<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 1999
REGISTRATION NO. 333-69997
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE
THE SECURITIES ACT OF 1933
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NATIONSRENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7353 31-1570069
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or 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)
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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. [ ]
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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. [ ]
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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. [ ]
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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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PROSPECTUS REGISTRATION STATEMENT FILE NO. 333-69997
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
in private placement transactions and in connection with business acquisitions
we have made. The shares of common stock offered by this Prospectus include
8,848,832 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. This Prospectus also may be
used, with our prior consent, by donees of the selling stockholders, or by other
persons acquiring these shares and who wish to offer and sell the shares under
circumstances requiring or making desirable its use. 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.
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YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 8 OF THIS
PROSPECTUS.
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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.
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The date of this Prospectus is , 1999.
<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. Unless the context
otherwise requires, all references to "NationsRent," the "company," "we," "us"
or "our" include NationsRent, Inc. and its subsidiaries. Unless otherwise
indicated 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 acquire core businesses, open or acquire additional
locations concentrated around those businesses and expand our rental fleet. 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:
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- aerial lifts and work
- - backhoes platforms - articulated trucks
- - bulldozers - compressors and generators - excavators
- - skid steer loaders - specialized hand tools - wheel loaders
</TABLE>
HOW WE HAVE DONE
As of June 3, 1999, we have acquired 41 equipment rental businesses and
operate 136 locations in 22 states. For the twelve months ended December 31,
1998, we had approximate revenue of $236.4 million and operating income of $42.7
million.
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 $21.0 billion in 1998, which represents a compound annual growth rate
of more than 24%. 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 range of $50.0 billion to $80.0 billion in
annual revenue by the year 2008 due to the overall growth in the economy and a
continuing trend to rent rather than
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buy equipment. In addition, the United States equipment rental industry is
highly fragmented, with more than 14,000 equipment rental locations. According
to industry sources, in 1998 the 100 largest equipment rental companies in the
United States had a combined market share of approximately 25% and no single
equipment rental company in the United States had a market share greater than
4%. 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.
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 22 states across
the United States. This expansion 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.
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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.
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, a New
York Stock Exchange 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. In October 1998, 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. and Arenco, LLC,
which operate collectively as A-1 Rentals in Fort Worth, Texas, one of the
largest independent equipment rental businesses in the United States. We
acquired substantially all the assets of A-1 Rentals 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
AutoNation, Inc. and who co-founded and served in various senior executive
positions with Waste Management, Inc. and Blockbuster Entertainment
Corporation, 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 AutoNation, 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.
BUSINESS 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;
- branding locations and rental inventory with the NationsRent logo,
colors and distinctive store appearance; and
- increasing awareness of our brand through targeted local and national
marketing.
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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 inventory of equipment rental; and
- 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 eight new locations, two of which have been
opened since January 1, 1999.
Further Penetrate Industrial Rental Market. We believe that the equipment
needs of industrial customers are under served 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.
In furtherance of our growth strategy, as of June 3, 1999, we have acquired
41 equipment rental businesses and operate 136 locations in 22 states. We
believe that each of the equipment rental businesses which we have acquired
meets one or more of 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.
RECENT DEVELOPMENTS
In May 1999, we entered into a Termination and Release Agreement with
Rental Service Corporation, a Delaware corporation, pursuant to which we and
Rental Service mutually agreed to terminate our Agreement and Plan of Merger,
dated as of January 20, 1999 and to abandon our proposed merger. As part of the
Termination and Release Agreement, Rental Service paid us $6.0 million as
reimbursement of out-of-pocket costs and expenses incurred in connection with or
relating to the Agreement and Plan of Merger and the Termination and Release
Agreement and the
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performance of our obligations thereunder through May 1999. We also separately
entered into a Stock Option Termination Agreement with Rental Service pursuant
to which we and Rental Service agreed to terminate the reciprocal stock options
that each party had granted to the other in connection with the Agreement and
Plan of Merger.
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.
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THE OFFERING
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Common stock being offered............................... 51,529,357 shares(1)(2)
Common stock to be outstanding after the offering........ 64,608,329 shares(3)
Listing.................................................. Our common stock is listed on
the New York Stock Exchange
under the symbol "NRI".
</TABLE>
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(1) The common stock being offered by this Prospectus was issued to the selling
stockholders identified herein in private placement transactions and in
connection with business acquisitions we have made.
(2) Includes 8,848,832 shares that are issuable upon the conversion of
convertible promissory notes or the exercise of warrants.
(3) Includes 8,848,832 shares that are issuable upon the conversion of
convertible promissory notes or the exercise of warrants. Does not include
(a) approximately 1,200,000 shares issuable upon the exercise of outstanding
options granted outside of our 1998 Stock Option Plan and (b) 5,000,000
shares reserved for issuance in connection with options that may be granted
under our 1998 Stock Option Plan.
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.
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SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
DECEMBER 31, ----------------------
1998(1) 1998 1999
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(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Total revenue............................................... $236,398 $ 9,039 $102,315
Gross profit(2)............................................. 94,396 3,050 43,212
Operating income(2)......................................... 42,719 845 19,640
Interest expense............................................ 21,063 808 14,446
Income before provision for income taxes.................... 22,262 160 7,379
Net income.................................................. 12,654 93 4,317
Basic and diluted earnings per share........................ 0.37 0.00 0.08
OTHER DATA:
Gross margin................................................ 39.9% 33.7% 42.2%
Operating margin............................................ 18.1% 9.3% 19.2%
Rental equipment purchases(3)............................... $118,798 $19,584 $ 49,760
Amortization of goodwill(2)................................. 5,038 259 3,158
Depreciation and other amortization......................... 26,691 1,264 13,032
</TABLE>
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<CAPTION>
AS OF AS OF
DECEMBER 31, MARCH 31,
1998 1999
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(UNAUDITED)
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SELECTED BALANCE SHEET DATA:
Rental equipment, net....................................... $ 382,573 $ 404,832
Goodwill, net............................................... 523,785 522,899
Total assets................................................ 1,075,812 1,097,340
Total debt.................................................. 678,035 715,204
Stockholders' equity........................................ 282,230 287,547
</TABLE>
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(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 amortization period for rental equipment depreciation ranges from two to
ten years. The amortization period for goodwill is 40 years.
(3)Rental equipment purchases represent the purchase price of rental equipment
inventory acquired during the period.
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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, 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.
WE HAVE SUBSTANTIAL INDEBTEDNESS AND OUR ABILITY TO GENERATE CASH IN ORDER TO
SERVICE OUR INDEBTEDNESS DEPENDS ON MANY FACTORS BEYOND OUR CONTROL
Our leverage is significant in relation to our equity. At March 31, 1999,
we had total debt and stockholders' equity as set forth in the table below
(dollars in thousands):
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<CAPTION>
AT MARCH 31, 1999
-----------------
(UNAUDITED)
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Total debt............................................... $715,204
Stockholders' equity..................................... 287,547
</TABLE>
The level of our indebtedness could have important consequences to us,
including the following:
- our ability to obtain any necessary financing in the future for capital
expenditures, working capital, debt service requirements, acquisitions or
other purposes may be limited;
- a substantial portion of our cash flow from operations must be dedicated
to the payment of principal of and interest on our indebtedness and other
obligations;
- significant levels of indebtedness could limit our flexibility in
planning for, or reacting to changes in, our business;
- we will be more highly leveraged than some of our competitors; and
- our high degree of indebtedness will make us more vulnerable to a default
and the consequences (such as a bankruptcy or workout) in the event of a
downturn in our business.
WE MAY NOT BE ABLE TO EXECUTE OUR GROWTH STRATEGY
A principal component of our growth strategy is to expand through
additional acquisitions and to open new locations. We expect our growth strategy
will affect short-term cash flow and net income as we increase our indebtedness
and incur expenses to open new locations, make acquisitions and expand our
rental fleet. As a result, revenue and operating results may fluctuate. Our
future growth will depend on a number of factors including our ability to:
- identify acceptable acquisition candidates and suitable start-up
locations;
- complete acquisitions and obtain sites for start-up locations on
favorable terms;
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- promptly and successfully integrate acquired businesses and newly opened
locations with our existing operations;
- expand our customer base; and
- obtain financing to support expansion.
We cannot assure you that we will successfully expand or that any expansion
will result in profitability. The failure to effectively identify, evaluate and
integrate acquired businesses and newly opened locations could adversely affect
our growth prospects. We also cannot assure success in entering new geographic
markets, which may have different competitive conditions, seasonality and
demographic characteristics than our current markets.
As we expand through acquisitions and the opening of new locations, we
expect to increase the number of our employees, the scope of our operating and
financial systems and the geographic area of our operations. This growth will
increase the complexity of operations and the level of responsibility for both
existing and new management personnel. We may not be able to attract and retain
qualified management and employees and our current operating and financial
systems and controls may not be adequate to support our expected growth.
OUR FUTURE GROWTH WILL DEPEND ON OBTAINING ADDITIONAL CAPITAL
Our ability to remain competitive, sustain our growth and expand our
operations through new locations and acquisitions largely depends on our access
to capital. We must also make ongoing capital expenditures to maintain the
condition of our rental fleet in order to remain competitive and provide our
customers with high-quality equipment. Historically, we financed capital
expenditures, acquisitions and start-up locations primarily through the issuance
of equity securities, secured bank borrowings, financing from equipment
suppliers, the issuance of senior subordinated notes and internally generated
cash flow. As of March 31, 1999, we had senior credit facilities consisting of a
$180.0 million term loan due September 2004 and a $320.0 million revolving line
of credit due June 2001 of which $175.9 million was outstanding under the line
of credit. To implement our growth strategy and meet our capital needs, we plan
to issue additional equity securities and incur additional indebtedness in the
future. We cannot assure you that we will be able to obtain additional capital,
if and when required, on acceptable terms, or at all. If we cannot obtain
sufficient additional capital in the future, we will have to curtail growth or
delay capital expenditures, which would have a material adverse effect on our
business, financial condition or results of operations.
THE TERMS OF OUR EXISTING INDEBTEDNESS MAY RESTRICT OUR ABILITY TO GROW
Our senior credit facilities contain a number of covenants that limit our
ability to dispose of assets or merge, incur debt, pay dividends, create liens,
make capital expenditures and make certain investments or acquisitions and
otherwise restrict corporate activities. The Indenture governing our 10 3/8%
senior subordinated notes due 2008 also contains a number of similar restrictive
covenants. 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.
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. Competitors may
compete not only for customers but also for acquisition candidates and start-up
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locations that could have the effect of increasing prices for acquisitions and
limiting available expansion locations.
WE HAVE A 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., considered our predecessor company. Accordingly,
you can only evaluate us, our growth strategy and our prospects based upon our
limited operating history. You must evaluate our 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 strategy of building a network of nationally branded
equipment rental locations will lead to continued growth in revenue and net
income.
OUR REVENUE AND OPERATING RESULTS ARE LIKELY TO CONTINUE TO FLUCTUATE
Our revenue and operating results have varied from quarter to quarter and
we expect that they will continue to fluctuate in the future due to:
- general economic conditions in our markets;
- adverse weather conditions;
- the timing and cost of acquisitions and start-up locations;
- the effectiveness of integrating acquired businesses and start-up
locations;
- the timing of fleet expansion capital expenditures;
- the realization of targeted equipment utilization rates;
- seasonal rental and purchasing patterns of our customers; and
- price changes in response to competitive factors.
In addition, persistence of any of these factors over an extended period
could materially affect our revenue and operating results over a longer period.
We will incur various costs in establishing or integrating newly acquired
locations or start-ups, and the profitability of a new location is generally
expected to be lower in the initial period of its operation.
WE MUST COMPLY WITH VARIOUS SAFETY AND ENVIRONMENTAL REGULATIONS THAT MAY
INCREASE EXPENSES AND LIABILITIES
Our equipment, facilities and operations are subject to federal, state and
local laws and regulations governing occupational health and safety and
environmental protection. Under these laws, an owner or lessee of real estate
may be liable for the costs of removal or remediation of hazardous substances
located on such property. These laws often impose liability without regard to
whether the owner or lessee knew of, or was responsible for, the presence of
such hazardous substances. Some of our existing and former locations use and
have used such 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. We use hazardous materials such as
solvents to clean and maintain our rental fleets. We also generate and dispose
waste such as used motor oil, radiator fluid and solvents, and we may be liable
under various federal, state and local laws for environmental contamination at
facilities where our waste is or has been disposed. In addition, we dispense
petroleum products from underground and above-ground storage tanks located at
certain rental locations that we own or lease. We incur ongoing expenses
associated with the removal of older underground storage tanks and other
activities in order to comply with environmental laws and we
10
<PAGE> 13
also perform remediation at certain of our locations. 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
indemnify other parties for adverse environmental conditions that are currently
known to us. Such future changes or interpretations, or the indemnification for
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 or results
of operations.
WE MAY INCUR UNANTICIPATED 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 business we have
acquired or may acquire in the future. These 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 a successor owner may be responsible. We
try to minimize these risks by conducting such due diligence 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, or that indemnification obtained from a seller, if any, will
be enforceable, collectible or sufficient in amounts, scope or duration to fully
offset the possible liabilities associated with the business acquired. Any of
these liabilities, individually or in the aggregate, could have a material
adverse effect on our business, financial condition or results of operations.
SOME OF OUR LIABILITIES MAY NOT BE COVERED BY INSURANCE
Our business exposes us to possible claims for personal injury or death
resulting from the use of equipment we rent or sell and from injuries caused in
motor vehicle accidents in which delivery or service personnel are involved. We
carry comprehensive insurance subject to a deductible. We cannot assure that
existing or future claims will not exceed the level of our insurance, or that
our insurance will continue to be available on economically reasonable terms, if
at all.
OUR EXECUTIVE OFFICERS AND DIRECTORS HAVE A CONTROLLING INTEREST IN OUR COMPANY
As of June 4, 1999, our executive officers and directors, including H.
Wayne Huizenga, beneficially owned approximately 36.7% 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.
THE VALUE OF YOUR COMMON STOCK MAY BE DILUTED DUE TO FUTURE STOCK ISSUANCES
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
acquisitions and as a result of the issuance and exercise of stock options.
THE PRICE OF OUR COMMON STOCK IS SUBJECT TO VOLATILITY
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.
11
<PAGE> 14
WE ARE RESTRICTED IN OUR ABILITY TO PAY DIVIDENDS
Our senior credit facilities and the Indenture governing our 10 3/8% senior
subordinated notes due 2008 restrict us from paying dividends on our common
stock. We do not expect to pay dividends on our common stock in the foreseeable
future.
SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT MARKET PRICES OF OUR COMMON
STOCK
As of June 4, 1999, we had 55,759,497 shares of common stock outstanding.
Pursuant to this Prospectus, we are registering 51,529,357 shares of common
stock which includes 8,848,832 shares of common stock issuable upon the
conversion of promissory notes or upon the exercise of warrants. In addition, we
have registered under the Securities Act pursuant to a separate registration
statement approximately 6,200,000 shares of common stock reserved for issuance
pursuant to options granted and which may be granted to our employees. 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.
THE YEAR 2000 ISSUE MAY ADVERSELY AFFECT OUR COMPUTER SYSTEMS
We are aware of the issues associated with the programming code in existing
computer software systems as the Year 2000 approaches. The Year 2000 problem is
pervasive and complex, and virtually every computer operation could be affected
in some way by the rollover of the two-digit year value to "00." The issue is
whether systems will properly recognize date sensitive information when the year
changes to 2000. Systems that do not properly recognize this information could
generate erroneous data or cause complete system failures. Our management
information system has been developed and is being tested to ensure that it is
Year 2000 compliant. We expect to convert all of the information systems of the
businesses we acquire to our management information 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 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. Although we do not expect to incur significant expense to address the
Year 2000 issue beyond our capital investment in the management information
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.
12
<PAGE> 15
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 senior credit facilities as well as the terms of
the Indenture governing our 10 3/8 senior subordinated notes due 2008 restrict
our ability to declare or pay dividends. 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.
13
<PAGE> 16
SELECTED CONSOLIDATED HISTORICAL
FINANCIAL INFORMATION AND OPERATIONS DATA
The following selected consolidated financial information summarizes (i)
the statement of operations data and balance sheet data for Gabriel Trailer
Manufacturing Company, Inc., considered our predecessor company, as of and for
the fiscal years ended March 31, 1995, and the selected balance sheet data as of
March 31, 1996, which have been derived from the unaudited consolidated
financial statements of our predecessor company not included herein, (ii) the
statement of operations data for our 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 our
predecessor company included elsewhere in this Prospectus, (iii) the statement
of operations data of our 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 our company appearing elsewhere in this Prospectus and
(iv) the consolidated statement of operations data of our company for the three
months ended March 31, 1999 and 1998 and the selected balance sheet data as of
March 31, 1999, which have been derived from the unaudited consolidated
financial statements of our 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 our results of operations and
financial position at such date and for such period. The other data has been
derived from the consolidated financial statements referred to above for the
applicable periods. The selected consolidated historical financial information
and operations data presented below should be read in conjunction with our
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.
14
<PAGE> 17
<TABLE>
<CAPTION>
PREDECESSOR COMPANY THE COMPANY(1)
--------------------------------------- ----------------------------------------------------
AUGUST 14
FISCAL YEAR ENDED APRIL 1 (INCEPTION) THREE MONTHS ENDED
MARCH 31, THROUGH THROUGH YEAR ENDED MARCH 31,
-------------------------- AUGUST 31, DECEMBER 31, DECEMBER 31, ---------------------
1995 1996 1997 1997 1997 1998 1998 1999
------ ------- ------- ---------- ------------ ------------ ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Equipment rentals............... $7,237 $11,871 $15,328 $ 8,515 $ 7,410 $ 150,668 $ 5,911 $ 75,100
Sales of equipment, merchandise,
services, parts and
supplies...................... 2,367 4,302 4,177 1,205 1,895 85,730 3,128 27,215
------ ------- ------- ------- ------- ---------- ------- --------
Total revenue............. 9,604 16,173 19,505 9,720 9,305 236,398 9,039 102,315
Cost of revenue:
Cost of equipment rentals,
excluding depreciation........ 3,442 4,380 6,029 2,193 2,196 56,084 2,661 29,312
Rental equipment
depreciation(2)............... 1,842 2,053 3,465 1,848 1,526 24,463 1,076 11,625
Cost of sales of equipment,
merchandise, services, parts
and supplies.................. 1,156 4,491 2,791 984 1,691 61,455 2,252 18,166
------ ------- ------- ------- ------- ---------- ------- --------
Total cost of revenue..... 6,440 10,924 12,285 5,025 5,413 142,002 5,989 59,103
------ ------- ------- ------- ------- ---------- ------- --------
Gross profit..................... 3,164 5,249 7,220 4,695 3,892 94,396 3,050 43,212
Selling, general and
administrative expenses......... 1,634 2,972 3,564 1,683 1,081 44,411 1,758 19,007
Non-rental equipment depreciation
and amortization(2)............. 162 180 238 115 284 7,266 447 4,565
------ ------- ------- ------- ------- ---------- ------- --------
Operating income................. 1,368 2,097 3,418 2,897 2,527 42,719 845 19,640
------ ------- ------- ------- ------- ---------- ------- --------
Other (income)/expense:
Interest expense................ 239 583 866 580 760 21,063 808 14,446
Other (income)/expense, net..... (353) (196) (203) 62 -- (606) (123) (2,185)
------ ------- ------- ------- ------- ---------- ------- --------
(114) 387 663 642 760 20,457 685 12,261
------ ------- ------- ------- ------- ---------- ------- --------
Income before provision for
income taxes.................... 1,482 1,710 2,755 2,255 1,767 22,262 160 7,379
Provision for income taxes...... 593 732 1,128 939 766 9,608 67 3,062
------ ------- ------- ------- ------- ---------- ------- --------
Net income....................... $ 889 $ 978 $ 1,627 $ 1,316 $ 1,001 $ 12,654 $ 93 $ 4,317
====== ======= ======= ======= ======= ========== ======= ========
Basic and diluted earnings per
share(3)........................ $ 0.04 $ 0.37 $ 0.00 $ 0.08
====== ======= ======= ======= ======= ========== ======= ========
OTHER DATA:
Gross margin.................... 32.9% 32.5% 37.0% 48.3% 41.8% 39.9% 33.7% 42.2%
Operating margin................ 14.2% 13.0% 17.5% 29.8% 27.2% 18.1% 9.3% 19.2%
Rental equipment purchases(4)... $ -- $ 8,799 $ 8,101 $ 1,775 $ 2,461 $ 118,798 $19,584 $ 49,760
Amortization of goodwill(2)..... -- -- -- -- 166 5,038 259 3,158
Depreciation and other
amortization.................. 2,004 2,233 3,703 1,963 1,644 26,691 1,264 13,032
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR COMPANY THE COMPANY
---------------------------------------- ------------------------------------------
AS OF MARCH 31, AS OF AS OF AS OF AS OF
--------------------------- AUGUST 31, DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1996 1997 1997 1997 1998 1999
------- ------- ------- ---------- ------------ ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Rental equipment, net.................... $ 8,907 $14,722 $21,789 $21,886 $30,619 $ 382,573 $ 404,832
Goodwill, net............................ -- -- -- -- 36,686 523,785 522,899
Total assets............................. 10,948 17,423 27,614 29,088 79,157 1,075,812 1,097,340
Total debt............................... 5,871 9,944 16,100 16,559 42,928 678,035 715,204
Stockholders' equity..................... 1,862 2,840 4,467 5,768 26,001 282,230 287,547
</TABLE>
- ---------------
(1) Our 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 amortization period for rental equipment depreciation ranges from two to
ten years. The amortization period for goodwill is 40 years.
(3) Earnings per share data is not included for our predecessor company on a
historical basis as such information would not be representative of the
capital structure of our company.
(4) Rental equipment purchases represent the purchase price of rental equipment
inventory acquired during the period.
15
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our consolidated results of
operations and financial condition should be read in conjunction with our
Consolidated Financial Statements and the "Selected Consolidated Historical
Financial Information and Operations Data" included elsewhere in this
Prospectus.
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. As of June 3, 1999, we operated 136 equipment rental
locations in 22 states. We have become a leading provider of rental equipment as
a result of our strategy to acquire core businesses, open or acquire additional
locations concentrated around those businesses, and expand our rental fleet. 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.
NationsRent seeks to acquire businesses that have:
- strong positions in their geographic market;
- experienced local management teams that will continue to work
with us following the acquisition;
- high quality inventory of rental equipment; and
- physical and operating characteristics that are suited to
conversion to the NationsRent format.
