "Legal
Matters" in the prospectus comprising a part of the Registration Statement. In
giving such consent, we do not thereby admit that we are included within the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations promulgated thereunder.
Sincerely,
AKERMAN, SENTERFITT & EIDSON, P.A.
/s/ Akerman, Senterfitt & Eidson, P.A.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
use of our reports (and to all references to our Firm) included in or made part
of this registration statement.
Arthur Andersen LLP
/s/ Arthur Andersen LLP
Fort Lauderdale, Florida,
December 30, 1998.
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" and to the
use of our report dated February 20, 1998 with respect to the financial
statements of Logan Equipment Corporation included in the Registration
Statement on Form S-1 and related Prospectus of NationsRent, Inc. for the
registration of 51,529,357 shares of its common stock.
/s/ Ernest & Young LLP
----------------------
Ernest & Young LLP
Boston, Massachusetts
December 29, 1998
