<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------
FORM 10-K/A
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER: 001-14299
NATIONSRENT, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 31-1570069
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Organization) Identification Number)
450 EAST LAS OLAS BOULEVARD, SUITE 1400
FORT LAUDERDALE, FLORIDA 33301
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (954) 760-6550
Securities Registered Pursuant To Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of Class Name of Each Exchange On Which Registered
- ----------------------------------------------------- -----------------------------------------------------
<S> <C>
COMMON STOCK,
PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 28, 1999, the registrant had 55,759,497 shares of common
stock, $.01 par value per share, outstanding and, at such date, the aggregate
market value of the shares of common stock held by non-affiliates of the
registrant was approximately $184.1 million.
DOCUMENTS INCORPORATED BY REFERENCE
Part III None.
Part IV Portions of previously filed reports and registration statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
EXPLANATORY NOTE
NationsRent, Inc. (the "Company") is filing this Amendment No. 1 to Annual
Report on Form 10-K to amend and restate "Item 8. Financial Statements and
Supplementary Data," primarily to include audited financial statements of
Gabriel Trailer Manufacturing Company, Inc. (the Company's predecessor) as of
March 31, 1997 and August 31, 1997 and for the years ended March 31, 1996 and
1997 and the period from April 1, 1997 to August 31, 1997, and to file the
applicable consent of Arthur Andersen LLP as an exhibit hereto.
i
<PAGE> 3
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE REGISTRANT
Report of Independent Certified Public Accountants.......... 1
Consolidated Balance Sheets at December 31, 1998 and 1997... 2
Consolidated Statements of Income for the year ended
December 31, 1998 and the period from August 14, 1997
(inception) to December 31, 1997.......................... 3
Consolidated Statement of Stockholders' Equity.............. 4
Consolidated Statements of Cash Flows for the year ended
December 31, 1998 and the period from August 14, 1997
(inception) to December 31, 1997.......................... 5
Notes to Consolidated Financial Statements.................. 6
THE PREDECESSOR COMPANY
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
Report of Independent Certified Public Accountants.......... 21
Consolidated Balance Sheets as of March 31, 1997 and August
31, 1997.................................................. 22
Consolidated Statements of Income for the year ended March
31, 1997 and the period from April 1, 1997 to August 31,
1997...................................................... 23
Consolidated Statements of Stockholders' Equity for the year
ended March 31, 1997 and the period from April 1, 1997 to
August 31, 1997........................................... 24
Consolidated Statements of Cash Flows for the year ended
March 31, 1997 and the period from April 1, 1997 to August
31, 1997.................................................. 25
Notes to Consolidated Financial Statements.................. 26
</TABLE>
<PAGE> 4
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).
1
<PAGE> 5
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.
2
<PAGE> 6
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.
3
<PAGE> 7
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.
4
<PAGE> 8
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.
5
<PAGE> 9
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.
6
<PAGE> 10
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.
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
7
<PAGE> 11
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
8
<PAGE> 12
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
9
<PAGE> 13
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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>
10
<PAGE> 14
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
11
<PAGE> 15
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 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
12
<PAGE> 16
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
13
<PAGE> 17
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
14
<PAGE> 18
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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.
15
<PAGE> 19
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 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:
16
<PAGE> 20
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<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 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>
17
<PAGE> 21
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $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.
18
<PAGE> 22
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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>
19
<PAGE> 23
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<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 the Company's obligations
thereunder through May 20, 1999. The Company expects to take a charge 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.
20
<PAGE> 24
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.
21
<PAGE> 25
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.
22
<PAGE> 26
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.
23
<PAGE> 27
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.
24
<PAGE> 28
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.
25
<PAGE> 29
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 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.
26
<PAGE> 30
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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>
27
<PAGE> 31
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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>
28
<PAGE> 32
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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
29
<PAGE> 33
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
30
<PAGE> 34
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits and Financial Statement Schedules
(1) Financial Statements of the Company are set forth in Part II,
Item 8.
(2) Schedule II -- Valuation and Qualifying Accounts.
Other schedules are omitted because they are not applicable, are not
present in amounts sufficient to require submission of the schedules
or the required information is presented in the Consolidated
Financial Statements or related notes.
(3) Exhibits -- (see Index to Exhibits included elsewhere herein.)
(b) Reports on Form 8-K
We filed a Current Report on Form 8-K on November 9, 1998 relating to the
acquisition of Ray L. O'Neal, Inc. and Arenco, L.L.C.
31
<PAGE> 35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to
Annual Report to Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized.
[S] [C]
May 28, 1999 NATIONSRENT, INC.
By: /s/ JAMES L. KIRK
------------------------------------
James L. Kirk, Chairman of the Board
and Chief Executive Officer
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Chairman of the Board and May 28, 1999
/s/ James L. Kirk Chief Executive Officer
- ----------------------------------------------------- (Principal Executive
James L. Kirk Officer)
Executive Vice President May 28, 1999
/s/ Gene J. Ostrow and Chief Financial Officer
- ----------------------------------------------------- (Principal Financial
Gene J. Ostrow Officer)
/s/ Kris E. Hansel Vice President and May 28, 1999
- ----------------------------------------------------- Controller (Principal
Kris E. Hansel Accounting Officer)
/s/ H. Wayne Huizenga
- -----------------------------------------------------
H. Wayne Huizenga Director May 28, 1999
/s/ Harris W. Hudson
- -----------------------------------------------------
Harris W. Hudson Director May 28, 1999
/s/ Gary L. Gabriel
- -----------------------------------------------------
Gary L. Gabriel Director May 28, 1999
/s/ Thomas H. Bruinooge
- -----------------------------------------------------
Thomas H. Bruinooge Director May 28, 1999
</TABLE>
32
<PAGE> 36
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
23.1 Consent of Arthur Andersen LLP
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K/A, into the Company's
previously filed Form S-8 Registration Statement (File No. 33-70647).
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 28, 1999.