During the period from January 1, 1999 through June 3, 1999, we have
acquired four equipment rental businesses. We paid an aggregate of approximately
$22.7 million for these four acquisitions which consisted of approximately:
- $15.5 million in cash, and
- $7.2 million of convertible subordinated debt.
We funded the cash portion of the consideration paid for these acquisitions
with borrowings under our senior credit facilities. The acquisitions have been
accounted for using the purchase method and, accordingly, the acquired assets
and assumed liabilities have been recorded at their estimated fair values as of
the date of acquisition. Purchase accounting values for certain acquisitions
have been assigned on a preliminary basis, and are subject to adjustment when
additional information as to the fair values of the net assets acquired is
available. We are awaiting information from third-party appraisers as to the
fair value of certain rental equipment acquired and the final determination of
certain liabilities assumed. We do not believe the final assignment of the fair
value of the net assets acquired will have a significant impact on future
operating results.
After making an acquisition, we convert acquired locations to the
NationsRent format. Distinguishing characteristics of this format include
drive-through lanes, clearly marked equipment aisles, prominent use of the
NationsRent logo and colors, and attractive, well-organized and clean store
facilities. The cost of converting an acquired location to the NationsRent
format varies
16
<PAGE> 19
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
we have established a presence in a particular market, we may open new locations
in that geographic area or adjacent areas. Since August 1997, we have opened
eight new locations two of which have been opened since January 1, 1999. We plan
to open eight to 12 new locations in 1999 and continue to evaluate the need for
new locations as we acquire equipment rental companies in new markets. The cost
of opening our new locations has varied depending on whether we 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."
We derive our revenue from equipment rental, sales of new and used
equipment, spare parts and supplies, and maintenance and repair services. 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
as well as maintenance and repair services is primarily affected by equipment
rental and sales volume.
The principal components of our cost of revenue include depreciation of
rental equipment, costs of new and used equipment sold, personnel costs,
occupancy costs, the cost of rental equipment under operating leases, 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 primarily three to ten years and is depreciated to a salvage value
ranging from zero to ten percent of original cost.
Selling, general and administrative expenses include 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.
In May 1999, we entered into a Termination and Release Agreement with
Rental Service Corporation, a Delaware corporation, pursuant to which we and
Rental Service mutually agreed to terminate our Agreement and Plan of Merger,
dated as of January 20, 1999, and to abandon the proposed merger. As part of the
Termination and Release Agreement, Rental Service paid us $6.0 million as
reimbursement of out-of-pocket costs and expenses incurred in connection with or
relating to the Agreement and Plan of Merger and the Termination and Release
Agreement along with the performance of our obligations thereunder through May
1999. We also separately entered into a Stock Option Termination Agreement with
Rental Service pursuant to which we and Rental Service agreed to terminate the
reciprocal stock options that each party had granted to the other in connection
with the Agreement and Plan of Merger. We expect to record a charge to earnings
during the second quarter of 1999 related to expenses incurred in connection
with the merger agreement, which will be partially offset by the $6.0 million
payment received from RSC.
17
<PAGE> 20
HISTORICAL RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Revenue. The following table sets forth our revenue by type for the three
months ended March 31, 1999 and March 31, 1998 (in thousands, except
percentages):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------
1999 1998
----------------- ---------------
<S> <C> <C> <C> <C>
Equipment rentals............................. $ 75,100 73.4% $5,911 65.4%
Sales of equipment, merchandise, service,
parts and supplies......................... 27,215 26.6% 3,128 34.6%
-------- ----- ------ -----
$102,315 100.0% $9,039 100.0%
======== ===== ====== =====
</TABLE>
Total revenue for the three months ended March 31, 1999 increased to $102.3
million from $9.0 million for the three months ended March 31, 1998. This
increase was due primarily to the inclusion of revenue from businesses acquired
since March 31, 1998. Also contributing to the growth in revenue was an increase
in revenue from equipment rentals resulting from the expansion of our rental
fleet at existing locations and the opening of eight new locations since March
31, 1998. Equipment rental revenue as a percentage of total revenue was 73.4%
for the three months ended March 31, 1999 up from 65.4% for the three months
ended March 31, 1998. The higher mix of rental revenue in the 1999 period is due
primarily to the mix of revenue of companies acquired and growth in equipment
rentals. It also is the result of a decrease in the sales of new equipment,
parts and service resulting from the sale in January 1999 of a lift truck
dealership that derived the majority of its revenue from sales of new equipment
and related parts and service.
Gross Profit. Gross profit for the three months ended March 31, 1999
increased to $43.2 million compared with $3.0 million for the three months ended
March 31, 1998 due primarily to the increase in revenue. Gross profit as a
percentage of revenue increased to 42.2% for the three months ended March 31,
1999 compared with 33.7% for the same period in 1998. The increase in gross
profit as a percentage of revenue was due to the growth in revenue from
equipment rentals and the resulting increase in the percentage of revenue from
equipment rentals that have higher margins than revenue from sales of equipment,
merchandise, service, parts and supplies.
Operating Expenses. Selling, general and administrative expenses for the
three months ended March 31, 1999 increased to $19.0 million compared with $1.8
million for the three months ended March 31, 1998. The increase was due
primarily to the inclusion of such costs from companies acquired since March 31,
1998 and additional corporate expenses including costs associated with our
strategic marketing initiatives launched during the quarter. Selling, general
and administrative expenses for the three months ended March 31, 1999 as a
percentage of revenue declined to 18.6% from 19.4% for the three months ended
March 31, 1998 due primarily to the increase in revenue.
Non-rental equipment depreciation and amortization for the three months
ended March 31, 1999 increased to $4.6 million from $0.4 million for the same
period in 1998 due primarily to the increase in goodwill amortization in
connection with acquisitions completed since March 31, 1998.
Operating Income. Operating income for the three months ended March 31,
1999 increased to $19.6 million compared with $0.8 million for the three months
ended March 31, 1998 due primarily to the increase in revenue. Operating income
as a percentage of revenue for the three months ended March 31, 1999 increased
to 19.2% from 9.3% for the comparable 1998 period due primarily to the increase
in revenue and the higher percentage of revenue from equipment rentals.
18
<PAGE> 21
Other Income and Expense. Interest expense for the three months ended
March 31, 1999 increased to $14.4 million compared with $0.8 million for the
three months ended March 31, 1998 due primarily to the increase in debt incurred
to finance acquisitions and expansion of our rental fleet since March 31, 1998.
Interest expense is primarily attributable to borrowings under our senior credit
facilities, notes issued to finance the purchase of equipment, subordinated
notes issued to sellers of businesses we acquired and our senior subordinated
notes issued in December 1998.
Other income for the three months ended March 31, 1999 included a pre-tax
gain of approximately $1.8 million from the sale of a lift truck dealership
during the quarter. See Note 6 to the Consolidated Financial Statements.
Income Taxes. Our effective income tax rate for the three months ended
March 31, 1999 was 41.5%. The amount above statutory income tax rates is
attributable primarily to non-deductible goodwill amortization for federal
income tax purposes.
The acquisitions completed to date have significantly altered our cost
structure primarily due to changes to owners' compensation, depreciation
methodologies, interest expense and real estate costs. We believe that the
pre-acquisition historical results of the acquired businesses are not indicative
of future results. In addition, because we were only in operation for
approximately four months during 1997 and have acquired 32 businesses in 1998,
meaningful comparison to the prior year cannot be made. As such, the following
discussion of the historical results of operations does not set forth any prior
year comparisons.
Year Ended December 31, 1998
Revenue. The following table sets forth our revenue by type for the year
ended December 31, 1998 (in thousands, except percentages):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C> <C>
Equipment rentals........................................... $150,668 63.7%
Sale of used equipment...................................... 36,602 15.5
Sale of new equipment....................................... 24,205 10.2
Sale of parts, supplies, maintenance and repair............. 24,923 10.6
-------- -----
$236,398 100.0%
======== =====
</TABLE>
Equipment rental revenue as a percentage of total revenue was 63.7% for the
year ended December 31, 1998 due primarily to the mix of revenue of companies
acquired during the year. We continue to expand our rental equipment inventory
at our current locations and continue to target equipment rental revenue as a
percentage of total revenue to be greater than 60%.
Gross Profit. Gross profit for the year ended December 31, 1998 was $94.4
million or 39.9% of revenue. Our rental equipment depreciation as a percent of
rental revenue was 16.2% for 1998. We financed approximately $115.1 million of
our rental fleet with operating leases during 1998 resulting in reported
depreciation expense below what it would have been had such fleet been
purchased.
Operating Expenses. Selling, general and administrative expenses for the
year ended December 31, 1998 were $44.4 million or 18.8% of revenue. Non-rental
equipment depreciation and amortization for the year ended December 31, 1998 was
$7.3 million or 3.1% of revenue.
Operating Income. Operating income for the year ended December 31, 1998
was $42.7 million or 18.1% of total revenue.
19
<PAGE> 22
Other Income and Expense. Net interest expense for the year ended December
31, 1998 was $20.9 million or 8.8% of revenue. Interest expense is primarily
attributable to borrowings under our senior credit facilities for acquisitions
and capital expenditures, the issuance of notes to finance the purchase of
equipment, the issuance of subordinated notes to sellers in acquisitions and the
issuance of senior subordinated notes.
Income Taxes. Our effective income tax rate for the year ended December
31, 1998 was 43.2%. The amount above statutory income tax rates is attributable
primarily to non-deductible goodwill amortization for federal income tax
purposes.
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, we 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.
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 our 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. Our 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
Our primary uses of cash have been the funding of acquisitions and capital
expenditures. To date, we have funded our cash requirements primarily with
borrowings under our senior credit facilities, proceeds from the issuance of
debt and equity securities, equity contributions from our founding stockholders,
and cash provided by operations.
20
<PAGE> 23
Our net cash used by operations was $12.7 million for the three months
ended March 31, 1999 compared to net cash provided by operations of $8.6 million
for the same period in 1998. The increase in cash used by operations was due
primarily to an increase in the working capital required as a result of the
acquisitions and to fund our internal growth. Net cash used in investing
activities was $29.5 million for the three months ended March 31, 1999. Cash
used in investing activities in the period was primarily a result of cash
consideration of $5.0 million for the acquisition of a business and expenditures
made in connection with the then pending merger with Rental Service Corporation,
offset by $23.2 million of net proceeds from the sale of the lift truck
dealership; $49.8 million for purchases of rental equipment partially offset by
$12.6 million of proceeds from the sale of used equipment, and $10.6 million for
purchases of and improvements to property and equipment. Cash provided by
financing activities was $35.6 million for the three months ended March 31, 1999
net of the repayment of debt assumed in connection with an acquired business,
and was primarily a result of net borrowings under our senior credit facilities.
In February 1999, we increased our senior credit facilities to $500.0
million consisting of a $180.0 million term loan due September 2004 and a $320.0
million revolving line of credit due June 2001. 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 our 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 based on our financial performance as measured by
the total funded debt ratio. The credit facilities are secured by a security
interest in substantially all of our assets. The credit facilities also impose,
among other covenants, a tangible assets to senior debt covenant, a restriction
on all of our retained earnings including 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 March
31, 1999, $175.9 million and $180.0 million of cash borrowings were outstanding
under the revolving line of credit and term loan, respectively.
In December 1998, we offered and sold at par, $175.0 million aggregate
principal amount of 10 3/8% senior subordinated notes due 2008. Net proceeds
from the offering of the senior subordinated notes were approximately $168.8
million and were used to repay subordinated acquisition debt and outstanding
indebtedness under our senior credit facilities. The senior subordinated notes
call for semi-annual interest payments on June 15 and December 15 of each year
beginning in June 1999 and mature December 15, 2008. The senior subordinated
notes are guaranteed by substantially all of our current and future domestic
subsidiaries. The Indenture governing the senior subordinated notes contains
covenants restricting additional indebtedness, certain payments, asset sales,
liens, mergers and consolidations and transactions with affiliates.
During the three months ended March 31, 1999, we added $47.7 million of new
equipment to our rental equipment fleet using operating leases. These operating
leases have terms expiring over the next seven years.
Our short-term cash requirements for our existing operations consist
primarily of:
- capital expenditures to maintain, modernize and expand our
rental equipment inventory;
- working capital requirements; and
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- repair and maintenance of rental equipment, purchase of
merchandise inventory, and other operating activities.
We estimate that equipment expenditures over the next 12 months for our
existing locations and for new store openings will be in the range of $175.0
million to $225.0 million, net of proceeds from used equipment sales.
Approximately one-third of the estimated net capital expenditures is to replace
existing rental equipment. We believe that we will be able to finance our
short-term cash needs through borrowings under the senior credit facilities, the
use of equipment leases, and cash generated from operations. We estimate that
such sources will be sufficient to fund the cash required for our existing
operations for at least 12 months.
During the three months ended March 31, 1999, we opened two new locations
in markets where we already have a presence. We estimate that the aggregate
capital costs associated with each such new location were in the range of $2.0
million to $4.5 million. We expect to open eight to 12 new locations in 1999. We
believe that cash generated from operations and borrowings under our senior
credit facilities will be sufficient to fund these costs without the issuance of
additional debt or equity securities.
We are developing a management information system in which certain of the
components became operational during the fourth quarter of 1998. We estimate the
total cost to complete development and installation of the system at our
existing locations will range from $6.0 million to $8.0 million over the next
several years and we believe cash generated from operations and borrowings under
our senior credit facilities will be sufficient to fund these costs.
We plan to continue our acquisition strategy and believe that, in
connection with new acquisitions, we will be required to make additional
expenditures to expand and modernize rental equipment of acquired companies. We
expect to finance future acquisitions and related rental equipment expenditures
using cash, capital stock, notes, and/or assumption of indebtedness. To fully
implement our growth strategy and meet the resulting capital requirements, we
will be required to increase amounts available under our senior credit
facilities or raise additional capital through issuance of additional debt or
equity securities. There can be no assurance that additional capital, if and
when required, will be available on terms satisfactory to us, or at all.
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 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 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 or results of operations.
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<PAGE> 25
SEASONALITY AND FLUCTUATIONS IN OPERATING RESULTS
Our revenue and income are dependent upon activity in the construction
industry in the markets we serve. Construction activity is dependent upon
weather and other seasonal factors affecting construction in the geographic
areas where we have operations. Because of this variability in demand, our
quarterly revenue may fluctuate, and revenue for the first quarter of each year
can be expected to be lower than the remaining quarters. Although we believe
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:
- changes in general economic conditions including changes in
national, regional, or local construction or industrial
activities;
- the timing of acquisitions and opening of new locations;
- the timing of expenditures for new rental equipment and the
disposition of used equipment;
- competitive pricing pressures; and
- changes in interest rates.
We 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 for a period of time. Our new locations have on average achieved
profitability within approximately five months of their opening. In addition,
when we purchase 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 our current rental equipment inventory
may reduce our operating margins during a start-up period.
INFLATION
We do not believe that inflation has been a significant factor to the cost
of our operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, 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. We adopted SOP 98-1 prospectively effective January 1, 1999.
The adoption of SOP 98-1 did not have a material effect on our financial
position or results of operations.
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, "Reporting on the Costs of Start-Up Activities." SOP 98-5
requires that all non-governmental entities expense costs of start-up
activities, including pre-operating, pre-opening and organization
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activities, as those costs are incurred. We adopted SOP 98-5 effective January
1, 1999. The adoption of SOP 98-5 did not have a material effect on our
financial position or results of operations.
YEAR 2000
Since many computer systems and other equipment with embedded chips or
microprocessors 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. We may be affected
by Year 2000 issues in our own information technology ("IT") systems or non-IT
systems, as well as by Year 2000 issues related to IT and non-IT systems
operated by third parties.
STATE OF READINESS
Our plan to address the Year 2000 issue is structured in five phases:
inventory, assessment, correction, testing, and implementation. The inventory
phase is an investigation of all our operations to identify the software and
hardware of all of our systems. The assessment phase is an analysis of each
component of each system to determine date sensitivity to the year 2000. The
correction phase is the effort to correct, replace, upgrade, or eliminate
non-compliant hardware and software. The testing phase involves verifying that
corrections to our systems are Year 2000 compliant. Finally, the implementation
phase is the effort to deploy the corrected and verified systems throughout our
current operations.
IT SYSTEMS. Our current state of progress with our IT systems is as
follows:
- Inventory and Assessment. Since our inception, we have acquired
41 equipment rental companies, each with its own information
system for rental counter operations, inventory control, and
financial reporting. In assessing the systems of the companies
that we acquired, we determined that there was no one system
that could manage our projected growth and that was Year 2000
compliant. We determined, therefore, that we needed to develop
our own Year 2000 compliant management information system. We
believe the inventory and assessment phases of our IT systems
are complete.
- Correction and Testing. During the second quarter of 1998, we
began developing our own management information system that
included software modules for rental counter operations,
inventory control, database, and financial reporting to replace
the information systems of businesses we have acquired. Certain
of these software modules are licensed from third-party vendors
while others have been developed internally. We selected our
third-party vendors for the software modules and hardware
components of our new system based on their certification of
Year 2000 compliance. Each of the software modules internally
developed or selected to be used in our system has either been
tested by us or certified by the vendor to be Year 2000
compliant. We are reviewing all of the Year 2000 testing
programs of vendors who have provided us with certifications to
determine the quality of their testing and whether additional
testing will be required. We believe we are 85% complete with
testing of all of the components. We are not currently aware of
any Year 2000 problems relating to our IT system or the systems
and hardware supplied by third parties which would have a
material effect on our business, results of operations, or
financial condition. To date, we have handled our Year 2000 plan
with our own internal personnel and have not engaged any
third-party consultants.
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- Implementation. Our implementation phase consists of the
conversion and replacement of the non-Year 2000 compliant
systems of our acquired businesses with the moduler comprising
our management information system. During October 1998, we began
converting our operations to our management information system.
Currently, we operate 136 locations. We have converted 70 of
these locations to the financial reporting component of our
system and 46 locations to one of the rental counter components
of our system. We expect to have all of our current operations
fully converted to all components of our system by September 30,
1999.
NON-IT SYSTEMS. We are at the initial inventory phase for our non-IT
systems such as chips and microprocessors that may be embedded in our facilities
and equipment. We believe there is a minimal amount of dependence of our
critical operations on non-IT systems. However, since we have not completed our
inventory and assessment, we cannot currently determine if there are any
potential Year 2000 problems that would cause a material adverse effect on our
business, results of operations, or financial condition. We expect to complete
all five phases of our Year 2000 plan for our non-IT systems by September 30,
1999.
THIRD-PARTY SYSTEMS. We rely 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 our
business, results of operations or financial condition. We have begun efforts to
evaluate the progress of our critical third-party suppliers relative to their
Year 2000 issues. Letters and questionnaires are being sent to all essential
third parties with which we do business to assess their Year 2000 readiness. To
the extent necessary, we will seek alternative third-party relationships if
circumstances warrant. We have begun efforts to evaluate the progress of our
critical customers' relative to their Year 2000 issues. We expect to complete
all five phases of our Year 2000 plan for our third-party systems by September
30, 1999.
COSTS
The majority of our costs to address the Year 2000 issue are related to the
development of our new management information system. Such costs principally
consist of licensing and developing software and purchasing hardware. As of
March 31, 1999, we have spent a total of approximately $6.1 million for the new
system, of which approximately $4.8 million was related to software development
and approximately $1.3 million was related to purchases of hardware. Such costs
have been capitalized in accordance with generally accepted accounting
principles. We expect to incur in the range of approximately $1.5 million to
$2.0 million in additional software and hardware costs installing the new IT
system at the rest of our current locations in 1999. The aggregate cost of
conversion and training employees to the new IT system, which will be charged to
expense in the period incurred, is expected to range from $0.7 million to $1.0
million. Although we do not expect to incur significant expenses to address the
Year 2000 issue beyond our capital investment in the new IT system software and
hardware, Year 2000 problems may require us to incur unanticipated expenses
which could have a material adverse effect on our business, financial condition,
or results of operations. These costs account for approximately 90% of our
information technology budget for 1999. To date, the development of our
management information system has run concurrent with and been a part of our
Year 2000 compliance efforts. No other major projects have been deferred as a
result of the system development effort. The source of the funds for our Year
2000 compliance efforts has been cash generated from operations and borrowings
under our senior credit facilities.
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RISKS RELATING TO THE COMPANY'S FAILURE TO BECOME YEAR 2000 COMPLIANT
Our worst case scenarios resulting from the Year 2000 issue include:
- interruptions in our customers' operations which could prevent
them from renting our equipment, using our services or paying
for equipment rented or services rendered;
- disruptions to our utilities and other service providers which
could prevent our locations from operating in the normal course
of business;
- failure of our suppliers' operations which could result in our
inability to obtain rental equipment and other supplies to meet
the demands of our customers;
- failure to convert all of our locations to our new management
information system before December 31, 1999 which could prevent
such locations from processing invoices from our counter systems
and tracking accounts receivable, equipment utilization and
other critical financial data. This could also prevent our
locations from sharing equipment and data to service our
customers in a timely manner; and
- failure to convert all of the systems of the businesses we
acquire during 1999 to our system prior to the year 2000 which
could prevent these locations from being integrated into the
rest of our operations.
Such failures could materially and adversely affect our business, results
of operations 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, we are unable to
determine at this time what our most reasonably likely worst case scenario would
be or whether the consequences of Year 2000 failures will have a material
adverse impact on our results of operations, liquidity, or financial condition.
As we complete all of the phases of our Year 2000 compliance plan, we expect to
have a better understanding of our most reasonably likely worst case scenarios
and will tailor our contingency plans accordingly.
CONTINGENCY PLANS
Our Year 2000 efforts are ongoing and our overall plan, as well as the
consideration of contingency plans, will continue to evolve as new information
becomes available. Contingency plans for Year 2000-related interruptions are
being developed and will include emergency backup and recovery procedures for
lost data, manual invoicing, billing and collection procedures, identification
of alternate suppliers, acceleration of conversion times to our management
information system and increasing inventory levels of critical supplies and
rental equipment. All plans are expected to be completed by the end of the third
quarter of 1999. These activities are intended to provide a means of managing
risk, but cannot eliminate the potential for disruption due to third-party
failure.
We are currently considering what our final contingency plans will be in
the event that we are not able to bring all of our existing and acquired systems
into Year 2000 compliance by the end of 1999. We currently plan to complete such
contingency plans by September 30, 1999.
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BUSINESS
INTRODUCTION
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. As of June 3, 1999, we operate 136 locations in 22 states
across the United States. We have become a leading provider of rental equipment
as a result of our strategy to acquire core businesses, open or acquire
additional locations concentrated around those businesses and expand our rental
fleet. 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> <C>
- backhoes - aerial lifts and work platforms - articulated trucks
- bulldozers - compressors and generators - excavators
- skid steer loaders - specialized hand tools - wheel loaders
</TABLE>
We 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.
As of June 3, 1999, we have acquired 41 equipment rental businesses
operating in 22 states, and we operate 136 locations. For the twelve months
ended December 31, 1998, we had approximate revenue of $236.4 million and
operating income of $42.7 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 $21.0
billion in 1998, which represents a compound annual growth rate of more than
24%. 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
range of $50.0 billion to $80.0 billion in annual revenue by the year 2008 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
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<PAGE> 30
highly fragmented, with more than 14,000 equipment rental locations. According
to industry sources, in 1998 the 100 largest equipment rental companies in the
United States had a combined market share of approximately 25% and no single
equipment rental company in the United States had a market share greater than
4%. 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.
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 22 states across
the United States. This expansion 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
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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.
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, a New
York Stock Exchange 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. In October 1998, 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. and Arenco, LLC,
which operated collectively as A-1 Rentals in Fort Worth, Texas, one of the
largest independent equipment rental businesses in the United States. We
acquired substantially all the assets of A-1 Rentals 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
AutoNation, Inc. and who co-founded and served in various senior executive
positions with Waste Management, Inc. and Blockbuster Entertainment
Corporation, 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 AutoNation, 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.
BUSINESS 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;
- branding locations and rental inventory with the NationsRent logo,
colors and distinctive store appearance; and
- increasing awareness of our brand through targeted local and national
marketing.
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;
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<PAGE> 32
- experienced local management teams that will continue to work with us
following the acquisition;
- high quality inventory of equipment rental; and
- 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 eight new locations two of which have been
opened since January 1, 1999.
Further Penetrate Industrial Rental Market. We believe that the equipment
needs of industrial customers are under served 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 June 3, 1999 we have acquired
41 equipment rental businesses and operate 136 locations in 22 states. 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 May 1999, we entered into a Termination and Release Agreement with
Rental Service Corporation, a Delaware corporation, pursuant to which we and
Rental Service mutually agreed to terminate our Agreement and Plan of Merger,
dated as of January 20, 1999, and to abandon our proposed merger. As part of the
Termination and Release Agreement, Rental Service paid us $6.0 million as
reimbursement of out-of-pocket costs and expenses incurred in connection with or
relating to the Agreement and Plan of Merger and the Termination and Release
Agreement along with the performance of our obligations thereunder through May
1999. We also separately entered into a Stock Option Termination Agreement with
Rental Service pursuant to which we and Rental
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Service agreed to terminate the reciprocal stock options that each party had
granted to the other in connection with the Agreement and Plan of Merger.
OPERATIONS
We are one of the fastest growing equipment rental companies in the United
States, operating 136 locations as of June 3, 1999. Our operations primarily
consist of:
- renting a full range of equipment to construction and industrial
customers;
- selling our used equipment inventory;
- selling new equipment as a distributor or dealer on behalf of several
nationally known equipment manufacturers; and
- 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, articulated trucks, excavators, wheel loaders and skid loaders,
pumps and scissor lifts. The mix of equipment offered from each of our locations
varies based on the needs of the local market.
We make capital investments in new equipment, engage in periodic sales of
used equipment and conduct preventive maintenance. These practices are designed
to increase equipment utilization, enhance resale values and extend the useful
life of equipment.
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 our 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 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.
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
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<PAGE> 34
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 and delivery
charges. We believe 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 during economic downturns the parts and service
business may increase as customers postpone new equipment purchases and instead
attempt to maintain their existing equipment.
CUSTOMERS
We serve over 200,000 active accounts primarily in the construction and
industrial segments of the equipment rental industry. No single customer
accounted for more than 10% of our 1998 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. We
plan to enter into agreements with one or more financing sources to provide
financing to our customers for the purchase of new and used equipment.
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 national
advertising agency.
Our regional managers are responsible for training, supervising and
directing the selling activities of the NationsRent sales force 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 over 235 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,
Engineering and Construction), follow up on referrals and visit construction
sites and potential equipment users who are new to the area.
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<PAGE> 35
TRADEMARKS
We have 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 sales and administrative offices, a customer showroom displaying
equipment and parts, an equipment service area and 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.
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 our competitors have greater
financial resources and name recognition than our 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
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<PAGE> 36
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 that we obtain
discharge permits. The Occupational Safety and Health Act of 1970 authorizes the
promulgation of occupational safety and health standards which apply to our
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 or the
prior owners or operators have 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 our financial condition or results
of operations.
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 also undertake
environmental assessments at all facilities prior to leasing them for new
locations. 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 and the landlords of
facilities we have leased have indemnified us with respect to environmental
liabilities associated with such businesses or facilities. 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. We also cannot assure you that in connection with acquisitions or
leasing new facilities we will identify all existing adverse environmental
conditions or that indemnification from sellers or landlords will be enforceable
or sufficient to cover such conditions. Such future changes or interpretations,
or the identification of adverse environmental conditions following the time we
begin operating a site, could result in additional environmental compliance or
remediation costs which we do not currently anticipate, which could be material
to our financial condition or results of operations.
EMPLOYEES
As of May 31, 1999, we employed approximately 2,400 persons, approximately
50 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 Fort Lauderdale, Florida, in
leased premises. Certain of our property and equipment are subject to liens
securing payment of portions of our indebtedness. As of June 3, 1999, we
operated 136 rental locations located in 22 states: Alabama, California,
Florida, Georgia, Indiana, Kentucky, Louisiana, Maine, Massachusetts, Michigan,
Nevada, New Hampshire, New York, Ohio, Pennsylvania, Rhode Island, South
Carolina, Tennessee, Texas, Utah,
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<PAGE> 37
Vermont and West Virginia. 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
In connection with our proposed merger with Rental Service Corporation
(which merger was abandoned in May 1999), on April 5, 1999, United Rentals, Inc.
(together with one of its subsidiaries) commenced a tender offer for all the
issued and outstanding shares of Rental Service's common stock, at a price of
$22.75 per share in cash. On April 13, 1999, United Rentals commenced a consent
solicitation of Rental Service stockholders to remove the board of directors of
Rental Service and replace the board with nominees of United Rentals. On April
16, 1999, the Rental Service board of directors determined that United Rental's
tender offer was inadequate and was not in the best interests of Rental Service
or its stockholders. The Rental Service board of directors recommended that
Rental Service stockholders reject the tender offer and not tender their shares
of Rental Service common stock pursuant to the tender offer.
On April 5, 1999, United Rentals also filed a complaint against our
company, Rental Service and Rental Service's board of directors, in the Court of
Chancery of the State of Delaware, which seeks, among other things, a
determination that the termination and expense amounts provided for in the
Agreement and Plan of Merger between us and Rental Service and the stock option
granted by Rental Service to our company to purchase 19.9% of Rental Service's
outstanding common stock under certain circumstances are excessive, unlawful,
invalid and void. On April 6, 1999, United Rentals filed a motion seeking, among
other things, to preliminarily enjoin the operation of the termination and
expense provisions of the Agreement and Plan of Merger and the stock option and
seeking an order requiring Rental Service to provide United Rentals with a fair
and equal opportunity to acquire Rental Service. On April 14, 1999, we filed our
answer in the litigation with the Delaware Chancery Court. A hearing on United
Rental's motion for a preliminary injunction was held on May 17, 1999. Effective
as of May 20, 1999, we abandoned our merger with Rental Service and the parties
so advised the court. Accordingly, no decision was rendered by the Delaware
Court of Chancery on the motion. As a result of the termination of the merger
between our company and Rental Service, on May 21, 1999, we filed a motion to
dismiss the litigation on several grounds, including that (1) the complaint
fails to state a claim against our company, (2) the claims asserted in the
complaint are moot in light of the termination of the merger and (3) the
plaintiffs lack standing to assert the claims in the complaint and otherwise
failed to comply with applicable standards for assertion of such claims. The
Court has not ruled on nor have the parties submitted briefs in connection with
this motion. We believe the litigation is without merit.
We are party to other 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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<PAGE> 38
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth the names and ages of our executive officers and
directors 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............................. 52 President and Chief Operating Officer
Gene J. Ostrow............................ 44 Executive Vice President and Chief Financial
Officer
Philip V. Petrocelli...................... 40 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........................ 33 Vice President, Secretary and General Counsel
H. Wayne Huizenga......................... 61 Director
Harris W. Hudson.......................... 56 Director
Gary L. Gabriel........................... 56 Director
Thomas H. Bruinooge....................... 55 Director
Ivan W. Gorr.............................. 69 Director
</TABLE>
JAMES L. KIRK is a co-founder of our company, together with H. Family
Investments, Inc. and Mr. Ostrow, and has served as the Chairman of the Board of
our company since August 1997 and as our Chief Executive Officer since April
1998. Mr. Kirk also served as our President from April 1998 through October
1998. From 1985 to February 1998, Mr. Kirk was Chairman of the Board, President
and Chief Executive Officer of OHM, a leading environmental construction
company.
DON R. O'NEAL joined our 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 we acquired 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 our 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 our 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 our 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 our company as Vice President and Controller in March
1998. Prior to joining us, 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 our 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 our company as Vice President and General Counsel
in September 1998. Commencing October 1998, Mr. Izhakoff also began serving as
Secretary. Prior to joining us, 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 our company as a director in June 1998. Since May
1998, Mr. Huizenga has served as Chairman of the Board of Republic Services,
Inc., a leading provider of non-hazardous solid waste collection and disposal
services. From May 1998 to December 1998, Mr. Huizenga served as the Chief
Executive Officer of Republic Services. Since August 1995, Mr. Huizenga has
served as Chairman of the Board of AutoNation, Inc., 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
AutoNation and from August 1995 until October 1996, Mr. Huizenga served as Chief
Executive Officer of AutoNation. Since September 1996, Mr. Huizenga has served
as the Chairman of the Board of Florida Panthers Holdings, Inc., 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., an operator of extended stay lodging facilities.
From September 1994 until October 1995, Mr. Huizenga served as the Vice Chairman
of Viacom Inc., 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 1994, Mr. Huizenga served as the Chairman of the Board and Chief
Executive Officer of Blockbuster Entertainment Corporation, 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 also owns the Miami Dolphins professional
sports franchise, as well as Pro Player Stadium in South Florida and is director
of theglobe.com, an internet on-line community. Mr. Huizenga is the
brother-in-law of Mr. Hudson.
HARRIS W. HUDSON joined our 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
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<PAGE> 40
served as a director of AutoNation since August 1995 and as Vice Chairman of
AutoNation since October 1996. Mr. Hudson served as Chairman of Republic
Services' Solid Waste Group since October 1996 until July 1998. From August 1995
until October 1996, Mr. Hudson served as President of AutoNation. From May 1995
until August 1995, Mr. Hudson served as a consultant to AutoNation. 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 AutoNation 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 our company as a director in June 1998. Since
September 1997, Mr. Gabriel has provided consulting services to our company on
operational and business development matters. From January 1978 to September
1997, Mr. Gabriel served as President of Sam's Equipment Rental, Inc. and
Gabriel Trailer Manufacturing Company, Inc., which was acquired by our company
in September 1997. In 1961, Mr. Gabriel co-founded a predecessor company of
Sam's.
THOMAS H. BRUINOOGE joined our 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.
IVAN W. GORR joined our company as a director in June 1999. Mr. Gorr served
as Chairman of the Board of Directors and Chief Executive Officer of Cooper Tire
& Rubber Company, a manufacturer of tires and other rubber products, from 1989
until he retired in October 1994. Mr. Gorr also serves as a director of Amcast
Industrial Corporation, Arvin Industries, Inc. and Borg-Warner Automotive, Inc.
Our executive officers are selected by and serve at the discretion of the
Board. Our directors hold office until the next annual meeting of stockholders
and until their successors have been duly elected and qualified.
THE BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors has the responsibility for establishing broad
corporate policies and for the overall performance of our company. Messrs. Kirk,
Huizenga, Gabriel, Bruinooge, Hudson and Gorr are the members of the Board. In
August 1998, at the time of our initial public offering, the Board established
an Executive Committee, an Audit Committee and a Compensation Committee to
assist it in carrying out its duties.
The Executive Committee has the same powers and authority as the Board of
Directors, subject to the limitations of the Delaware General Corporation Law,
the Amended and Restated Certificate of Incorporation and the Amended and
Restated Bylaws. Messrs. Kirk and Huizenga are the members of the Executive
Committee.
The Audit Committee recommends the annual appointment of our auditors, with
whom the Audit Committee reviews the scope of audit and non-audit assignments
and related fees, accounting principles used by our company in financial
reporting, internal auditing procedures and the adequacy of our company's
internal control procedures. Messrs. Bruinooge and Gorr serve as the members of
the Audit Committee.
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<PAGE> 41
The Compensation Committee administers the 1998 Stock Option Plan and makes
recommendations to the Board of Directors regarding compensation for our
company's executive officers. Messrs. Hudson and Bruinooge are the members of
the Compensation Committee.
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 our 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 of the Board. Each automatic grant of options to a
non-employee director serving on the Board at the time of our 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, we expect 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, we entered
into an agreement with Gary L. Gabriel pursuant to which Mr. Gabriel provides
certain consulting services to our company. See "Certain Relationships and
Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee was an officer or employee of our
company or of any of its subsidiaries during the prior year or was formerly an
officer of our company or of any of our subsidiaries. During the last fiscal
year, none of our executive officers has served on the board of directors or
compensation committee of any other entity, any of whose officers served either
on our Board or on our Compensation Committee.
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<PAGE> 42
EXECUTIVE COMPENSATION
We were formed in August 1997 and did not pay any compensation to our Chief
Executive Officer and did not pay salary and bonus in excess of $100,000 to any
of our executive officers for the period from August 14, 1997 (inception) to
December 31, 1997. The following table sets forth the annual base salaries and
other compensation that we paid for the year ending December 31, 1998 to the
named executive officers below (the "Named Executive Officers") and certain
options to purchase common stock which we have granted to the Named Executive
Officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------------
ANNUAL COMPENSATION SECURITIES
------------------------------------------------ UNDERLYING OPTIONS
OTHER ANNUAL TO PURCHASE SHARES
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION OF COMMON STOCK
- ---------------------------------- ----------- -------- -------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
James L. Kirk(1).................. 1998 $109,616 -- 188,510(2) 250,000(3)
Chairman of the Board and
Chief Executive Officer
Gene J. Ostrow.................... 1998 196,154 -- -- 100,000(3)
Executive Vice President and
Chief Financial Officer
Philip V. Petrocelli(5)........... 1998 166,923 -- 62,199(2) 346,472(4)
Executive Vice President
Kris E. Hansel(5)................. 1998 101,923 -- -- 112,569(6)
Vice President and Controller
</TABLE>
- ---------------
(1) We began paying compensation to Mr. Kirk in August 1998.
(2) Consists solely of relocation expenses paid by our company in connection
with the Named Executive Officers' initial employment with us.
(3) 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 our
company (as defined in the 1998 Stock Option Plan).
(4) 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 our company (as defined in the option agreement related to such options).
(5) Mr. Petrocelli joined our company in February 1998 and Mr. Hansel joined our
company in March 1998.
(6) These options have an exercise price of $6.66 per share and vest over a
four-year period at the rate of 25% per year commencing on March 9, 1999.
These options become immediately exercisable upon a change of control of our
company (as defined in the option agreement related to such options).
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<PAGE> 43
OPTION GRANT TABLE
The following table sets forth certain information concerning grants of
stock options made during the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION
UNDERLYING EMPLOYEES FOR OPTION TERM
OPTIONS IN EXERCISE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
- ---------------------------- -------------- ----------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
James L. Kirk............... 250,000 shares 6.9 % $8.00 08/06/08 $1,257,789 $3,187,484
Chairman of the Board and
Chief Executive Officer
Gene J. Ostrow.............. 100,000 shares 2.8 % $8.00 08/06/08 $ 503,115 $1,274,993
Executive Vice President
and
Chief Financial Officer
Philip V. Petrocelli........ 346,472 shares 9.6 % $5.77 02/24/08 $1,257,790 $3,187,489
Executive Vice President
Kris E. Hansel.............. 112,569 shares 3.1 % $6.66 03/09/08 $ 471,672 $1,195,310
Vice President and
Controller
</TABLE>
Some of our executive officers and employees have been granted stock
options to purchase shares of our common stock prior to the adoption of the 1998
Stock Option Plan. As of December 31, 1998, there were outstanding options,
granted prior to the adoption of the plan, to purchase 992,569 shares at
exercise prices ranging from $2.96 per share to $6.67 per share of which 70,632
were immediately exercisable at that time. These options vest over a four-year
period at the rate of 25% per year commencing on the first anniversary of the
date of grant. Also, these options become immediately exercisable upon a change
in control of our company. A "change in control" of our company occurs when any
person becomes the beneficial owner of or acquires voting control with respect
to more than 50% of the common stock or any person has the ability to elect or
to cause the election of directors consisting at the time of such election of a
majority of the Board.
The executive officers of our company receive health benefits which do not
exceed 10% of their respective salaries. These benefits are also provided to
other employees of our company. See "-- Stock Option Plan." In October 1998, in
connection with our acquisition of A-1 Rentals, Don R. O'Neal entered into an
employment agreement to serve as our President and Chief Operating Officer. See
"Certain Relationships and Transactions."
STOCK OPTION PLAN
The Board of Directors and stockholders adopted the 1998 Stock Option Plan,
effective August 6, 1998. Pursuant to the 1998 Stock Option 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 our company or any subsidiary, as
defined in the plan. As of December 31, 1998, there were outstanding options to
purchase 2,679,127 shares at exercise prices ranging from $5.50 per share to
$8.00 per share granted under the 1998 Stock Option Plan, 200,000 of which were
immediately exercisable at that time.
The Compensation Committee administers the 1998 Stock Option Plan. The
Compensation Committee determines which persons will receive options and the
number of options to be granted to such persons. The 1998 Stock Option Plan also
provides for annual mandatory grants of options to non-employee directors. See
" -- Compensation of Directors." The Board of Directors or the
41
<PAGE> 44
Compensation Committee, as the case may be, will make all determinations that it
may deem necessary or advisable for the administration of the 1998 Stock Option
Plan.
Pursuant to the 1998 Stock Option Plan, we may grant incentive stock
options as defined in Section 422 of the Internal Revenue Code of 1986 and
non-qualified stock options, not intended to qualify under Section 422 of the
Internal Revenue Code. The price at which our common stock may be purchased upon
the exercise of options granted under the 1998 Stock Option 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 1998
Stock Option 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 incentive stock options under the 1998 Stock Option Plan may be granted to
an individual owning more than 10% of the total combined voting power of all
classes of stock issued by our 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 1998 Stock Option Plan terminate upon
the date the person to whom such options were granted is no longer employed or
retained by us or serving on our Board of Directors other than by reason of
permanent and total disability as that term is defined in the Plan.
Options granted pursuant to the 1998 Stock Option Plan, unless otherwise
determined by the Board of Directors, vest over a four-year period at the rate
of 25% per year commencing on the first anniversary of the date of grant. These
options become immediately exercisable upon a change in control of our company.
A "change in control" of our company occurs when any person becomes the
beneficial owner of or acquires more than 50% of the total combined voting
power, with respect to the election of directors, of our issued and outstanding
capital stock.
The 1998 Stock Option Plan also provides that, upon the death or permanent
and total disability of an optionee, the optionee's estate or the optionee has
three years, from the date of such death or disability and prior to the
termination of the option period, to exercise the number of vested options held
by the optionee on the date of death or disability.
Incentive stock options granted under the 1998 Stock Option 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 1998 Stock Option Plan provides for appropriate adjustments in the
number and type of shares covered by the plan and options granted under the plan
in the event of any reorganization, dissolution, liquidation, recapitalization
or certain other transactions involving our company.
401(K) PLAN
Our 401(k) Retirement Savings Plan provides retirement and other benefits
to our employees and permits 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.
LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION
The Delaware General Corporation Law 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. Our Certificate of Incorporation limits the liability of our directors to
our company or our stockholders to the fullest extent permitted by Delaware law.
42
<PAGE> 45
Specifically, our directors 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 our company or our
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 Delaware General Corporation Law or (4) for any transaction from which the
director derived an improper personal benefit. The inclusion of this provision
in our Certificate of Incorporation 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 our company and its stockholders. This provision has no
effect on any non-monetary remedies that may be available to us or our
stockholders, nor does it relieve us or our directors from compliance with
federal or state securities laws.
Our Bylaws provide that we 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 by reason of the fact that he is or was a director or officer of
our company, or is or was serving at our request 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 a
proceeding described above. In addition, we have obtained director and officer
liability insurance that insures our directors and officers against certain
liabilities.
43
<PAGE> 46
CERTAIN RELATIONSHIPS AND TRANSACTIONS
In August 1997, H. Family Investments, Inc. and Messrs. Kirk and Ostrow
founded our company and committed an aggregate of $48.4 million in equity
capital to our company which was funded at various times from September 1997
through June 2, 1998 as required to complete acquisitions. Our founders entered
into lock-up agreements with the underwriters of our initial public offering
pursuant to which they 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 until February 1999. In August 1998, we
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 our founders. We paid registration expenses incidental to
such registration, excluding underwriters' commissions and deductions.
In September 1997, we acquired Sam's for $23.4 million from Gary L.
Gabriel, Troy L. Gabriel and certain trusts controlled by them. We paid a
portion of the purchase price to Gary L. Gabriel and certain trusts controlled
by him in the form of (1) unsecured promissory notes in the aggregate original
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 original 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 original principal amount of $3.0
million which bear interest at the rate of 8.0% per annum. As of December 31,
1998, the aggregate principal amount remaining outstanding under the promissory
notes was $3.3 million. As part of the Sam's acquisition, we entered into four
leases on four properties used in Sam's operations from TTG Properties, an Ohio
general partnership, of which Gary L. Gabriel and Troy L. Gabriel are general
partners. Each of the four leases to which our 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, we have 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. In addition, we have entered
into leases for two facilities in Ohio, from TTG, each with a ten-year term and
two automatic five-year extensions. The aggregate monthly rental payment to TTG
under these leases is $23,190. 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 our company. This agreement has
a three-year term which automatically renews for an additional one year term.
This agreement provides for annual compensation of $100,000, the use of a leased
vehicle and the rent-free personal use of rental equipment for up to $30,000 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
compensation as severance.
In May 1998, we received an unsecured subordinated loan in the amount of
$17.4 million from Huizenga Investments Limited Partnership. This loan
represented bridge financing to complete certain acquisitions until H. Family
Investments, Inc. and Messrs. Kirk and Ostrow, as our 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 our founders. Interest in the amount of approximately $124,000
accrued on this loan and was paid by our company on June 3, 1998.
On June 2, 1998, we sold an aggregate of 5,118,694 shares of common stock
in a private placement for aggregate proceeds of $27.6 million which represented
approximately 17.0% of our common stock outstanding following the transaction.
The table below sets forth our officers and
44
<PAGE> 47
directors 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 Huizenga Investments Limited Partnership.
The holders of the shares of common stock issued in the June 1998 private
placement entered into lock-up agreements, which expired in February 1998, with
the underwriters of our initial public offering similar to the founders' lock-up
agreements described above. We 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. We
paid the registration expenses incidental to such registration, excluding
underwriters' commissions and discounts.
In October 1998, we 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, we converted the entire
$50.0 million of the unsecured subordinated convertible promissory notes held by
Mr. O'Neal, 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
offering of our 10 3/8% senior subordinated notes due 2008 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 earnings targets, we 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 our President and Chief Operating
Officer for a minimum annual salary of $250,000. Also, in connection with the
acquisition of A-1 Rentals, we 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, required aggregate monthly rental payments of approximately $120,000.
We have entered into contracts for building construction with Alvada
Construction, Inc., an entity controlled by Mr. Kirk's brother. As of December
31, 1998, the aggregate amount paid under these contracts was approximately $1.2
million.
We lease the office space and parking for our corporate headquarters from
Panthers Holdings. We pay approximately $44,000 in monthly lease payments, which
amount includes a share of the operating expenses for this location based upon
estimated usage. In addition, we license from Panthers Holdings the use of an
executive suite at the Broward County Arena, which is operated by Panthers
Holdings, for a fee of $95,000 per annum for a term of seven years. We may also
enter into a sponsorship agreement with Panthers Holdings for certain
sponsorship, marketing and advertising
45
<PAGE> 48
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, we have 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. We believe, however, based on our prior experience, that the terms of
each transaction were as favorable to us as we could have obtained from an
unaffiliated party.
46
<PAGE> 49
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of June 4, 1999, information with
respect to the beneficial ownership of the common stock by (1) each person or
entity known to us to beneficially own more than 5% of the outstanding shares of
common stock, (2) each director of our company and each Named Executive Officer,
and (3) all directors and executive officers of our 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 55,759,497 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........................................ 210,394(4) *
Kris Hansel................................................. 65,234(5) *
H. Wayne Huizenga........................................... 1,692,047(6)(7) 3.0
Harris W. Hudson............................................ 1,023,650(7)(8) 1.8
Gary L. Gabriel............................................. 471,250(7)(9) *
Thomas H. Bruinooge......................................... 97,092(7) *
Ivan W. Gorr................................................ 55,700(10) *
All executive officers and directors as a group (12
persons).................................................. 20,761,875(9)(11) 36.7
</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) 12,000,000 of 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 Don R. 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) Includes 86,618 shares of common stock issuable upon exercise of options,
which are immediately exercisable.
(5) Includes 28,142 shares of common stock issuable upon exercise of options,
which are immediately exercisable.
(6) 1,632,047 of these shares are held by Huizenga Investments Limited
Partnership. 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.
(7) Includes 60,000 shares of common stock issuable upon exercise of options,
which are immediately exercisable.
(8) Includes 250,000 shares of common stock owned by Mr. Hudson's spouse, as to
which Mr. Hudson disclaims beneficial ownership.
(9) 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.
(10) Includes 50,000 shares of common stock issuable upon exercise of options,
which are immediately exercisable and which were granted to Mr. Gorr upon
his joining our Board of Directors on June 17, 1999.
(11) Includes an aggregate of 434,137 shares of common stock issuable upon
exercise of options held by certain executive officers and directors, which
are immediately exercisable.
47
<PAGE> 50
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 of this Prospectus and the aggregate number of shares
of common stock registered by this Prospectus 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 offered under this Prospectus at any time
and from time to time after the date of this Prospectus, no estimate can be made
of the number of shares that each selling stockholder may retain upon completion
of this offering. However, if all of the shares offered under this Prospectus
are sold by the selling stockholders, then unless otherwise noted, after
completion of this 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 by this Prospectus, 42,680,525 shares are issued and outstanding as of
the date of this Prospectus and 8,848,832 shares have been reserved for issuance
by our 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 our knowledge,
none of the selling stockholders has had within the past three years any
material relationship with our 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............................... 653,020(3) 653,020(3)
Action Supply Co., Inc...................................... 28,420(4) 28,420(4)
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(12) 76,250(12)
Cris V. Branden............................................. 185,460 185,460
Thomas H. Bruinooge(13)..................................... 37,092 37,092
Randy Burden(14)............................................ 41,108(15) 41,108(15)
C&E Rental and Service, Inc.(16)............................ 250,000(6) 250,000(6)
J. Ronald Castell........................................... 92,730 92,730
Charleigh R. Davis(17)...................................... 119,047(18) 119,047(18)
Finally Limited Partnership................................. 463,650 463,650
GDJ, Jr. Investments Limited Partnership.................... 463,650 463,650
Gary L. Gabriel(19)......................................... 325,000(6) 325,000(6)
Gary L. Gabriel as Trustee of the Gary L. Gabriel Grantor
Retained Annuity Trust Theta(19).......................... 86,250(6) 86,250(6)
Troy L. Gabriel as Trustee of the Gary L. Gabriel Grantor
Retained Annuity Trust Alpha(19).......................... 250,000(6) 250,000(6)
H. Family Investments, Inc.(20)............................. 12,000,000 12,000,000
Richard L. Handley.......................................... 92,730 92,730
Kris E. Hansel(21).......................................... 37,092 37,092
Harris W. Hudson Limited Partnership(22).................... 463,650 463,650
Huizenga Investments Limited Partnership(23)................ 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(24).................... 312,500(6) 312,500(6)
Kirk Holdings Limited Partnership(25)....................... 12,000,100 12,000,000
M. Steven Langman........................................... 37,092 37,092
James B. Lathrop(5)......................................... 69,534(6) 69,534(6)
</TABLE>
48
<PAGE> 51
<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>
Bill Lewis(26).............................................. 206,957 206,957
Gary Lewis(26).............................................. 285,067 285,067
Steven Lewis(26)............................................ 128,813 128,813
Tim Lewis(26)............................................... 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.(27).............. 125,000(6) 125,000(6)
Michael O'Bryan(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(28).......................................... 1,000,000 1,000,000
Kenneth D. Petty and Ted L. Petty(29)....................... 376,762(30) 376,762(30)
Philip Vincent Petrocelli & Emilie Cohen Petrocelli (or
their successor(s)), Trustees, Emilie and Philip
Petrocelli, 1998 Family Trust dated February 18,
1998(31).................................................. 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......................... 265,111(32) 265,111(32)
Revco Equipment Rentals, Inc.(33)........................... 112,500(6) 112,500(6)
River City Rentals.......................................... 1,147,572(34) 1,147,572(34)
Thomas Richardson as Trustee of the Gary L. Gabriel Grantor
Retained Annuity Trust Beta(19)........................... 250,000(6) 250,000(6)
Bryan T. Rich(35)........................................... 3,156,337(36) 3,156,337(36)
Mary Sue Rozum(37).......................................... 1,938(6) 1,938(6)
John C. Scherer(38)......................................... 27,819 27,819
Joseph R. Scherzinger(39)................................... 125,899(40) 125,899(40)
Francis E. Scozio, Sr.(37).................................. 1,938(6) 1,938(6)
Sheffield Equipment Co., Inc................................ 109,536(41) 109,536(41)
Lynda Short(42)............................................. 128,282 128,282
Fred Silhanek(37)........................................... 55,412(6) 55,412(6)
Rose Silhanek(37)........................................... 65,712(6) 65,712(6)
Douglas M. Suliman(43)...................................... 789,084(44) 789,084(44)
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(14).............................................. 41,108(15) 41,108(15)
Fred W. Truman(8)........................................... 22,581(6) 22,581(6)
U-Rent It Company, Inc.(45)................................. 62,500 62,500
Frank Villella(42).......................................... 173,802 173,802
Thomas Villella(42)......................................... 111,730 111,730
Thomas J. Watts, Sr.(46).................................... 1,250,000(6) 1,250,000(6)
Weezor I Limited Partnership................................ 463,650 463,650
Robert M. Yager(47)......................................... 109,501(48) 109,501(48)
Samuel Yerrid(8)............................................ 11,290(6) 11,290(6)
</TABLE>
- ---------------
(1) As used in this Prospectus, beneficial ownership means the power to vote or
dispose of a security or the power to direct the voting or disposition of a
security.
(2) Held an ownership interest in Ray L. O'Neal, Inc. and Arenco, LLC prior to
our acquisition of the ownership interests in these companies.
(3) Includes 237,520 shares of common stock issuable upon conversion of
promissory notes which are convertible at $12.50 per share.
(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
Raymond Equipment Company Inc. prior to our acquisition of Raymond
Equipment.
(6) Consists of shares of common stock issuable upon conversion of promissory
notes which are convertible at $8.00.
(7) Ms. Beall currently serves as our Vice President, Assistant Secretary and
Treasurer.
49
<PAGE> 52
(8) Served as an officer and/or director of and/or held an equity interest in
Titan Rentals, Inc. prior to our acquisition of Titan. Mr. Tracy currently
serves as a Manager, District Operations of our company.
(9) Held an equity interest in Bode-Finn Limited Partnership prior to our
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.
(11) Held an ownership interest in Advanced Construction Equipment, Inc. prior
to our acquisition of the ownership interests of Advanced Construction.
(12) Consists of shares of common stock issuable upon conversion of promissory
notes which are convertible at $8.00 per share.
(13) Mr. Bruinooge currently serves as a director of our company.
(14) Held an ownership interest in Southeast Rental and Leasing, Inc. prior to
our acquisition of the ownership interests in Southeast Rental.
(15) Consists of shares of common stock issuable upon conversion of promissory
notes which are convertible at $8.21 per share.
(16) We have acquired all of the assets of C&E Rental and Service, Inc.
(17) Held an ownership interest in EP Company, Inc. (d/b/a AA Rent Village)
prior to our acquisition of the ownership interests in EP Company.
(18) Consists of shares of common stock issuable upon conversion of promissory
notes which are convertible at $8.40 per share.
(19) Served as an officer and/or director of and/or held an equity interest in
Sam's prior to our acquisition of Sam's. Gary L. Gabriel currently serves
as director of our company and provides certain consulting services to our
company. Troy L. Gabriel currently serves as a regional vice president,
business development of our company. Mr. Richardson currently serves as a
vice president, district operations of our company.
(20) H. Family Investments is one of our co-founders and is controlled by H.
Wayne Huizenga, Jr. who served as a director of our company until June
1998.
(21) Mr. Hansel currently serves as our Vice President and Controller.
(22) Harris W. Hudson Limited Partnership is a Nevada Limited partnership
controlled by Harris W. Hudson who currently serves as a director of our
company.
(23) Huizenga Investments Limited Partnership is a Nevada limited partnership
controlled by H. Wayne Huizenga who currently serves as a director of our
company.
(24) Served as an officer and/or director of and/or held an equity interest in
James E. Kelly and Virginia M. Kelly prior to our acquisition of J. Kelly.
(25) Kirk Holdings Limited Partnership, a Nevada Limited partnership, is
affiliated with James L. Kirk, one of the co-founders of our company who
currently serves as our Chairman and Chief Executive Officer.
(26) Held ownership interests in Agstar, Inc. and Lightnin' Truck Rental, Inc.
prior to our acquisition of the ownership interests of Agstar and Lightnin'
Truck.
(27) We have acquired all of the assets of Naples Rent-All and Sales Company,
Inc.
(28) Mr. Ostrow is one of the co-founders of our company and currently serves as
an Executive Vice President and Chief Financial Officer of our company.
(29) Held an ownership interest in Tennessee Tool and Supply, Inc. prior to our
acquisition of the ownership interests of Tennessee Tool.
(30) Consists of shares of common stock issuable upon conversion of promissory
notes which are convertible at $8.23 per share.
(31) Mr. Petrocelli currently serves as an Executive Vice President of our
company.
(32) Consists of shares of common stock issuable upon conversion of promissory
notes which are convertible at $9.43 per share.
(33) We have acquired all of the assets of Revco Equipment Rentals, Inc.
(34) Includes 550,000 shares of common stock issuable upon conversion of
promissory notes which are convertible at $10.00 per share.
(35) Served as an officer and held an ownership interest in Logan Equipment
Corporation prior to our acquisition of the ownership interests of Logan.
Currently serves as a regional vice president of our company.
(36) Includes 540,337 shares of common stock issuable upon conversion of
promissory notes which are convertible at $12.50 per share.
(37) Served as an officer and/or director of and/or held an equity interest in
Action Equipment Company, Inc. and Action Supply Co., Inc. prior to our
acquisition of A-Action.
(38) Mr. Scherer currently serves as an officer of our company.
(39) Held an ownership interest in Prime Enterprises, Inc. d/b/a Total Equipment
Rental and Supply Co. prior to our acquisition of the ownership interests
of Prime Enterprises, Inc.
(40) Consists of shares of common stock issuable upon conversion of promissory
notes which are convertible at $8.34 per share.
(41) Consists of shares of common stock issuable upon conversion of promissory
notes which are convertible at $7.76 per share.
50
<PAGE> 53
(42) Held an ownership interest in Villella Holding Company prior to our
acquisition of the ownership interests of Villella Holding.
(43) Held an ownership interest in Logan prior to our acquisition of the
ownership interests of Logan.
(44) Includes 135,084 shares of common stock issuable upon conversion of
promissory notes which are convertible at $12.50 per share.
(45) We have acquired all of the assets of U-Rent-It Company, Inc.
(46) Served as an officer and director of and held all of the equity interests
in Associated Rental Equipment Management Company, Inc. prior to our
acquisition of Associated.
(47) Held an ownership interest in Acme Rental, Inc. prior to our acquisition of
the ownership interests of Acme Rental.
(48) Consists of shares of common stock issuable upon conversion of promissory
notes which are convertible at $10.00 per share.
51
<PAGE> 54
PLAN OF DISTRIBUTION
The selling stockholders or pledgees may sell or distribute some or all of
the shares offered by this Prospectus 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 our 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, we 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 we nor
the selling stockholders can presently estimate the amount of such compensation.
We know 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 offered by this Prospectus.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of any of the shares offered by this Prospectus 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 purchases and sales
of any of the shares by the selling stockholders. All of the foregoing may
affect the marketability of the common stock.
We 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. We 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.
52
<PAGE> 55
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Our Certificate of Incorporation authorizes capital stock consisting of
5,000,000 shares of preferred stock, par value $0.01 per share, and 250,000,000
shares of common stock. As of June 4, 1999, we had 55,759,497 shares of common
stock and no shares of preferred stock outstanding. The following summary
description of our capital stock is qualified in its entirety by reference to
our Certificate of Incorporation, 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 our Certificate of Incorporation, the
holders of such shares will possess all voting power. Our Certificate of
Incorporation 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 our company
available for distribution to such holders. See "Dividend Policy."
PREFERRED STOCK
Our Certificate of Incorporation 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
(1) the designation of the series, (2) the number of shares of the series, which
number the Board of Directors may (except where otherwise provided in the
applicable certificate of designation) increase or decrease (but not below the
number of shares of preferred stock then outstanding), (3) 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, (4) 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, (5) the redemption rights and price or prices, if any, for shares of
the series, (6) the amount, terms, conditions and manner of operation of any
purchase, retirement or sinking fund to be provided for the shares of the
series, (7) the rights and the preferences, if any, of shares of the series in
the event of any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of our company, (8) 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, (9) restrictions on the issuance of
shares of the same series or of any other class or series, (10) the voting
rights, if any, of the holders of the shares of the series and (11) any other
relative rights, preferences and limitations of such series.
We believe that the ability of the Board of Directors to issue one or more
series of preferred stock will provide us 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
our stockholders, unless such action is required by applicable law or the rules
of any stock exchange or automated
53
<PAGE> 56
quotation system on which our 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 our 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 our 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 our
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.
INDEMNIFICATION
Our Certificate of Incorporation provides that our company shall indemnify
each director, officer, employee or agent of our company to the fullest extent
permitted by law. The Certificate of Incorporation limits the liability of our
directors for monetary damages in certain circumstances. Our Bylaws also provide
that we may purchase insurance on behalf of our directors, officers, employees
and agents against certain liabilities asserted against or incurred by them in
such capacity, whether or not our 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.
54
<PAGE> 57
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for our
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 our company, Gabriel Trailer Manufacturing
Company, 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 our 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 the 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 appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
55
<PAGE> 58
ADDITIONAL INFORMATION
We are subject to the informational requirements of the Exchange Act, and
in accordance with the Exchange Act file reports, proxy statements and other
information with the SEC. Such reports, proxy statements and other information
may be inspected and copied, without charge, at the Public Reference Room
located at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC'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
SEC's web site on the Internet at http://www.sec.gov.
56
<PAGE> 59
NATIONSRENT, INC.
INDEX TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NATIONSRENT, INC.
Introduction to Pro Forma Consolidated Statements of
Operations................................................ PF-2
Pro Forma Consolidated Statements of Operations for the
year ended December 31, 1998.............................. PF-4
Notes to Pro Forma Consolidated Statements of
Operations................................................ PF-5
</TABLE>
PF-1
<PAGE> 60
NATIONSRENT, INC.
INTRODUCTION TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
The following pro forma consolidated statements of operations for the year
ended December 31, 1998 have been adjusted to give effect to each acquisition
completed subsequent to January 1, 1998 or currently pending, as if such
acquisition had occurred on January 1, 1998.
The acquisitions included in the pro forma consolidated statements of
operations include the twelve listed below for which stand-alone financial
information is presented herein and the other acquisitions listed below which
either have been completed subsequent to January 1, 1998 or are currently
pending.
- R.F.L. Enterprises, Inc. ("RFL")
- The Bode-Finn Company ("Bode-Finn")
- Naples Rent-All and Sales Company, Inc. ("Naples")
- Raymond Equipment Company, Inc. ("Jobs")
- Revco Equipment Rentals, Inc. ("Revco")
- General Rental, Inc. ("General")
- Associated Rental Equipment Management Company, Inc. ("Associated")
- High Reach Company, Inc. and High Reach Leasing Company ("High
Reach")
- Reliable Rental & Supply Co., Inc. ("Reliable")
- Ray L. O'Neal, Inc. and Arenco, LLC d/b/a A-1 Rentals ("A-1")
- Action Equipment Company, Inc. ("Action")
- Logan Equipment Corporation ("Logan")
OTHER ACQUISITIONS
<TABLE>
<S> <C>
- Central Rent-All, Inc. - Gold Coast Aerial Lift, Inc.
- U-Rent-It Company, Inc. - Central Alabama Rental Center, Inc.
- A-Action Rental, Inc. - Tennessee Tool and Supply, Inc.
- The J. Kelly Co., Inc. - Southeast Rental & Leasing, Inc.
- A to Z Rents It, Inc. - Acme Rental, Inc.
- Big "R" Rents Corporation - EP Company, Inc.
- Agstar, Inc. and Lightnin' Truck - River City Rentals, Inc.
Rental, Inc. - Advanced Construction Equipment, Inc.
- Witt Equipment Company - Prime Enterprises, Inc.
- Louisiana Rentals of Houma, Inc. - Placer Equipment Rentals, Inc.
- Sheffield Equipment Co., Inc. - Pierce & Associates, Inc.
- Hudson Rental Center, Inc.
- J.R. Equipment, Inc. d/b/a Howe
Rental and Sales
</TABLE>
PENDING ACQUISITION
- Chapman Equipment Company
In addition to the above acquisitions, the pro forma consolidated
statements of operations give effect to the change in interest expense resulting
from reductions in outstanding debt upon the application of the net proceeds
from the following financing transactions in each case as if such transactions
had occurred on January 1, 1998:
PF-2
<PAGE> 61
- the sale of 13,000,000 shares of common stock in August 1998 at a
price of $8.00 per share (the "Common Stock Offering");
- the sale in a private placement of 5,118,694 shares of common stock
in June 1998 at a price of $5.39 per share (the "Private Placement");
- the issuance of $175,000,000 10 3/8% Senior Subordinated Notes due
2008 in December 1998 (the "Notes Offering");
- an additional equity contribution of $17.4 million from our founders
(the "Founders' Additional Contribution").
These adjustments represent, in the opinion of management, all adjustments
necessary to present fairly our pro forma consolidated results of operations and
are based upon available information and certain assumptions considered
reasonable under the circumstances. The pro forma consolidated statements of
operations presented herein do not purport to present what our results of
operations would actually have been had such events leading to the pro forma
adjustments in fact occurred at the beginning of the period indicated or to
project our results of operations for any future period.
The pro forma consolidated statements of operations should be read in
conjunction with our consolidated financial statements and the notes thereto and
management's discussion thereof included elsewhere in this prospectus.
PF-3
<PAGE> 62
NATIONSRENT, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
UNAUDITED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL BODE
COMPANY RFL FINN NAPLES JOBS REVCO GENERAL ASSOCIATED
---------- ----- ------- ------ ------ ----- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Equipment rentals............................ $150,668 $ 228 $ 6,336 $ 513 $4,086 $493 $4,494 $15,242
Sale of equipment, merchandise, service,
parts and supplies......................... 85,730 481 16,971 892 4,258 40 657 7,432
-------- ----- ------- ------ ------ ----- ------ -------
Total revenue........................... 236,398 709 23,307 1,405 8,344 533 5,151 22,674
Cost of revenue:
Cost of equipment rentals, excluding
depreciation............................... 56,084 129 1,363 395 1,073 189 2,519 4,999
Rental equipment depreciation................ 24,463 73 2,493 94 2,022 140 589 5,815
Cost of sales of equipment, merchandise,
service, parts and supplies................ 61,455 328 11,940 687 3,342 27 204 5,699
-------- ----- ------- ------ ------ ----- ------ -------
Total cost of revenue................... 142,002 530 15,796 1,176 6,437 356 3,312 16,513
-------- ----- ------- ------ ------ ----- ------ -------
Gross profit.................................. 94,396 179 7,511 229 1,907 177 1,839 6,161
Operating expenses:
Selling, general and administrative
expenses................................... 44,411 26 6,615 120 1,473 79 640 2,250
Non-rental equipment depreciation and
amortization............................... 7,266 6 82 9 94 1 197 240
-------- ----- ------- ------ ------ ----- ------ -------
Total operating expenses................ 51,677 32 6,697 129 1,567 80 837 2,490
-------- ----- ------- ------ ------ ----- ------ -------
Operating income (loss)....................... 42,719 147 814 100 340 97 1,002 3,671
Other (income)/expense
Interest expense, net........................ 21,063 18 506 4 738 31 381 2,804
Other (income)/expense, net.................. (606) -- 126 (13) -- -- -- (78)
-------- ----- ------- ------ ------ ----- ------ -------
Total other (income)/expense............ 20,457 18 632 (9) 738 31 381 2,726
-------- ----- ------- ------ ------ ----- ------ -------
Income before provision for income taxes...... 22,262 129 182 109 (398) 66 621 945
Provision for income taxes................... 9,608 56 79 44 (172) 26 257 378
-------- ----- ------- ------ ------ ----- ------ -------
Net income (loss)............................. $ 12,654 $ 73 $ 103 $ 65 $ (226) $ 40 $ 364 $ 567
======== ===== ======= ====== ====== ===== ====== =======
Basic net income per share.................... $ 0.37
========
Diluted net income per share.................. $ 0.37
========
<CAPTION>
HIGH OTHER PROBABLE
REACH RELIABLE A-1 ACTION LOGAN ACQUISITIONS ACQUISITIONS
------- -------- ------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Equipment rentals............................ $13,434 $6,423 $37,440 $ 6,224 $15,527 $56,920 $14,583
Sale of equipment, merchandise, service,
parts and supplies......................... 1,982 1,200 7,306 5,737 20,173 19,546 6,232
------- ------ ------- ------- ------- ------- -------
Total revenue........................... 15,416 7,623 44,746 11,961 35,700 76,466 20,815
Cost of revenue:
Cost of equipment rentals, excluding
depreciation............................... 5,396 2,970 12,750 3,413 3,153 29,296 10,665
Rental equipment depreciation................ 2,825 993 13,762 896 3,776 12,664 154
Cost of sales of equipment, merchandise,
service, parts and supplies................ 1,473 421 1,958 4,931 15,135 13,059 3,495
------- ------ ------- ------- ------- ------- -------
Total cost of revenue................... 9,694 4,384 28,470 9,240 22,064 55,019 14,314
------- ------ ------- ------- ------- ------- -------
Gross profit.................................. 5,722 3,239 16,276 2,721 13,636 21,447 6,501
Operating expenses:
Selling, general and administrative
expenses................................... 2,367 1,736 3,960 2,592 8,324 12,167 3,805
Non-rental equipment depreciation and
amortization............................... 263 231 238 153 214 829 93
------- ------ ------- ------- ------- ------- -------
Total operating expenses................ 2,630 1,967 4,198 2,745 8,538 12,996 3,898
------- ------ ------- ------- ------- ------- -------
Operating income (loss)....................... 3,092 1,272 12,078 (24) 5,098 8,451 2,603
Other (income)/expense
Interest expense, net........................ 2,089 288 789 2,489 2,227 3,433 --
Other (income)/expense, net.................. 205 (17) (297) (15) -- 33 (55)
------- ------ ------- ------- ------- ------- -------
Total other (income)/expense............ 2,294 271 492 2,474 2,227 3,466 (55)
------- ------ ------- ------- ------- ------- -------
Income before provision for income taxes...... 798 1,001 11,586 (2,498) 2,871 4,985 2,658
Provision for income taxes................... 345 432 5,005 (1,079) 1,240 2,153 1,148
------- ------ ------- ------- ------- ------- -------
Net income (loss)............................. $ 453 $ 569 $ 6,581 $(1,419) $ 1,631 $ 2,832 $ 1,510
======= ====== ======= ======= ======= ======= =======
Basic net income per share....................
Diluted net income per share..................
<CAPTION>
ACQUISITION PRO FORMA
ADJUSTMENTS COMBINED
----------- ---------
<S> <C> <C>
Revenue:
Equipment rentals............................ $ (963)(a) $331,648
Sale of equipment, merchandise, service,
parts and supplies......................... -- 178,637
-------- --------
Total revenue........................... (963) 510,285
Cost of revenue:
Cost of equipment rentals, excluding
depreciation............................... (7,086)(b) 126,646
(325)(c)
(337)(a)
Rental equipment depreciation................ (21,697)(d) 52,819
3,825(e)
(68)(a)
Cost of sales of equipment, merchandise,
service, parts and supplies................ (5)(a) 124,149
-------- --------
Total cost of revenue................... (25,693) 303,614
-------- --------
Gross profit.................................. 24,730 206,671
Operating expenses:
Selling, general and administrative
expenses................................... (3,672)(f) 86,141
516(g)
(801)(h)
(467)(a)
Non-rental equipment depreciation and
amortization............................... (600)(i) 18,342
9,026(j)
-------- --------
Total operating expenses................ 4,002 104,483
-------- --------
Operating income (loss)....................... 20,728 102,188
Other (income)/expense
Interest expense, net........................ 26,765(k) 62,626
(960)(l)
(39)(a)
Other (income)/expense, net.................. 71(m) (646)
-------- --------
Total other (income)/expense............ 25,837 61,980
-------- --------
Income before provision for income taxes...... (5,109) 40,208
Provision for income taxes................... (2,150)(n) 17,370
-------- --------
Net income (loss)............................. $ (2,959) $ 22,838
======== ========
Basic net income per share.................... $ 0.41
========
Diluted net income per share.................. $ 0.40
========
</TABLE>
PF-4
<PAGE> 63
NATIONSRENT, INC.
NOTES TO PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
1. BASIS OF PRESENTATION
The pro forma consolidated statements of operations for the year ended
December 31, 1998 give effect to each acquisition completed after January 1,
1998 or currently pending and the financing of each such acquisition, as if all
such transactions had occurred on January 1, 1998. The pro forma consolidated
statements of operations also give effect to the Common Stock Offering, the
Private Placement, the Notes Offering and the Founder's Additional
Contributions, as if all such transactions had occurred on January 1, 1998.
The historical financial data presented in the pro forma consolidated
statements of operations represents the historical results of the acquisitions
prior to their acquisition. Results of the acquisitions subsequent to the dates
of their acquisition are included in our historical results from the effective
date of each respective acquisition.
2. PRO FORMA ADJUSTMENTS
a. Represents the elimination of the operations of a division of one of the
acquired businesses not purchased.
b. Represents the elimination of historical operating lease expense on
rental equipment resulting from the buyout of certain leases in connection with
certain of the acquisitions.
c. Represents the elimination of rental equipment that was charged to
expense historically that exceeds our capitalization policy threshold.
d. Represents the elimination of the historical rental equipment
depreciation and the estimate for depreciation assuming the rental fleet
acquired was adjusted to fair market value at the beginning of the period
presented.
e. Represents an increase in rental equipment depreciation expense as a
result of the buyout of operating leases in connection with certain of the
acquisitions.
f. Represents the elimination of historical compensation expense, benefits
and other payments to officers and/or stockholders of certain acquired
businesses, as such officers and/or stockholders were employed at lower
contractual rates after the acquisition of their business. Also represents the
elimination of certain private company business expenses.
g. Represents an adjustment to historical facility lease expense to reflect
the increase in current lease payments in excess of historical amounts.
h. Represents the elimination of historical management fee expense charged
by the parent company of a certain acquired business that will not impact us in
the future.
i. Represents the elimination of expense for the historical depreciation
and amortization, excluding equipment rental depreciation, and the estimate for
depreciation excluding those assets not acquired and assuming the assets
acquired were adjusted to fair market value at the beginning of the period
presented.
PF-5
<PAGE> 64
NATIONSRENT, INC.
NOTES TO PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS -- (CONTINUED)
(UNAUDITED)
j. Represents the estimate of amortization of goodwill and covenants not to
compete as if such acquisitions were consummated at the beginning of the period
presented. We believe 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, we have focused on acquiring well-established companies that have been
in existence for many years.
k. Represents the elimination of historical interest expense and the
addition of interest expense on borrowings under the senior credit facilities
and notes issued to former owners of the acquired businesses to fund the
acquisitions as if the transactions were consummated at the beginning of the
period presented.
l. Represents (1) $5,140,000 of additional interest expense and
amortization of debt issuance costs associated with the Notes Offering and (2)
reductions to interest expense of $4,565,000, $942,000 and $593,000 for the
proceeds from the issuance of common stock in connection with the Common Stock
Offering, the Private Placement and the Founders' Additional Contribution,
respectively.
m. Represents the elimination of income earned on assets not acquired in
connection with certain of the acquisitions.
n. Represents the adjustment to provide for income taxes at our historical
effective tax rate (43.2% in 1998).
o. Pro forma earnings per share is calculated based on the weighted average
shares outstanding for the applicable period, as well as giving effect to the
issuance of common stock in connection with the acquisitions, the Common Stock
Offering, the Private Placement and the conversion to equity of certain
subordinated acquisition debt in the original principal amount of $50,000,000,
as if these shares were outstanding at the beginning of the period presented.
Diluted earnings per share includes an add back of $3,329,000 of interest
expense, net of income taxes, on our convertible subordinated debt.
PF-6
<PAGE> 65
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 Sheets at December 31, 1998 and 1997... F-6
Consolidated Statements of Income for the year ended
December 31, 1998 and the period from August 14, 1997
(inception) to December 31, 1997.......................... F-7
Consolidated Statement of Stockholders' Equity.............. F-8
Consolidated Statements of Cash Flows for the year ended
December 31, 1998 and the period from August 14, 1997
(inception) to December 31, 1997.......................... F-9
Notes to Consolidated Financial Statements.................. F-10
Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts for the
periods ended December 31, 1998 and 1997............... F-27
NATIONSRENT, INC. -- UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998......................................... F-28
Consolidated Statements of Income for the Three Months
Ended March 31, 1999 and 1998............................. F-29
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998............................. F-30
Notes to Consolidated Financial Statements.................. F-31
THE PREDECESSOR COMPANY
GABRIEL TRAILER MANUFACTURING COMPANY, INC. ("SAM'S")
Report of Independent Certified Public Accountants.......... F-35
Consolidated Balance Sheets as of March 31, 1997 and August
31, 1997.................................................. F-36
Consolidated Statements of Income for the year ended March
31, 1997 and the period from
April 1, 1997 to August 31, 1997.......................... F-37
Consolidated Statements of Stockholders' Equity for the year
ended March 31, 1997 and the period from April 1, 1997 to
August 31, 1997........................................... F-38
Consolidated Statements of Cash Flows for the year ended
March 31, 1997 and the period from April 1, 1997 to August
31, 1997.................................................. F-39
Notes to Consolidated Financial Statements.................. F-40
THE BODE-FINN COMPANY
Report of Independent Certified Public Accountants........ F-45
Balance Sheets as of December 31, 1996 and 1997 and March
31, 1998 (unaudited)................................... F-46
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-47
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-48
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-49
Notes to Financial Statements............................. F-50
</TABLE>
F-1
<PAGE> 66
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
RFL ENTERPRISES, INC.
Report of Independent Certified Public Accountants........ F-57
Balance Sheets as of December 31, 1997 and March 31, 1998
(unaudited)............................................ F-58
Statements of Income for the year ended December 31, 1997
and for the three month periods ended March 31, 1997
and 1998 (unaudited)................................... F-59
Statements of Stockholder's Equity for the year ended
December 31, 1997 and for the three month period ended
March 31, 1998 (unaudited)............................. F-60
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-61
Notes to Financial Statements............................. F-62
NAPLES RENT-ALL & SALES COMPANY, INC.
Report of Independent Certified Public Accountants........ F-66
Balance Sheets as of December 31, 1997 and March 31, 1998
(unaudited)............................................ F-67
Statements of Income for the year ended December 31, 1997
and for the three month periods ended March 31, 1997
and 1998 (unaudited)................................... F-68
Statements of Stockholder's Equity for the year ended
December 31, 1997 and for the three month period ended
March 31, 1998 (unaudited)............................. F-69
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-70
Notes to Financial Statements............................. F-71
RAYMOND EQUIPMENT COMPANY, INC. ("JOBS")
Report of Independent Certified Public Accountants........ F-76
Balance Sheets as of June 30, 1996 and 1997 and March 31,
1998 (unaudited)....................................... F-77
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-78
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-79
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-80
Notes to Financial Statements............................. F-81
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS OF
GENERAL RENTAL, INC.
Report of Independent Certified Public Accountants........ F-86
Division Balance Sheets as of December 31, 1997 and June
30, 1998 (unaudited)................................... F-87
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-88
Statements of Division Equity for the year ended December
31, 1997 and for the six month period ended June 30,
1998 (unaudited)....................................... F-89
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-90
Notes to Division Financial Statements.................... F-91
</TABLE>
F-2
<PAGE> 67
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
ASSOCIATED RENTAL EQUIPMENT MANAGEMENT COMPANY, INC.
Report of Independent Certified Public Accountants........ F-97
Balance Sheets as of December 31, 1996 and 1997 and June
30, 1998 (unaudited)................................... F-98
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-99
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-100
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-101
Notes to Financial Statements............................. F-102
REVCO EQUIPMENT RENTALS, INC.
Report of Independent Certified Public Accountants........ F-110
Balance Sheets as of December 31, 1997 and March 31, 1998
(unaudited)............................................ F-111
Statements of Income for the year ended December 31, 1997
and for the three month periods ended March 31, 1997
and 1998 (unaudited)................................... F-112
Statements of Stockholders' Equity for the year ended
December 31, 1997 and for the three month period ended
March 31, 1998 (unaudited)............................. F-113
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-114
Notes to Financial Statements............................. F-115
HIGH REACH COMPANY, INC. AND HIGH REACH LEASING COMPANY
Report of Independent Certified Public Accountants........ F-119
Combined Balance Sheets as of September 30, 1997 and June
30, 1998 (unaudited)................................... F-120
Combined Statements of Income for the year ended September
30, 1997 and for the nine months ended June 30, 1997
and 1998 (unaudited)................................... F-121
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-122
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-123
Notes to Combined Financial Statements.................... F-124
RELIABLE RENTAL & SUPPLY CO, INC.
Report of Independent Certified Public Accountants........ F-132
Balance Sheets as of December 31, 1997 and June 30, 1998
(unaudited)............................................ F-133
Statements of Income for the year ended December 31, 1997
and for the six month period ended June 30, 1997 and
1998 (unaudited)....................................... F-134
Statements of Stockholders' Equity for the year ended
December 31, 1997 and for the six months ended June 30,
1998 (unaudited)....................................... F-135
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-136
Notes to Financial Statements............................. F-137
</TABLE>
F-3
<PAGE> 68
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
RAY L. O'NEAL, INC. AND ARENCO, LLC
Report of Independent Certified Public Accountants........ F-142
Combined Balance Sheets as of December 31, 1996 and 1997
and September 30, 1998 (unaudited)..................... F-143
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-144
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-145
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-146
Notes to Combined Financial Statements.................... F-148
ACTION EQUIPMENT COMPANY, INC. AND ACTION SUPPLY CO., INC.
Report of Independent Public Accountants.................. F-154
Combined Balance Sheets as of December 31, 1997 and
September 30, 1998 (unaudited)......................... F-155
Combined Statements of Operations for the year ended
December 31, 1997 and for the nine months ended
September 30, 1997 and 1998 (unaudited)................ F-156
Combined Statements of Stockholders' Deficit for the year
ended December 31, 1997 and for the nine months ended
September 30, 1998 (unaudited)......................... F-157
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-158
Notes to Combined Financial Statements.................... F-159
LOGAN EQUIPMENT CORPORATION
Report of Independent Auditors............................ F-167
Balance Sheets as of December 31, 1997 and September 30,
1998 (unaudited)....................................... F-168
Statements of Income for the year ended December 31, 1997
and for the nine months ended September 30, 1997 and
1998 (unaudited)....................................... F-169
Statements of Changes in Stockholders' Equity for the year
ended December 31, 1997 and for the nine months ended
September 30, 1998 (unaudited)......................... F-170
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-171
Notes to Consolidated Financial Statements................ F-172
</TABLE>
F-4
<PAGE> 69
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To NationsRent, Inc.:
We have audited the accompanying consolidated balance sheets of
NationsRent, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of income, stockholders'
equity and cash flows for the year ended December 31, 1998 and for the period
from August 14, 1997 (inception) to December 31, 1997. These financial
statements and the schedule referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule 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 consolidated financial position of NationsRent,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for the year ended December 31, 1998 and for the
period from August 14, 1997 (inception) to December 31, 1997 in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements as a whole. The schedule listed in the index to financial
statements 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
audits of the basic financial statements and, in our opinion, is fairly stated
in all material respects in relation to the basic financial statements taken as
a whole.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
February 19, 1999 (except with respect to
the matter referred to in the
first paragraph of Note 13, as
to which the date is May 20, 1999).
F-5
<PAGE> 70
NATIONSRENT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
---------- -------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 10,597 $ 1,493
Accounts receivable, net of allowance for doubtful accounts
of $4,732 and $587 at December 31, 1998 and 1997,
respectively.............................................. 72,951 5,008
Inventories................................................. 23,147 1,840
Prepaid expenses and other assets........................... 24,451 755
Rental equipment, net....................................... 382,573 30,619
Property and equipment, net................................. 37,839 2,334
Intangible assets related to acquired businesses, net....... 524,254 37,108
---------- -------
Total Assets........................................... $1,075,812 $79,157
========== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.......................................... $ 68,177 $ 3,253
Accrued compensation and related taxes.................... 4,901 328
Accrued expenses and other liabilities.................... 32,970 2,579
Debt...................................................... 678,035 42,928
Income taxes payable...................................... 3,115 1,523
Deferred income taxes..................................... 6,384 2,545
---------- -------
Total liabilities...................................... 793,582 53,156
---------- -------
Commitments and Contingencies (Note 11)
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, 55,618,023 and 25,000,000 shares issued and
outstanding at December 31, 1998 and 1997,
respectively........................................... 556 250
Additional paid-in capital................................ 268,019 24,750
Retained earnings......................................... 13,655 1,001
---------- -------
Total stockholders' equity............................. 282,230 26,001
---------- -------
Total Liabilities and Stockholders' Equity............. $1,075,812 $79,157
========== =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-6
<PAGE> 71
NATIONSRENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FROM
AUGUST 14, 1997
YEAR ENDED (INCEPTION)
DECEMBER 31, THROUGH
1998 DECEMBER 31, 1997
------------ -----------------
<S> <C> <C>
Revenue:
Equipment rentals......................................... $150,668 $ 7,410
Sales of equipment, merchandise, service, parts and
supplies............................................... 85,730 1,895
-------- --------
Total revenue..................................... 236,398 9,305
-------- --------
Cost of revenue:
Cost of equipment rentals, excluding depreciation......... 56,084 2,196
Rental equipment depreciation............................. 24,463 1,526
Cost of sales of equipment, merchandise, service, parts
and supplies........................................... 61,455 1,691
-------- --------
Total cost of revenue............................. 142,002 5,413
-------- --------
Gross profit................................................ 94,396 3,892
Operating expenses:
Selling, general and administrative expenses.............. 44,411 1,081
Non-rental equipment depreciation and amortization........ 7,266 284
-------- --------
Operating income............................................ 42,719 2,527
-------- --------
Other (income)/expense:
Interest expense.......................................... 21,063 760
Interest income........................................... (205) (29)
Other, net................................................ (401) 29
-------- --------
20,457 760
-------- --------
Income before provision for income taxes.................... 22,262 1,767
Provision for income taxes................................ 9,608 766
-------- --------
Net income.................................................. $ 12,654 $ 1,001
======== ========
Net income per share -- basic and diluted................... $ 0.37 $ 0.04
======== ========
Weighted average common shares outstanding:
Basic..................................................... 33,999 25,000
======== ========
Diluted................................................... 38,545 25,007
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-7
<PAGE> 72
NATIONSRENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(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
Additional capital contributions of the
Company's founders...................... -- -- 23,400 -- 23,400
Proceeds from sale of common stock in a
private placement....................... 5,118,694 51 27,549 -- 27,600
Proceeds from sale of common stock, less
issuance cost of $9,605................. 13,000,000 130 94,265 -- 94,395
Issuance of common stock, options and
warrants in connection with
acquisitions............................ 5,542,812 55 48,125 -- 48,180
Conversion of unsecured subordinated
convertible promissory notes............ 6,956,517 70 49,930 -- 50,000
Net income................................. -- -- -- 12,654 12,654
---------- ---- --------- ------- --------
Balance, December 31, 1998................... 55,618,023 $556 $ 268,019 $13,655 $282,230
========== ==== ========= ======= ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
F-8
<PAGE> 73
NATIONSRENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FROM
AUGUST 14, 1997
YEAR ENDED (INCEPTION)
DECEMBER 31, THROUGH
1998 DECEMBER 31, 1997
------------ -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 12,654 $ 1,001
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 32,180 1,810
Gain on sale of rental equipment.......................... (9,530) (59)
Deferred income tax provision............................. 6,709 357
Changes in operating assets and liabilities:
Accounts receivable..................................... (17,485) 334
Inventories............................................. (342) 83
Prepaid expenses and other assets....................... (8,312) (296)
Accounts payable........................................ 43,412 776
Accrued expenses and other liabilities.................. 719 (428)
Income taxes payable.................................... 453 117
--------- --------
Net cash provided by operating activities............... 60,458 3,695
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES, NET OF ACQUISITIONS:
Acquisitions of businesses, net of cash acquired.......... (345,845) (34,137)
Purchases of rental equipment............................. (118,798) (2,461)
Purchases of property and equipment....................... (15,305) (963)
Proceeds from sale of rental equipment.................... 36,602 1,159
Decrease in notes receivable from affiliates.............. -- 1,358
--------- --------
Net cash used in investing activities................... (443,346) (35,044)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 121,995 25,000
Capital contributions..................................... 23,400 --
Proceeds from debt........................................ 909,952 21,917
Payment of debt issuance costs............................ (9,172) --
Repayments of debt........................................ (654,183) (14,075)
--------- --------
Net cash provided by financing activities............... 391,992 32,842
--------- --------
Net increase in cash and cash equivalents................... 9,104 1,493
Cash and cash equivalents, beginning of period.............. 1,493 --
--------- --------
Cash and cash equivalents, end of period.................... $ 10,597 $ 1,493
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 13,737 $ 621
========= ========
Cash paid for income taxes................................ $ 3,033 $ 390
========= ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
The Company acquired the net assets and assumed certain
liabilities of certain businesses as follows:
Fair value of assets acquired, net of cash acquired... $ 875,711 $ 78,629
Total liabilities assumed............................. (331,996) (27,311)
Amounts paid through the issuance of debt and future
cash commitments...................................... (149,690) (17,181)
Amounts paid through the issuance of stock, options and
warrants.............................................. (48,180) --
--------- --------
Net cash paid........................................... $ 345,845 $ 34,137
========= ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-9
<PAGE> 74
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
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, 1998 and 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 by the Company is recorded at cost and
depreciated over the estimated useful life of the equipment using the
straight-line method. The range of useful lives estimated by management for
rental equipment is three to ten years. Rental equipment is depreciated to a
salvage value ranging from zero to ten percent of cost. Rental equipment having
a cost of $500 or less generally has a useful life of less than one year and
therefore is charged to expense at the time of purchase. Accumulated
depreciation on rental equipment was $22,785,000 and $1,526,000 at December 31,
1998 and 1997, respectively. Ordinary maintenance and repair costs are charged
to operations as incurred. Expenditures that extend the useful life or increase
the capacity, efficiency or safety of rental equipment are capitalized.
F-10
<PAGE> 75
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.
Capitalized Interest
Interest cost incurred on capital expenditures for assets constructed by
the Company is capitalized and included in the cost of such assets. Total
interest cost incurred by the Company was $21,146,000 and $760,000 for the year
ended December 31, 1998 and the period from August 14, 1997 (inception) to
December 31, 1997, respectively. Total interest capitalized was $83,000 for the
year ended December 31, 1998. There was no interest capitalized in the period
from August 14, 1997 (inception) to December 31, 1997.
Intangible Assets Related to Acquired Businesses
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 was approximately $5,337,000 and $180,000 at December 31,
1998 and 1997, respectively. Amortization expense of intangible assets was
$5,157,000 and $180,000 for the year ended December 31, 1998 and the period from
August 14, 1997 (inception) to December 31, 1997, respectively.
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 cash and cash equivalents, 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 long-term debt is
determined using current applicable interest rates as of the balance sheet date
and approximates the carrying value of such debt because the underlying
instruments are at variable rates that are repriced frequently. The fair value
of the Senior Subordinated Notes approximates carrying value based on the
Company's estimate of the current market for similar debt.
F-11
<PAGE> 76
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Rental revenue is recognized on a straight-line basis as earned during the
rental contract period. Equipment rentals in the consolidated statements of
income 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 sales of equipment, merchandise, service, parts and supplies and
cost of sales of equipment, merchandise, service, parts and supplies,
respectively, in the statements of income.
Advertising
Advertising costs are charged to expense as incurred. The Company incurred
advertising costs of $2,339,000 and $171,000 for the year ended December 31,
1998 and the period from August 14, 1997 (inception) to December 31, 1997,
respectively.
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. Recognition of
deferred tax assets is limited to amounts considered by management to be more
likely than not of realization in future periods. The Company and its
wholly-owned subsidiaries file a consolidated federal income tax return.
Computation of Earnings Per Share
Earnings per share is calculated in accordance with the requirements of
SFAS No. 128, "Earnings Per Share," as well as 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
In 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
F-12
<PAGE> 77
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Seasonality
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.
Reclassification
Certain amounts presented for the period from August 14, 1997 (inception)
to December 31, 1997 have been reclassified to conform to the 1998 presentation.
Impact of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income." 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 No. 130 did not impact the
Company's consolidated financial statements, as comprehensive income was equal
to net income for all periods presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." The Company adopted SFAS No. 131 during
the quarter ended December 31, 1998. SFAS No. 131 superseded SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS No. 131
establishes a new method by which companies will report operating segment
information. This method is based on the manner in which management organizes
the segments within a company for making operating decisions and assessing
performance. SFAS No. 131 also establishes standards for related disclosures
about products and services, geographic areas and major customers. The adoption
of SFAS No. 131 did not affect the Company's consolidated financial position,
results of operations or financial statement disclosures, as the Company
operates only one business segment.
F-13
<PAGE> 78
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In March 1998, 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 will adopt SOP 98-1 prospectively effective
January 1, 1999. 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 SOP 98-5, "Reporting on the Costs of Start-Up Activities." 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. The Company will adopt SOP 98-5 effective January 1,
1999. The Company does not believe that the adoption of SOP 98-5 will have a
material effect on the Company's financial position or results of operations.
2. ACQUISITIONS
The Company is building a nationally branded network of equipment rental
locations. Pursuant to this strategy, the Company made 32 acquisitions of
equipment rental businesses during 1998. The aggregate consideration for these
acquisitions was $545,087,000 and consisted of (i) $347,217,000 of cash, (ii)
$115,821,000 of subordinated convertible debt, (iii) $29,634,000 of subordinated
debt, (iv) $4,235,000 of future contractual cash payments, (v) 5,542,812 shares
of the Company's common stock, $0.01 par value per share ("common stock"), (vi)
options to purchase 196,293 shares of common stock, and (vii) warrants to
purchase 100,000 shares of common stock. The cash portion of the consideration
was funded through borrowings under the Company's credit facility, capital
contributions by the founders of the Company, the proceeds of a private
placement of common stock and the proceeds from the issuance of senior
subordinated notes. The Company repaid or assumed outstanding indebtedness of
the acquired companies in the aggregate amount of $282,318,000. In addition, in
connection with nine of the acquisitions, the Company has agreed to make future
payments up to an aggregate of $39,331,000 in cash, subordinated notes,
subordinated convertible notes and common stock to the former owners based on
the achievement of certain future operating results of the acquired companies or
market performance of the common stock. Such payments may be made at various
times through December 2001. The acquisitions have been accounted for using the
purchase method and, accordingly, the acquired assets and assumed liabilities
have been recorded at their estimated fair values as of the date of acquisition.
Purchase accounting values for certain acquisitions have been assigned on a
preliminary basis, and are subject to adjustment when additional information as
to the fair values of the net assets acquired is available. The Company is
awaiting information from third-party appraisers as to the fair value of certain
rental equipment acquired and the final determination of certain liabilities
assumed. The Company does not believe the final assignment of the fair value of
the net assets acquired will have a significant impact on future operating
results. The operations of the acquired businesses have been included in the
Company's consolidated statements of income since the effective date of each
respective acquisition.
The Company made five acquisitions of equipment rental businesses during
1997. The aggregate consideration for these acquisitions was $51,802,000 and
consisted of (i) $34,621,000 of cash, (ii) $11,090,000 of subordinated
convertible debt and (iii) $6,091,000 of subordinated debt. In
F-14
<PAGE> 79
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
addition, the Company repaid or assumed outstanding indebtedness of the acquired
companies in the aggregate amount of $17,905,000.
The following table sets forth the estimated fair value of the assets
acquired and liabilities assumed for the aforementioned acquisitions:
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 14, 1997
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ---------------
(IN THOUSANDS)
<S> <C> <C>
Assets, including cash...................................... $390,874 $41,193
Goodwill.................................................... 491,067 37,925
Other intangibles........................................... -- 599
Liabilities................................................. 336,854 27,915
</TABLE>
The following table sets forth the unaudited pro forma consolidated results
of operations for the years ended December 31, 1998 and 1997 giving effect to
the aforementioned acquisitions completed during 1998 and 1997 as if such
acquisitions had occurred on January 1, 1997 (in thousands, except per share
data):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
Revenue..................................................... $477,064 $406,493
Net income.................................................. 21,249 12,654
Basic and diluted earnings per share........................ 0.38 0.23
</TABLE>
The above unaudited pro forma consolidated results of operations 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 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,
----------------
1998 1997
------- ------
(IN THOUSANDS)
<S> <C> <C>
Buildings and improvements.................................. $10,530 $ 96
Furniture, fixtures and office equipment.................... 10,691 514
Vehicles, delivery and shop equipment....................... 17,819 906
Construction in progress.................................... 971 923
------- ------
40,011 2,439
Less -- accumulated depreciation and amortization........... (2,172) (105)
------- ------
Property and equipment, net............................... $37,839 $2,334
======= ======
</TABLE>
F-15
<PAGE> 80
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Notes payable to financial institutions:
Term loan................................................. $151,000 $18,500
Revolving credit facility................................. 174,900 1,958
10.375% Senior Subordinated Notes due December 15, 2008 with
interest due semi-annually each June 15 and December 15,
beginning June 15, 1999................................... 175,000 --
Subordinated promissory notes, bearing interest at 6.0% to
8.5%, interest payable quarterly and maturities through
November 2002............................................. 2,923 6,091
Subordinated convertible promissory notes, bearing interest
at 6.0% to 8.5%, interest payable quarterly and maturities
through October 2004...................................... 76,511 11,090
Rental equipment financing obligations, secured by
equipment, payable in monthly installments, through April
2002, capitalized by the Company.......................... 26,038 --
Note payable, with interest at the commercial paper rate
plus 2.05% to 2.25%, payable in monthly installments
through September 2004, secured by equipment.............. 14,375 --
Note payable, with interest at the London Interbank Offered
Rate plus 2.75%, payable in monthly installments through
March 1999, secured by equipment.......................... 32,155 --
Note payable, with interest at 6.63%, payable in quarterly
installments through July 2001............................ 1,566 --
Equipment notes, bearing interest at 6.2% to 9.25%, payable
in various monthly installments through April 2003,
secured by equipment...................................... 23,240 5,144
Other....................................................... 327 145
-------- -------
Total debt........................................ $678,035 $42,928
======== =======
</TABLE>
Notes payable to financial institutions at December 31, 1998 consist of
amounts due under the Company's credit facility (the "Credit Facility") with a
syndicate of lenders to provide for cash borrowings and letters of credit. 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. As of December 31, 1998, the Credit Facility
included a term loan of $151,000,000 (the "Term Loan") and a revolving credit
facility with an aggregate commitment of up to $284,000,000 (the "Revolver").
The Revolver 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. Borrowings under
the Revolver 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%. 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 as measured by the total funded debt ratio. The interest
rate for the Revolver and the Term Loan was 7.9% and 8.5%, respectively, at
December 31, 1998. 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
F-16
<PAGE> 81
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ratio of total funded debt to earnings before interest, income taxes,
depreciation and amortization. The Company had no letters of credit outstanding
under the Credit Facility at December 31, 1998.
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 were repaid during
1998 with proceeds from the Credit Facility.
On December 8, 1998, the Company issued $175,000,000 aggregate principal
amount of 10.375% Senior Subordinated Notes due 2008 (the "Notes") in a private
placement transaction. At any time on or after December 15, 2003, the Notes are
redeemable at the option of the Company at redemption prices ranging from
105.188% of par to 100.000% of par. At any time on or prior to December 15,
2001, at the option of the Company, up to 35% of the Notes are redeemable from
the proceeds of certain equity offerings at a redemption price of 110.375% of
par. The indenture governing the Notes contains covenants restricting additional
indebtedness, certain payments, asset sales, liens, mergers and consolidations
and transactions with affiliates. The Notes are guaranteed, on a senior
subordinated basis, by substantially all of the Company's existing subsidiaries
(the "Subsidiary Guarantors"). Each subsidiary that will be organized in the
future by the Company, unless such subsidiary is designated as an unrestricted
subsidiary, will guarantee the Notes on a senior subordinated basis. The
subsidiary guarantees are joint and several, full and unconditional and general
unsecured obligations of the Subsidiary Guarantors. At present, the Subsidiary
Guarantors comprise all of the direct and indirect wholly-owned subsidiaries of
the Company. The subsidiary guarantees are subordinated in right of payment to
all existing and future senior debt of the Subsidiary Guarantors, including the
Credit Facility, and are also effectively subordinated to all secured
obligations of the Subsidiary Guarantors to the extent of the assets securing
such obligations, including the Credit Facility. Furthermore, the indenture
governing the Notes permits Subsidiary Guarantors to incur additional
indebtedness, including senior debt, subject to certain limitations. The Company
has not presented separate financial statements and other disclosures concerning
each of the Subsidiary Guarantors because management has determined that such
information is not material to investors.
The subordinated promissory notes and the subordinated convertible
promissory notes were issued in connection with the acquisition of certain
businesses. The convertible notes have features that allow the holder to convert
the principal of the note, or portion thereof, into common stock with various
exercise prices between $7.76 and $12.50 per share.
Rental equipment financing obligations consist of leases which meet the
criteria for treatment as capital leases under generally accepted accounting
principles. The total amount of assets recorded under these leases is
$23,149,000 and the accumulated depreciation related to these assets is
$1,468,000 at December 31, 1998. There were no assets recorded under capital
leases at December 31, 1997. Future minimum lease payments under capital leases
at December 31, 1998 total $8,309,000, $9,496,000, $7,466,000 and $3,047,000 for
the years ending December 31, 1999, 2000, 2001 and 2002, respectively. There are
no payments under capital leases subsequent to the year
F-17
<PAGE> 82
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ending December 31, 2002. The amount representing interest relating to these
lease payments is $2,280,000. Amortization relating to these assets is included
in rental equipment depreciation.
The aggregate maturities of debt, including the principal portion of rental
equipment financing obligations, is $55,482,000, $27,842,000, $188,829,000,
$20,596,000 and $53,335,000 for the five years ending December 31, 1999, 2000,
2001, 2002 and 2003, respectively, and $331,951,000 for 2004 and thereafter. The
amortization of deferred financing and debt issuance costs were $451,000 and
$3,000 for the year ended December 31, 1998 and the period from August 14, 1997
(inception) to December 31, 1997, respectively.
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, 1998. 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,
could have dividend and liquidation preferences over those of the common
stockholders.
Common stock
During 1998, the founding stockholders of the Company made additional
capital contributions in the aggregate amount 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 approximately $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 $94,395,000 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.
In December 1998, the Company converted $50,000,000 of unsecured
subordinated convertible promissory notes issued in connection with the
acquisition of Ray L. O'Neal, Inc. and Arenco, L.L.C. (collectively "A-1
Rentals") into 6,956,517 shares of common stock at a price of $7.1875 per share.
F-18
<PAGE> 83
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
The components of the provision for federal and state income taxes are
summarized as follows:
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 14, 1997
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ---------------
(IN THOUSANDS)
<S> <C> <C>
Current................................................... $2,899 $409
Deferred.................................................. 6,709 357
------ ----
$9,608 $766
====== ====
Federal................................................... $8,087 $602
State..................................................... 1,521 164
------ ----
$9,608 $766
====== ====
</TABLE>
A reconciliation of the statutory federal income tax rate to the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 14, 1997
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ---------------
<S> <C> <C>
Federal statutory income tax rate......................... 35.0% 34.0%
Add:
Non-deductible goodwill amortization.................... 3.0 3.0
State income taxes, net of federal tax benefit.......... 4.4 6.1
Other, net.............................................. 0.8 0.3
---- -----
43.2% 43.4%
==== =====
</TABLE>
Deferred income taxes reflect the tax effects of temporary differences
between the carrying value of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accrued liabilities and other reserves.................... $ 3,292 $ 761
Bad debt provision not currently deductible............... 1,300 233
Net operating loss carryforwards.......................... 9,071 --
Alternative minimum tax and other credits................. 3,578 --
Valuation allowance....................................... (4,689) --
-------- -------
12,552 994
-------- -------
Deferred tax liabilities:
Depreciation and amortization............................. (18,492) (2,766)
Other..................................................... (444) (773)
-------- -------
(18,936) (3,539)
-------- -------
Net deferred income tax liabilities....................... $ (6,384) $(2,545)
======== =======
</TABLE>
F-19
<PAGE> 84
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998, the Company had net operating loss carryforwards for
federal and state income tax purposes of $23,259,000, of which $9,424,000 relate
to certain of the Company's acquisitions, that expire in the years 2006 through
2018. The acquired separate company net operating loss carryforwards are subject
to restrictions in accordance with Internal Revenue Code Section 382, and the
ultimate utilization of the net operating loss carryforwards is further limited
based upon the future profitability of the acquired entities. For financial
reporting purposes, a valuation allowance of $3,675,000 has been recognized to
offset the deferred tax asset related to the net operating loss carryforwards
obtained in connection with these acquisitions.
At December 31, 1998, the Company had alternative minimum tax credit and
general business credit carryforwards of $3,578,000, of which $1,014,000 relate
to certain of the Company's acquisitions, for federal income tax purposes that
are available to offset future regular income tax that is in excess of the
alternative minimum tax in such year. Limitations similar to those restricting
the use of acquired company net operating loss carryforwards also restrict the
use of acquired company tax credit carryforwards. For financial reporting
purposes, a valuation allowance of $1,014,000 has been recognized to offset the
deferred tax asset related to the tax credit carryforwards obtained in
connection with these acquisitions.
In connection with certain acquisitions, $796,000 of net deferred tax
liabilities that were assumed by the Company in the year ended December 31, 1998
and the period from August 14, 1997 (inception) to December 31, 1997 still exist
at December 31, 1998.
The valuation allowance for deferred tax assets is $4,689,000 at December
31, 1998. There was no valuation allowance recorded at December 31, 1997. The
valuation allowance for the current year is due to purchase accounting
adjustments for certain acquisitions recorded in 1998. The increase in the
valuation allowance reduced the net deferred tax assets recorded from these
acquisitions. In the event the valuation allowance is not required, a reduction
to goodwill will occur in accordance with SFAS No. 109.
F-20
<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
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ---------------
<S> <C> <C>
Numerator:
Net income............................................... $12,654 $ 1,001
Interest expense on convertible subordinated debt, net of
income taxes.......................................... 1,416 --
------- -------
Numerator -- diluted earnings per share.................. $14,070 $ 1,001
======= =======
Denominator:
Denominator for basic earnings per
share -- weighted-average shares...................... 33,999 25,000
Effect of dilutive securities:
Convertible subordinated debt......................... 4,381 --
Employee stock options................................ 165 7
------- -------
Denominator for diluted earnings per share -- adjusted
weighted-average shares............................... 38,545 25,007
======= =======
Basic and diluted earnings per share....................... $ 0.37 $ 0.04
======= =======
</TABLE>
Options and warrants to purchase 1,898,440 and 113,752 shares of common
stock were outstanding at December 31, 1998 and December 31, 1997, respectively,
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.
8. STOCK OPTIONS
In August, 1998, the Board of Directors and stockholders of the Company
approved the NationsRent 1998 Stock Option Plan (the "1998 Plan"), which
authorized the grant of options to directors (employee and non-employee) and
employees of the Company for up to 5,000,000 shares of common stock. In
addition, the Company has granted to certain employees 1,087,571 of options to
purchase shares of common stock prior to the adoption of the 1998 Plan (the
"Pre-Plan Options"). The exercise price per share for all options granted was
based on the estimated fair value of the Company's common stock at the time of
the grant. As such, no compensation cost has been recognized for these stock
options. During 1998, a total of 3,496,671 stock options were granted with
exercise prices ranging from $4.40 to $8.00 per share.
In connection with the acquisition of Logan Equipment Corporation
("Logan"), the Company assumed outstanding options to purchase shares of stock
in Logan, which were granted under the Logan 1998 Stock Option Plan, and
converted them into options to purchase 196,293 shares of common stock with
exercise prices of $0.86 per share. See Note 2.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, "Accounting for Stock Based Compensation", as if the
Company had accounted for its
F-21
<PAGE> 86
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
granted employee stock options under the fair value method of that Statement.
The Company's pro forma net income, pro forma earnings per share and pro forma
weighted average fair value of options granted (with related assumptions) would
have been as follows:
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 14, 1997
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1998 1997
------------ ---------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
Pro forma net income.................................... $9,562 $ 978
Pro forma net income per share, basic and diluted....... $0.28 $ 0.04
Pro forma weighted average fair value of
options granted....................................... $5.03 $ 2.86
Expected life (years)................................... 6 7
Risk-free interest rate................................. 5.47% 6.00%
Expected volatility..................................... 78.15% 75.00%
Dividend yield.......................................... 0.00% 0.00%
</TABLE>
As of December 31, 1998, a total of 6,188,862 shares of common stock have
been reserved for issuance of options to purchase shares of common stock with
2,320,873 remaining available for grant. A summary of the Company's outstanding
stock option activity, and related information, for the year ended December 31,
1998 and the period from August 14, 1997 (inception) to December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
WEIGHTED
OPTIONS AVERAGE
OUTSTANDING EXERCISE PRICE
----------- --------------
<S> <C> <C>
Balance at August 14, 1997.................................. -- $ --
Granted................................................... 282,527 3.54
Canceled.................................................. -- --
Exercised................................................. -- --
--------- -----
Balance at December 31, 1997................................ 282,527 3.54
Granted................................................... 3,692,964 6.77
Canceled.................................................. (107,502) 6.11
Exercised................................................. -- --
--------- -----
Balance at December 31, 1998................................ 3,867,989 $6.55
========= =====
</TABLE>
The weighted-average fair market value of options whose exercise price
equals and exceeds the market price of the stock on the grant date is $5.10 and
$0.68 for the period ended December 31, 1998.
Generally, options granted have ten year terms and vest in equal increments
over a three or four year period commencing on the first anniversary of date of
the grant, except for options granted to non-employee directors of the Company
which are fully exercisable at the time of grant. At December 31, 1998, 200,000
options had been granted to non-employee directors of the Company. Options
granted under the 1998 Plan and Pre-Plan Options expire upon termination of
employment
F-22
<PAGE> 87
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
or service on the board. The following table summarizes information concerning
outstanding and exercisable options as of December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
--------------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 0.86 - 5.75 791,977 9.31 $3.60 70,632 $3.54
5.77 - 7.00 1,277,572 9.46 6.34 -- --
8.00 - 8.00 1,798,440 9.59 8.00 200,000 8.00
--------- -------
3,867,989 9.49 6.55 270,632 6.84
========= =======
</TABLE>
9. RELATED PARTY TRANSACTIONS
The Company leases certain properties from TTG Properties, a general
partnership controlled by one of the directors of the Company. Rental expense
for such properties totaled $511,000 and $160,000 for the year ended December
31, 1998 and the period from August 14, 1997 (inception) to December 31, 1997,
respectively.
The Company leases certain office space from Florida Panthers Holdings,
Inc. ("Panthers Holdings"). Lease payments for such space totaled $313,000 for
the year ended December 31, 1998. In addition, the Company leases certain other
facilities and related services from the Arena Operating Company, which is
controlled by Panthers Holdings, with lease payments totaling $125,000 for the
year ended December 31, 1998. There were no lease payments made to Panthers
Holdings or the Arena Operating Company in the period from August 14, 1997
(inception) to December 31, 1997. Two of the Company's directors serve as
directors of Panthers Holdings, one of which controls a majority of the voting
interests of Panthers Holdings.
The Company has purchased certain building construction services from
Alvada Construction, Inc ("Alvada"), which totaled $1,162,000 for the year ended
December 31, 1998. There were no payments made to Alvada in the period from
August 14, 1997 (inception) to December 31, 1997. The principal shareholder of
Alvada is directly related to a certain officer and director of the Company.
The Company leases certain facilities and related services from South
Florida Stadium Corporation at Pro Player Stadium which is owned by one of the
Company's directors. Lease payments for such facilities totaled $212,000 for the
year ended December 31, 1998. There were no lease payments made to South Florida
Stadium Corporation in the period from August 14, 1997 (inception) to December
31, 1997.
In connection with the acquisition of A-1 Rentals, the Company issued
subordinated debt to and leases certain facilities from a previous owner who
became an officer of the Company. Interest payments on such subordinated debt
totaled $157,000 and lease payments for such facilities totaled $325,000 for the
year ended December 31, 1998.
In connection with the acquisition of Sam's Equipment Rental, Inc. and
Gabriel Trailer Manufacturing Company, Inc., the Company issued subordinated
debt to a previous owner who became a director of the Company. Interest payments
related to this debt totaled $336,000 and
F-23
<PAGE> 88
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$115,000 for the year ended December 31, 1998 and the period from August 14,
1997 (inception) to December 31, 1997, respectively.
In May 1998, the Company received an unsecured subordinated loan in the
amount of $17,400,000 from Huizenga Investments Limited Partnership, an entity
controlled by a director of the Company. This loan represented bridge financing
to complete certain acquisitions until the Company's founders could fund the
final portion of their original capital commitments. The principal amount of the
loan was repaid in June 1998 from an additional equity contribution from the
Company's founders. Interest expense related to this loan was $124,000 for the
year ended December 31, 1998.
10. RETIREMENT PLAN
In November 1998, the Company adopted the NationsRent 401(k) Retirement
Plan (the "Plan") which allows its eligible employees to make contributions, up
to a certain limit, to the Plan on a tax-deferred basis under Section 401(k) of
the Internal Revenue Code of 1986, as amended. Eligible employees are those who
are expected to complete 1,000 hours of service in each calendar year, are over
twenty-one years of age and have 60 days of service with the Company. The
Company may, at its discretion, make matching contributions to the Plan out of
its profits for the plan year. The Company made matching contributions of
$33,000 to the Plan for the year ended December 31, 1998.
11. 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 at December 31, 1998 total $35,664,000, $35,596,000, $34,876,000,
$35,554,000 and $16,926,000 for the years ending December 31, 1999, 2000, 2001,
2002 and 2003, respectively and $20,874,000 thereafter. Rent expense under
noncancelable operating leases was $5,681,000 and $410,000 for the year ended
December 31, 1998 and the period from August 14, 1997 (inception) to December
31, 1997.
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 adequate legal defenses
and/or adequate indemnification or insurance coverage for such matters. If not
insured, management believes that 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
operator 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 and prior to leasing any new facilities, the Company
performs extensive
F-24
<PAGE> 89
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
environmental analysis on the sites to be operated by the Company. Any required
remediation has typically been the responsibility of the prior owner or
landlord. 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.
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables set forth the Company's condensed consolidated
statements of income by quarter for the year ended December 31, 1998 and the
period from August 14, 1997 (inception) to December 31, 1997.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1998
Revenue........................................... $9,039 $35,359 $68,330 $123,670
Gross profit...................................... 3,049 12,268 30,571 48,508
Operating income.................................. 845 4,554 15,271 22,049
Net income........................................ $ 93 $ 1,200 $ 5,561 $ 5,800
====== ======= ======= ========
Basic net income per share........................ $ 0.00 $ 0.04 $ 0.15 $ 0.13
====== ======= ======= ========
Diluted net income per share...................... $ 0.00 $ 0.04 $ 0.14 $ 0.12
====== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
FROM
AUGUST 14, 1997
(INCEPTION)
THROUGH FOURTH
SEPTEMBER 30, 1997 QUARTER
------------------ -------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C>
1997
Revenue..................................................... $2,841 $6,464
Gross profit................................................ 1,860 2,032
Operating income............................................ 1,510 1,017
Net income.................................................. $ 806 $ 195
====== ======
Basic and diluted net income per share...................... $ 0.03 $ 0.01
====== ======
</TABLE>
13. SUBSEQUENT EVENTS
On January 20, 1999, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Rental Service Corporation ("RSC"), a
Delaware corporation, pursuant to which the Company was to be merged with and
into RSC with RSC continuing as the surviving corporation to be named RSC
NationsRent. On May 20, 1999, the Company entered into a Termination and Release
Agreement (the "Termination Agreement"), with RSC, pursuant to which the Company
and RSC have mutually agreed to terminate the Merger Agreement and to abandon
the proposed merger between the parties. As part of the Termination Agreement,
RSC paid the Company $6,000,000 as reimbursement of out-of-pocket costs and
expenses incurred in connection with or relating to the Merger Agreement and the
Termination Agreement and the performance of
F-25
<PAGE> 90
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Company's obligations thereunder through May 20, 1999. The Company expects
to record a charge to earnings in the second quarter of 1999 related to expenses
incurred in connection with the Merger Agreement, which will be partially offset
by the $6,000,000 payment received from RSC.
In February 1999, the Company amended its Credit Facility to increase the
total aggregate commitment to $500,000,000. At that time the Term Loan was
increased to $180,000,000 and the aggregate commitment under the Revolver was
increased to $320,000,000.
In February 1999, the Company completed an exchange offer to replace its
privately issued Notes with publicly registered notes.
F-26
<PAGE> 91
NATIONSRENT, INC.
VALUATION AND QUALIFYING ACCOUNT AND RESERVES
SCHEDULE II
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO ACCOUNTS BALANCE AT
BEGINNING COSTS AND WRITTEN END
DESCRIPTIONS OF PERIOD EXPENSES OFF OTHER(B) OF YEAR
- ------------ ---------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Period ended December 31, 1998
Allowance for Doubtful Accounts.............. $587 $1,436 $(1,784) $4,493 $4,732
Period ended December 31, 1997
Allowance for Doubtful Accounts.............. --(a) -- (40) 627 587
</TABLE>
- ---------------
(a) August 14, 1997 (Inception)
(b) Represents allowance for doubtful accounts of acquired companies.
F-27
<PAGE> 92
NATIONSRENT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 3,981 $ 10,597
Accounts receivable, net.................................... 67,973 72,951
Inventories................................................. 25,044 23,147
Prepaid expenses and other assets........................... 27,678 24,451
Rental equipment, net....................................... 404,832 382,573
Property and equipment, net................................. 44,503 37,839
Intangible assets related to acquired businesses, net....... 523,329 524,254
---------- ----------
Total Assets...................................... $1,097,340 $1,075,812
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.......................................... $ 50,832 $ 68,177
Accrued compensation and related taxes.................... 3,675 4,901
Accrued expenses and other liabilities.................... 30,862 32,970
Debt...................................................... 715,204 678,035
Income taxes payable...................................... 610 3,115
Deferred income taxes..................................... 8,610 6,384
---------- ----------
Total liabilities................................. 809,793 793,582
---------- ----------
Commitments and Contingencies (Note 2)
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, 55,759,496 shares and 55,618,023 shares
issued and outstanding at March 31, 1999 and December
31, 1998, respectively................................. 558 556
Additional paid-in capital................................ 269,017 268,019
Retained earnings......................................... 17,972 13,655
---------- ----------
Total stockholders' equity........................ 287,547 282,230
---------- ----------
Total Liabilities and Stockholders' Equity........ $1,097,340 $1,075,812
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-28
<PAGE> 93
NATIONSRENT, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
----------------
1999 1998
------- ------
<S> <C> <C>
Revenue:
Equipment rentals......................................... $75,100 $5,911
Sales of equipment, merchandise, service, parts and
supplies............................................... 27,215 3,128
------- ------
Total revenue..................................... 102,315 9,039
------- ------
Cost of revenue:
Cost of equipment rentals, excluding depreciation......... 29,312 2,661
Rental equipment depreciation............................. 11,625 1,076
Cost of sales of equipment, merchandise, service, parts
and supplies........................................... 18,166 2,252
------- ------
Total cost of revenue............................. 59,103 5,989
------- ------
Gross profit................................................ 43,212 3,050
Operating expenses:
Selling, general and administrative expenses.............. 19,007 1,758
Non-rental equipment depreciation and amortization........ 4,565 447
------- ------
Operating income............................................ 19,640 845
------- ------
Other (income)/expense:
Interest expense.......................................... 14,446 808
Other, net................................................ (2,185) (123)
------- ------
12,261 685
------- ------
Income before provision for income taxes.................... 7,379 160
Provision for income taxes................................ 3,062 67
------- ------
Net income.................................................. $ 4,317 $ 93
======= ======
Net income per share -- basic and diluted................... $ 0.08 $ 0.00
======= ======
Weighted average common shares outstanding:
Basic..................................................... 55,706 25,000
======= ======
Diluted................................................... 64,776 25,069
======= ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE> 94
NATIONSRENT, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 4,317 $ 93
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization............................. 16,574 1,523
Gain on sale of rental equipment.......................... (3,765) (200)
Gain on sale of lift truck dealership..................... (1,818) --
Deferred income tax provision............................. 2,664 420
Changes in operating assets and liabilities:
Accounts receivable............................... (634) 904
Inventories....................................... (6,516) 262
Prepaid expenses and other assets................. (569) (1,411)
Accounts payable.................................. (15,520) 7,547
Accrued expenses and other liabilities............ (4,870) 349
Income taxes payable.............................. (2,584) (848)
-------- --------
Net cash (used in) provided by operating
activities....................................... (12,721) 8,639
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business, net of cash acquired.......... (2,216) (5,221)
Payment of contingent acquisition consideration........ (500) --
Deferred in-process merger costs....................... (2,256) --
Proceeds from sale of lift truck dealership............ 23,229 --
Purchases of rental equipment.......................... (49,760) (19,584)
Purchases of property and equipment.................... (10,633) (1,113)
Proceeds from sale of rental equipment................. 12,596 1,255
-------- --------
Net cash used in investing activities............. (29,540) (24,663)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contribution................................... -- 6,000
Proceeds from debt..................................... 73,240 31,638
Repayments of debt..................................... (36,171) (22,457)
Debt issuance costs.................................... (1,424) --
-------- --------
Net cash provided by financing activities......... 35,645 15,181
-------- --------
Net decrease in cash and cash equivalents................... (6,616) (843)
Cash and cash equivalents, beginning of period.............. 10,597 1,493
-------- --------
Cash and cash equivalents, end of period.................... $ 3,981 $ 650
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 12,400 $ 551
======== ========
Cash paid for income taxes................................ $ 3,825 $ 604
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
The Company acquired the net assets and assumed certain
liabilities of a certain business as follows:
Total assets, net of cash acquired..................... $ 2,922 $ 6,099
Total liabilities assumed.............................. (106) (878)
Amount paid through the issuance of debt.................. (600) --
-------- --------
Net cash paid............................................. $ 2,216 $ 5,221
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE> 95
NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
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 months ended March
31, 1999 and 1998, 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, 1998
appearing in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission. The results of operations for the three months ended
March 31, 1999 are not necessarily indicative of the results which may be
reported for the year ending December 31, 1999.
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 March 1998, 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 adopted SOP 98-1 prospectively effective January
1, 1999. The adoption of SOP 98-1 did not 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 SOP 98-5, "Reporting on the Costs of Start-Up Activities." 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. The Company adopted SOP 98-5 effective January 1,
1999. The adoption of SOP 98-5 did not have a material effect on the Company's
financial position or results of operations.
NOTE 2 -- ACQUISITIONS AND PENDING MERGER
The Company made one acquisition of an equipment rental business during the
three months ended March 31, 1999. The aggregate consideration for this
acquisition was $2,922,000 and consisted of (i) $2,322,000 of cash and (ii)
$600,000 of subordinated convertible debt. The cash portion of the consideration
was funded through borrowings under the Company's revolving credit facility (the
"Credit Facility"). This acquisition has been accounted for using the purchase
method and, accordingly, the acquired assets and assumed liabilities, including
goodwill, have been recorded at
F-31
<PAGE> 96
NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
their estimated fair values as of the date of acquisition. Purchase accounting
values for this acquisition 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 Company is awaiting information from
third-party appraisers as to the fair value of certain rental equipment acquired
and the final determination of certain liabilities assumed. The Company does not
believe the final assignment of the fair value of the net assets acquired will
have a significant impact on future operating results. The operations of the
acquired business have been included in the Company's consolidated statements of
income since the date of acquisition.
The following table sets forth the estimated fair value of the assets
acquired and liabilities assumed for the aforementioned acquisition (in
thousands):
<TABLE>
<S> <C>
Assets, including cash...................................... $ 773
Goodwill.................................................... 2,255
Liabilities................................................. 106
</TABLE>
The following table sets forth the unaudited pro forma consolidated results
of operations for the three months ended March 31, 1999 and 1998 giving effect
to the acquisitions completed during 1999 and 1998 as if the acquisitions had
occurred on January 1, 1998 (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
-------- -------
<S> <C> <C>
Revenue................................................... $102,452 $96,951
Net income................................................ 4,232 1,731
Basic and diluted earnings per share...................... 0.08 0.03
</TABLE>
The above unaudited pro forma consolidated results of operations 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 acquisitions been consummated on January 1, 1998, nor are they
necessarily indicative of results which will be reported in the future.
During the three months ended March 31, 1999, the Company paid
consideration of $500,000 of cash and 78,973 shares of common stock to the
former owners of a previous acquisition related to the achievement of certain
operating results. The Company's records amounts paid for contingent payments as
additional purchase price once they are incurred since the payments are required
regardless of the former owners continued association with the Company.
On January 20, 1999, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Rental Service Corporation ("RSC"), a
Delaware corporation pursuant to which the Company was to be merged with and
into RSC with RSC continuing as the surviving corporation to be named RSC
NationsRent. On May 20, 1999, the Company entered into a Termination and Release
Agreement (the "Termination Agreement"), with RSC, pursuant to which the Company
and RSC have mutually agreed to terminate the Merger Agreement and to abandon
the proposed merger between the parties. As part of the Termination Agreement,
RSC paid the Company $6,000,000 as reimbursement of out-of-pocket costs and
expenses incurred in connection with or relating to the Merger Agreement and the
Termination Agreement and the performance of the Company's obligations
thereunder through May 20, 1999.
F-32
<PAGE> 97
NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company expects to record a charge to earnings in the second quarter of
1999 related to expenses incurred in connection with the Merger Agreement, which
will be partially offset by the $6,000,000 payment received from RSC.
On April 5, 1999, United Rentals, Inc. and UR Acquisition Corporation
commenced a tender offer for all the issued and outstanding shares of RSC's
common stock, at a price of $22.75 per share in cash. As a result of such tender
offer, the Company has become involved in certain litigation. See "PART
II -- OTHER INFORMATION -- Item. 1 -- LEGAL PROCEEDINGS."
NOTE 3 -- SEASONALITY
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.
NOTE 4 -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
----------------
1999 1998
------ -------
<S> <C> <C>
Numerator:
Numerator for basic earnings per share -- net income...... $4,317 $ 93
Interest expense on convertible subordinated debt, net of
income taxes........................................... 736 --
------ -------
Numerator -- diluted earnings per share................... $5,053 $ 93
====== =======
Denominator:
Denominator for basic earnings per
share -- weighted-average shares....................... 55,706 25,000
Effect of dilutive securities:
Convertible subordinated debt.......................... 8,773 --
Employee stock options................................. 297 69
------ -------
Denominator for diluted earnings per share -- adjusted
weighted-average shares................................... 64,776 25,069
====== =======
Basic and diluted earnings per share........................ $ 0.08 $ 0.00
====== =======
</TABLE>
F-33
<PAGE> 98
NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- DEBT
In February 1999, the Company amended its Credit Facility to increase the
total aggregate commitment to $500,000,000. At that time the term loan (the
"Term Loan") was increased to $180,000,000 and the aggregate commitment under
the revolving credit facility (the "Revolver") was increased to $320,000,000.
The Revolver 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. Borrowings under
the Revolver 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%. 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 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.
In February 1999, the Company completed an exchange offer to replace its
privately issued 10.375% Senior Subordinated Notes due 2008 with publicly
registered notes.
NOTE 6 -- NON-RECURRING GAIN
In January of 1999, the Company received net proceeds of $23,229,000
related to the sale of a lift truck dealership acquired as part of an
acquisition made in April 1998. The carrying value of the tangible assets sold
was $15,118,000 resulting in proceeds in excess of carrying value of $8,111,000.
The Company recorded a pre-tax gain of $1,818,000 based on the increase in value
of the dealership since the date of acquisition. The remaining $6,293,000 of
proceeds in excess of carrying value was recorded as a reduction of goodwill.
The Company continues to evaluate the carrying value of its goodwill for
impairment in accordance with SFAS 121.
NOTE 7 -- COMPREHENSIVE INCOME
The objective of reporting comprehensive income is to disclose all changes
in equity of an enterprise that result from transactions and other economic
events in a period other than transactions with owners. The comprehensive income
of the Company was equal to net income for all periods presented.
NOTE 8 -- SUBSEQUENT EVENTS
The Company has completed two acquisitions of rental equipment businesses
since March 31, 1999 for aggregate consideration of $12,549,000. Such
consideration consisted of an aggregate (i) $7,974,000 of cash and (ii)
$4,575,000 of subordinated convertible debt. The cash portion of the
consideration was funded through borrowings under the Credit Facility. In
addition, the Company repaid or assumed outstanding indebtedness of the acquired
companies in the aggregate amount of $1,466,000. Each of the acquisitions has
been accounted for using the purchase method.
F-34
<PAGE> 99
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 year ended March 31, 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 year ended March 31,
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-35
<PAGE> 100
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-36
<PAGE> 101
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
APRIL 1, 1997
FOR THE YEAR ENDED TO
MARCH 31, 1997 AUGUST 31, 1997
------------------ ---------------
<S> <C> <C>
REVENUE:
Equipment rentals........................................ $15,327,802 $8,514,810
Sales of equipment, parts and supplies................... 4,177,194 1,204,708
----------- ----------
19,504,996 9,719,518
COST OF REVENUE:
Cost of equipment rentals, excluding depreciation........ 6,029,585 2,192,790
Rental equipment depreciation............................ 3,465,293 1,847,567
Cost of sales of equipment, parts and supplies........... 2,790,666 984,147
----------- ----------
12,285,544 5,024,504
----------- ----------
Gross profit..................................... 7,219,452 4,695,014
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............... 3,563,930 1,683,311
NONRENTAL DEPRECIATION..................................... 237,905 114,993
----------- ----------
Operating income................................. 3,417,617 2,896,710
----------- ----------
OTHER INCOME (EXPENSE):
Interest expense......................................... (866,284) (580,107)
Interest income.......................................... 15,941 15,710
Other, net............................................... 187,044 (77,597)
----------- ----------
Total other income (expense), net................ (663,299) (641,994)
----------- ----------
Income before provision for income taxes......... 2,754,318 2,254,716
PROVISION FOR INCOME TAXES................................. 1,127,416 938,790
----------- ----------
NET INCOME................................................. $ 1,626,902 $1,315,926
=========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-37
<PAGE> 102
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, 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-38
<PAGE> 103
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
APRIL 1, 1997
FOR THE YEAR ENDED TO AUGUST 31,
MARCH 31, 1997 1997
------------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 1,626,902 $ 1,315,926
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation........................................... 3,703,200 1,962,560
(Gain) loss on sale of assets.......................... (68,548) 84,020
Deferred income taxes.................................. 809,283 1,006,893
Changes in operating assets and liabilities:
Accounts receivable.................................. (688,006) (1,291,073)
Inventories.......................................... (187,075) (44,580)
Other assets......................................... 8,601 (93,296)
Accounts payable..................................... 777,122 (1,316,640)
Accrued expenses and other liabilities............... 503,630 92,434
Income taxes payable................................. 318,133 (68,103)
------------------ -----------
Net cash provided by operating activities......... 6,803,242 1,648,141
------------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (516,029) (63,792)
Proceeds from sale of property and equipment.............. 17,560 8,733
Purchases of rental equipment............................. (8,101,137) (1,775,155)
Proceeds from sale of rental equipment.................... 1,326,510 136,685
------------------ -----------
Net cash used in investing activities............. (7,273,096) (1,693,529)
------------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt........................................ 17,922,405 4,843,858
Repayments of debt........................................ (14,417,413) (3,651,766)
Payments of equipment financings.......................... (1,928,097) (1,045,871)
(Advances to) repayments from affiliates, net............. (1,094,105) 31,723
------------------ -----------
Net cash provided by financing activities......... 482,790 177,944
------------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 12,936 132,556
CASH AND CASH EQUIVALENTS, beginning of period.............. 4,250 17,186
------------------ -----------
CASH AND CASH EQUIVALENTS, end of period.................... $ 17,186 $ 149,742
================== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 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-39
<PAGE> 104
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-40
<PAGE> 105
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-41
<PAGE> 106
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-42
<PAGE> 107
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
PERIOD FROM
APRIL 1, 1997
FOR THE YEAR ENDED TO AUGUST 31,
MARCH 31, 1997 1997
------------------ -------------
<S> <C> <C>
Current.............................................. $ 318,133 $ (68,103)
Deferred............................................. 809,283 1,006,893
------------------ ----------
$ 1,127,416 $ 938,790
================== ==========
Federal.............................................. $ 885,481 $ 737,333
State................................................ 241,935 201,457
------------------ ----------
$ 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
PERIOD FROM
APRIL 1, 1997
FOR THE YEAR ENDED TO AUGUST 31,
MARCH 31, 1997 1997
------------------ -------------
<S> <C> <C>
Provision at the statutory tax rate.................. $ 936,468 $766,603
State income taxes................................... 159,677 132,962
Nondeductible expenses............................... 31,271 39,225
------------------ --------
$ 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-43
<PAGE> 108
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 year ended March
31, 1997 and the period from April 1, 1997 through August 31, 1997 is $1,098,234
and $423,798, respectively. Included in total rent expense is rent to a related
party of approximately $357,000 and $200,000 for the year ended March 31, 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 $70,100 and $47,700 for the year
ended March 31, 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-44
<PAGE> 109
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-45
<PAGE> 110
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-46
<PAGE> 111
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-47
<PAGE> 112
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-48
<PAGE> 113
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-49
<PAGE> 114
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-50
<PAGE> 115
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-51
<PAGE> 116
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-52
<PAGE> 117
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>
F-53
<PAGE> 118
THE BODE-FINN COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Maturities of the Company's debt at December 31, 1997 for the years ended
December 31, are as follows:
<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-54
<PAGE> 119
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-55
<PAGE> 120
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-56
<PAGE> 121
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-57
<PAGE> 122
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-58
<PAGE> 123
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-59
<PAGE> 124
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-60
<PAGE> 125
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-61
<PAGE> 126
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-62
<PAGE> 127
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-63
<PAGE> 128
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-64
<PAGE> 129
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-65
<PAGE> 130
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-66
<PAGE> 131
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-67
<PAGE> 132
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-68
<PAGE> 133
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-69
<PAGE> 134
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-70
<PAGE> 135
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-71
<PAGE> 136
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-72
<PAGE> 137
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-73
<PAGE> 138
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-74
<PAGE> 139
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-75
<PAGE> 140
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-76
<PAGE> 141
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-77
<PAGE> 142
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-78
<PAGE> 143
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-79
<PAGE> 144
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-80
<PAGE> 145
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-81
<PAGE> 146
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-82
<PAGE> 147
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-83
<PAGE> 148
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-84
<PAGE> 149
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-85
<PAGE> 150
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-86
<PAGE> 151
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-87
<PAGE> 152
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 2,519,531
Rental equipment depreciation........................ 941,665 333,806 588,669
Cost of sales of equipment, parts and supplies....... 1,203,840 402,124 203,817
---------- ---------- ----------
Total cost of revenue........................ 6,163,331 1,813,491 3,312,017
---------- ---------- ----------
Gross profit................................. 2,950,326 997,600 1,838,499
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........... 1,494,933 505,994 639,828
NONRENTAL DEPRECIATION AND AMORTIZATION................ 407,605 87,086 197,025
---------- ---------- ----------
Operating income............................. 1,047,788 404,520 1,001,646
INTEREST EXPENSE....................................... 703,775 211,895 381,442
---------- ---------- ----------
Income before provision for income taxes..... 344,013 192,625 620,204
PROVISION FOR INCOME TAXES............................. 137,605 77,050 256,082
---------- ---------- ----------
NET INCOME............................................. $ 206,408 $ 115,575 $ 364,122
========== ========== ==========
</TABLE>
The accompanying notes to division financial statements are an integral part of
these division statements.
F-88
<PAGE> 153
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).................................... 364,122
Net distributions to corporate (unaudited)................ (575,827)
----------
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-89
<PAGE> 154
THE FLORIDA PANHANDLE AND SOUTHEAST TEXAS DIVISIONS
OF GENERAL RENTAL, INC.
STATEMENTS OF DIVISION CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE SIX MONTH
ENDED PERIOD ENDED JUNE 30,-----
DECEMBER 31, 1997 1997 1998
----------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................... $ 206,408 $ 115,575 $ 364,122
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 1,366,119
----------- ----------- -----------
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 (575,827)
----------- ----------- -----------
Net cash provided by (used in)
financing activities................. 6,666,071 4,126,807 (1,474,100)
----------- ----------- -----------
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-90
<PAGE> 155
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-91
<PAGE> 156
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-92
<PAGE> 157
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-93
<PAGE> 158
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-94
<PAGE> 159
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-95
<PAGE> 160
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-96
<PAGE> 161
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-97
<PAGE> 162
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-98
<PAGE> 163
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-99
<PAGE> 164
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-100
<PAGE> 165
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-101
<PAGE> 166
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-102
<PAGE> 167
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-103
<PAGE> 168
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-104
<PAGE> 169
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-105
<PAGE> 170
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-106
<PAGE> 171
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-107
<PAGE> 172
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-108
<PAGE> 173
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-109
<PAGE> 174
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-110
<PAGE> 175
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-111
<PAGE> 176
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-112
<PAGE> 177
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-113
<PAGE> 178
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-114
<PAGE> 179
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-115
<PAGE> 180
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-116
<PAGE> 181
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-117
<PAGE> 182
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-118
<PAGE> 183
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-119
<PAGE> 184
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-120
<PAGE> 185
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-121
<PAGE> 186
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-122
<PAGE> 187
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-123
<PAGE> 188
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-124
<PAGE> 189
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-125
<PAGE> 190
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-126
<PAGE> 191
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-127
<PAGE> 192
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-128
<PAGE> 193
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-129
<PAGE> 194
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-130
<PAGE> 195
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-131
<PAGE> 196
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-132
<PAGE> 197
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-133
<PAGE> 198
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-134
<PAGE> 199
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-135
<PAGE> 200
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-136
<PAGE> 201
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-137
<PAGE> 202
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-138
<PAGE> 203
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-139
<PAGE> 204
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-140
<PAGE> 205
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-141
<PAGE> 206
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-142
<PAGE> 207
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-143
<PAGE> 208
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 12,750,436
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 28,469,875
----------- ----------- ----------- ----------- -----------
Gross profit.......................... 14,904,316 14,930,659 15,377,169 11,668,733 16,276,071
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................ 9,942,586 9,806,372 11,241,495 2,935,079 3,959,783
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 12,077,962
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 11,586,618
PRO FORMA PROVISION FOR INCOME TAXES...... 1,734,212 1,835,992 1,357,505 3,258,205 5,005,447
----------- ----------- ----------- ----------- -----------
PRO FORMA NET INCOME...................... $ 2,601,317 $ 2,753,988 $ 2,036,258 $ 4,887,307 $ 6,581,171
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to combined financial statements are
an integral part of these combined statements.
F-144
<PAGE> 209
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)......... -- -- -- -- -- (2,978,000) -- (2,978,000)
Net income (unaudited)............ -- -- -- -- -- 11,586,618 -- 11,586,618
-------- ------- ------- ------- -------- ----------- -------- -----------
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-145
<PAGE> 210
RAY L. O'NEAL, INC. AND ARENCO, LLC
COMBINED STATEMENTS OF CASH FLOWS
<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 OPERATING ACTIVITIES:
Net income............................................ $ 4,335,529 $ 4,589,980 $ 3,393,763 $ 8,145,512 $11,586,618
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 18,484,893
------------ ------------ ------------ ------------ -----------
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-146
<PAGE> 211
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................................... -- -- -- -- (2,978,000)
---------- ---------- ----------- ---------- -----------
Net cash provided by (used in) financing activities.... 1,378,563 335,492 4,309,604 1,630,593 (2,485,758)
---------- ---------- ----------- ---------- -----------
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-147
<PAGE> 212
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-148
<PAGE> 213
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-149
<PAGE> 214
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-150
<PAGE> 215
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-151
<PAGE> 216
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-152
<PAGE> 217
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-153
<PAGE> 218
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-154
<PAGE> 219
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-155
<PAGE> 220
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-156
<PAGE> 221
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-157
<PAGE> 222
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-158
<PAGE> 223
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-159
<PAGE> 224
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-160
<PAGE> 225
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-161
<PAGE> 226
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-162
<PAGE> 227
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-163
<PAGE> 228
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-164
<PAGE> 229
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-165
<PAGE> 230
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-166
<PAGE> 231
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-167
<PAGE> 232
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-168
<PAGE> 233
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-169
<PAGE> 234
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-170
<PAGE> 235
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-171
<PAGE> 236
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-172
<PAGE> 237
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-173
<PAGE> 238
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-174
<PAGE> 239
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-175
<PAGE> 240
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-176
<PAGE> 241
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-177
<PAGE> 242
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-178
<PAGE> 243
- ------------------------------------------------------
- ------------------------------------------------------
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. 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...................... 13
Dividend Policy...................... 13
Selected Consolidated Historical
Financial Information and
Operations Data.................... 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 16
Business............................. 27
Management........................... 36
Certain Relationships and
Transactions....................... 44
Principal Stockholders............... 47
Selling Stockholders................. 48
Plan of Distribution................. 52
Description of Capital Stock......... 53
Legal Matters........................ 55
Experts.............................. 55
Additional Information............... 56
Index to Pro Forma Consolidated
Statement of Operations............ PF-1
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
51,529,357 SHARES
NATIONSRENT, INC. LOGO
COMMON STOCK
----------------------------
PROSPECTUS
----------------------------
, 1999
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 244
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..................................... 25,000.00*
Accounting fees and expenses................................ 25,000.00*
Printing and engraving expenses............................. 22,000.00*
Miscellaneous expenses...................................... 5,000.00*
-----------
Total............................................. $103,123.39*
===========
</TABLE>
--------------------
+ Previously paid.
* estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation, as amended (the "Certificate") provides
that the Company shall indemnify to the fullest extent permitted by Section 145
of the Delaware General Corporation Law (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.
II-1
<PAGE> 245
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 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 Trailer 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.
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<PAGE> 246
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 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 was convertible into shares of common stock at the
option of the holder at the initial public offering price. In February 1999, the
Company issued to the holder of the convertible promissory note 62,500 shares of
common stock upon conversion of $500,000 principal amount of such note at a
conversion price of $8.00 per share.
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 Raymond Equipment Co.
(d/b/a Job Rentals and Sales Incorporated) (d/b/a Raymond Auto Sales), 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 January 1999, the
II-3
<PAGE> 247
Company issued an aggregate of 78,973 shares of common stock to the stockholders
of these companies.
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.
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 Co., 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.
In February 1999, in connection with the acquisition of Hudson Rental
Center, Inc., the Company issued promissory notes in the aggregate principal
amount of $600,000, which are convertible into shares of common stock at the
option of the holder at a price of $10.00 per share.
In April 1999, in connection with the acquisition of the assets of J.R.
Equipment, Inc. d/b/a Howe Rental & Sales, the Company issued promissory notes
in the aggregate principal amount of $3,075,000, which are convertible into
shares of common stock at the option of the holder at a price of $10.00 per
share.
II-4
<PAGE> 248
In April 1999, in connection with the acquisition of the assets of Placer
Equipment Rentals, Inc., the Company issued a promissory note in the principal
amount of $1,500,000, which is convertible into shares of common stock at the
option of the holder at a price of $10.00 per share.
In June 1999, in connection with the acquisition of Pierce & Associates,
Inc., the Company issued promissory notes in the aggregate principal amount of
$2,000,000, which are convertible into shares of common stock at the option of
the holder at a price of $10.00 per share.
From August 1998 to April 30, 1999, the Company granted options to certain
of its employees to purchase an aggregate of 2,700,000 shares of common stock at
exercise prices ranging from $5.50 to $8.00 per share. These options generally
vest over a four year period at the rate of 25% per year beginning on the first
anniversary of the date of grant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are filed as exhibits to this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
2.1 -- Agreement and Plan of Merger, dated as of January 20, 1999,
between the Company and Rental Service Corporation.(7)
2.2 -- Stock Option Agreement, dated as of January 20, 1999,
between the Company and Rental Service Corporation.(7)
2.3 -- Stock Option Agreement, dated as of January 20, 1999,
between Rental Service Corporation and the Company.(7)
2.4 -- Voting Agreement, dated as of January 20, 1999, between Kirk
Holdings Limited Partnership, H. Family Investments, Inc.
and Huizenga Investments Limited Partnership, as
shareholders, and Rental Service Corporation.(7)
2.5 -- Termination and Release Agreement, dated May 20, 1999,
between the Company and Rental Service Corporation.(8)
2.6 -- Stock Option Termination Agreement, dated May 20, 1999,
between the Company and Rental Service Corporation.(8)
3.1 -- Amended and Restated Certificate of Incorporation of the
Company.(2)
3.2 -- Amended and Restated By-Laws of the Company.(1)
4.1 -- Unregistered 10 3/8% Global Senior Subordinated Note due
2008.(6)
4.2 -- Registered 10 3/8% Senior Subordinated Notes due 2008.(3)
4.3 -- Senior Subordinated Guarantee dated December 11, 1998 of the
Guarantors.(6)
4.4 -- Indenture, dated December 11, 1998, by and among Company,
the Guarantors and The Bank of New York.(6)
4.5 -- Registration Rights Agreement, dated December 11, 1998, by
and among the Company, the Guarantors and the Initial
Purchasers as defined therein.(6)
4.6 -- Third Amended and Restated Revolving Credit and Term Loan
Agreement, dated as of February 11, 1999, by and among the
Company, its subsidiaries, BankBoston, N.A., LaSalle
National Bank, Fleet Bank, N.A., NationsBank, N.A., and
other lending institutions named therein(9)
4.7 -- First Amendment to Third Amended and Restated Revolving
Credit and Term Loan Agreement, dated March 24, 1999, by and
among the Company, its subsidiaries, BankBoston, N.A.,
LaSalle National Bank, Fleet Bank, N.A., NationsBank, N.A.,
and other lending institutions named therein(9)
</TABLE>
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<PAGE> 249
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
4.8 -- Security Agreement, dated as of March 18, 1998, between the
Company and BankBoston, N.A.(1)
4.9 -- Omnibus Amendment to Security Documents, dated as of June
29, 1998, among the Company, its subsidiaries and
BankBoston, N.A.(1)
4.10 -- Omnibus Amendment No. 2 to Security Documents, dated as of
September 24, 1998, among the Company, its subsidiaries and
BankBoston, N.A.(4)
4.11 -- Omnibus Amendment No. 3 to Security Documents, dated as of
February 11, 1999, by and among the Company, its
subsidiaries and BankBoston, N.A.(9)
5.1++ -- Opinion of Akerman, Senterfitt & Eidson, P.A.
10.1 -- Stock Purchase Agreement, dated August 15, 1997, by and
among the Company, Sam's and the shareholders of Sam's,
together with Amendment Nos. 1-6.(1)
10.2 -- Form of Unsecured Subordinated Promissory Notes -- Sam's.(1)
10.3 -- Form of Unsecured Convertible Promissory Notes -- Sam's.(1)
10.4 -- Form of Unsecured Contingent Convertible Subordinated
Promissory Notes -- Sam's.(1)
10.5 -- Agreement, dated September 22, 1997, between the Company and
Gary L. Gabriel.(1)
10.6 -- Asset Purchase Agreement, dated December 8, 1997, by and
among NationsRent of Ohio, Inc., R&R Rental, Inc. ("R&R")
and the sole shareholder of R&R, together with an Amendment
dated December 10, 1997.(1)
10.7 -- Form of Unsecured Subordinated Promissory Note -- R&R.(1)
10.8 -- Asset Purchase Agreement, dated December 8, 1997, as
amended, among NationsRent of Indiana, Inc. and C&E Rental
and Service, Inc. ("C&E"), together with an Amendment dated
December 23, 1997.(1)
10.9 -- Form of Unsecured Convertible Subordinated Promissory Note
C&E.(1)
10.10 -- Stock Purchase Agreement, dated December 20, 1997, as
amended, among NationsRent of West Virginia, Inc., Titan
Rentals, Inc. ("Titan") and the shareholder of Titan,
together with an Amendment dated December 31, 1997.(1)
10.11 -- Form of Unsecured Convertible Subordinated Promissory
Note -- Titan.(1)
10.12 -- Stock Purchase Agreement, dated March 24, 1998, among the
Company, Bode-Finn Limited Partnership ("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.(1)
10.13 -- Form of Unsecured Convertible Subordinated Promissory
Notes -- Bode-Finn.(1)
10.14 -- Form of Warrant -- Bode-Finn.(1)
10.15 -- Registration Rights Agreement, dated May 5, 1998, among the
Company, Bode-Finn, and Raymond E. Mason Foundation.(1)
10.16 -- Asset Purchase Agreement, dated March 25, 1998, among
NationsRent of Indiana, Inc., RFL, Enterprises, Inc. and the
sole shareholder of RFL Enterprises, Inc. ("RFL").(1)
10.17 -- Asset Purchase Agreement, dated April 21, 1998, among
NationsRent of Florida, Inc. and Naples Rent-All and Sales
Company, Inc. ("Naples").(1)
10.18 -- Form of Unsecured Convertible Subordinated Promissory
Note -- Naples.(1)
10.19 -- Stock Purchase Agreement, dated May 7, 1998, among the
Company, Raymond Equipment Co. ("Raymond Equipment") and the
shareholders of Raymond Equipment.(1)
10.20 -- Form of Unsecured Subordinated Promissory Notes -- Raymond
Equipment.(1)
10.21 -- Form of Unsecured Convertible Subordinated Promissory
Notes -- Raymond Equipment.(1)
</TABLE>
II-6
<PAGE> 250
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
10.22 -- Asset Purchase Agreement, dated May 14, 1998, among the
Company and General Rental, Inc.(1)
10.23 -- Stock Purchase Agreement, dated May 30, 1998, among the
Company, J. Kelly Co., Inc. ("J. Kelly") and the
shareholders of J. Kelly.(1)
10.24 -- Form of Unsecured Convertible Subordinated Promissory
Note -- J. Kelly.(1)
10.25 -- Form of Registration Rights Agreement among the Company and
the shareholders of J. Kelly.(1)
10.26 -- Asset Purchase Agreement, dated June 7, 1998, among the
Company, Associated Rental Equipment Management Company,
Inc. ("Associated") and the sole shareholder of
Associated.(1)
10.27 -- Form of Unsecured Convertible Subordinated Promissory
Note -- Associated.(1)
10.28 -- Form of Registration Rights Agreement -- Associated.(1)
10.29 -- Form of Subscription Agreement, dated May 1998, between the
Company and certain subscribers.(1)
10.30 -- NationsRent 1998 Stock Option Plan.(2)
10.31 -- Form of Stock Option Agreement.(1)
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.(5)
10.33 -- Unsecured Convertible Subordinated Promissory Note, dated as
of October 23, 1998, from the Company to Ray L. O'Neal,
Inc.(5)
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
</TABLE>
- ---------------
+ Filed with this Registration Statement.
++ Previously filed with this Registration Statement.
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-1, as amended, Commission File No. 333-56233.
(2) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the period ended June 30, 1998.
(3) Included in Exhibit 4.4 hereto as Exhibit A.2.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the period ended September 30, 1998.
(5) Incorporated by reference to the Company's Current Report on Form 8-K filed
on November 9, 1998.
(6) Incorporated by reference to the Company's Registration Statement on Form
S-4, Commission File No. 333-69691.
(7) Incorporated by reference to the Company's Current Report on Form 8-K filed
on April 8, 1999.
(8) Incorporated by reference to the Company's Current Report on Form 8-K filed
on May 21, 1999.
II-7
<PAGE> 251
(9) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the period ended March 31, 1999.
(b) Financial Statement Schedule. The following financial statement
schedule is filed on page F-27 herewith:
Financial Statement Schedule II, Valuation and Qualifying Accounts and
Reserves, for the Periods Ended December 31, 1998 and 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 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> 252
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 June 28, 1999.
NATIONSRENT, INC.
By: *
------------------------------------
James L. Kirk
Chairman of the Board and Chief
Executive Officer
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>
* Chairman of the Board and Chief June 28, 1999
- --------------------------------------------------- Executive Officer (principal
James L. Kirk executive officer)
/s/ GENE J. OSTROW Executive Vice President and June 28, 1999
- --------------------------------------------------- Chief Financial Officer
Gene J. Ostrow (principal financial officer)
* Vice President and Controller June 28, 1999
- --------------------------------------------------- (principal accounting officer)
Kris E. Hansel
* Director June 28, 1999
- ---------------------------------------------------
Thomas H. Bruinooge
* Director June 28, 1999
- ---------------------------------------------------
Gary L. Gabriel
* Director June 28, 1999
- ---------------------------------------------------
H. Wayne Huizenga
* Director June 28, 1999
- ---------------------------------------------------
Harris W. Hudson
*By: /s/ GENE J. OSTROW
---------------------------------------------
Gene J. Ostrow, as
attorney-in-fact
</TABLE>
II-9
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF NATIONSRENT, INC.
A-Action Rental, Inc., a Pennsylvania corporation, d/b/a A-Action
Rental & Sales
Acme Rental, Inc., a Michigan corporation
Advanced Construction Equipment, Inc., a Georgia corporation
A to Z Rents It, Inc., a Texas corporation
A to Z Rents It, Inc. #2, a Texas corporation
Central Alabama Rental Center, Inc., an Alabama corporation
Gabriel Trailer Manufacturing Company, Inc., an Ohio corporation
Gold Coast Aerial Lift, Inc., a Florida corporation
High Reach Company, Inc., a Florida corporation
Hudson Rental Center, a Florida corporation
Logan Equipment Corp., a Delaware corporation
NationsRent AWP Company, an Ohio corporation
NationsRent Northeast, Inc., a Delaware corporation
NationsRent of Alabama, Inc., a Delaware corporation
NationsRent West, Inc., a Delaware corporation
NationsRent of Florida, Inc., a Delaware corporation
NationsRent of Georgia, Inc., a Delaware corporation
NationsRent of Indiana, Inc., a Delaware corporation
NationsRent of Kentucky, Inc., a Delaware corporation
NationsRent of Louisiana, Inc., a Delaware corporation
NationsRent of Michigan, Inc., a Delaware corporation
NationsRent of Ohio, Inc., a Delaware corporation
NationsRent of Tennessee, Inc., a Delaware corporation
NRGP, Inc., a Delaware corporation
NationsRent of West Virginia, Inc., a Delaware corporation
Pierce & Associates, Inc., a South Carolina corporation
Raymond Equipment Co., a Kentucky corporation, d/b/a Job Rental and
Sales Incorporated, also d/b/a Raymond Auto Sales
Sam's Equipment Rental, Inc., an Ohio corporation
Southeast Rental & Leasing, Inc., a Florida corporation
Tennessee Tool and Supply, Inc., a Tennessee corporation
The J. Kelly Co., Inc., a Michigan corporation
Titan Rentals, Inc., a West Virginia corporation
<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,
June 24, 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.
Ernst & Young LLP
Boston, Massachusetts
June 23, 1999