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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
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
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NATIONSRENT, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 31-1570069
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
450 EAST LAS OLAS BLVD.,
FORT LAUDERDALE, FL 33301
(Address of principal executive offices) (Zip Code)
</TABLE>
(954) 760-6550
(Registrant's telephone number, including area code)
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 [ ]
The number of shares of Common Stock, par value $0.01 per share,
outstanding on August 4, 2000 was 58,352,704.
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<PAGE> 2
NATIONSRENT, INC.
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999..................................... 1
Unaudited Consolidated Statements of Income for the Three
Months and Six Months Ended June 30, 2000 and 1999........ 2
Unaudited Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2000 and 1999....................... 3
Notes to Unaudited Consolidated Financial Statements........ 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................... 16
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds........... 17
Item 4. Submission of Matters to a Vote of Security
Holders................................................... 17
Item 6. Exhibits and Reports on Form 8-K.................... 18
Signatures.................................................. 21
</TABLE>
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONSRENT, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 9,830 $ 5,290
Accounts receivable, net.................................... 129,858 124,207
Inventories................................................. 45,602 39,556
Prepaid expenses and other assets........................... 34,965 30,894
Deferred financing costs.................................... 14,603 14,719
Rental equipment, net....................................... 631,749 574,846
Property and equipment, net................................. 88,607 68,394
Intangible assets related to acquired businesses, net....... 775,789 701,488
---------- ----------
Total Assets...................................... $1,731,003 $1,559,394
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.......................................... $ 127,866 $ 72,727
Accrued compensation and related taxes.................... 4,149 5,039
Accrued expenses and other liabilities.................... 41,571 36,235
Debt...................................................... 1,081,689 989,428
Income taxes payable...................................... 612 777
Deferred income taxes..................................... 45,889 41,801
---------- ----------
Total liabilities................................. 1,301,776 1,146,007
---------- ----------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock -- $0.01 par value, 5,000,000 shares
authorized:
Series A convertible, $100,000 liquidation preference,
100,000 shares issued and outstanding at June 30, 2000
and December 31, 1999................................. 1 1
Common stock-- $0.01 par value, 250,000,000 shares
authorized, 58,046,703 shares and 56,844,414 shares
issued and outstanding at June 30, 2000 and December
31, 1999, respectively................................. 580 568
Additional paid-in capital................................ 375,858 367,240
Retained earnings......................................... 53,861 45,578
Treasury stock............................................ (1,073) --
---------- ----------
Total stockholders' equity........................ 429,227 413,387
---------- ----------
Total Liabilities and Stockholders' Equity........ $1,731,003 $1,559,394
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
1
<PAGE> 4
NATIONSRENT, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -------------------
2000 1999 2000 1999
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Equipment rentals.................................... $141,505 $96,928 $251,851 $172,028
Sales of equipment, merchandise, service, parts and
supplies.......................................... 28,983 33,381 60,833 60,596
-------- ------- -------- --------
Total revenue................................ 170,488 130,309 312,684 232,624
-------- ------- -------- --------
Cost of revenue:
Cost of equipment rentals............................ 49,074 29,023 87,079 53,585
Rental equipment depreciation and lease expense...... 31,791 21,881 54,964 38,256
Cost of sales of equipment, merchandise, service,
parts and supplies................................ 20,302 22,465 41,646 40,631
-------- ------- -------- --------
Total cost of revenue........................ 101,167 73,369 183,689 132,472
-------- ------- -------- --------
Gross profit........................................... 69,321 56,940 128,995 100,152
-------- ------- -------- --------
Operating expenses:
Selling, general and administrative expenses......... 30,612 24,489 56,415 43,496
Non-rental equipment depreciation and amortization... 6,294 4,985 11,940 9,550
Expenses related to abandoned merger, net............ -- 3,932 -- 3,932
-------- ------- -------- --------
Operating income....................................... 32,415 23,534 60,640 43,174
-------- ------- -------- --------
Other (income)/expense:
Interest expense, net................................ 23,697 15,986 46,296 30,432
Other, net........................................... 232 (413) 186 (2,598)
-------- ------- -------- --------
23,929 15,573 46,482 27,834
-------- ------- -------- --------
Income before provision for income taxes............... 8,486 7,961 14,158 15,340
Provision for income taxes........................... 3,521 3,304 5,875 6,366
-------- ------- -------- --------
Net income............................................. $ 4,965 $ 4,657 $ 8,283 $ 8,974
======== ======= ======== ========
Net income per share:
Basic................................................ $ 0.09 $ 0.08 $ 0.14 $ 0.16
======== ======= ======== ========
Diluted.............................................. $ 0.07 $ 0.08 $ 0.11 $ 0.16
======== ======= ======== ========
Weighted average common shares outstanding:
Basic................................................ 58,372 55,759 58,469 55,733
======== ======= ======== ========
Diluted.............................................. 72,893 64,768 73,043 64,714
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
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NATIONSRENT, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
2000 1999
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 8,283 $ 8,974
Adjustments to reconcile net income to net cash provided
by/(used in) operating activities:
Depreciation and amortization............................. 42,780 35,417
Loss on disposal of non-rental equipment.................. 6 --
Gain on sale of rental equipment.......................... (10,872) (9,136)
Gain on sale of lift truck dealership..................... -- (1,818)
Deferred income tax provision............................. 5,421 6,089
Changes in operating assets and liabilities:
Accounts receivable.................................. (3,709) (15,295)
Inventories.......................................... (5,800) (8,402)
Prepaid expenses and other assets.................... (11,574) (7,640)
Accounts payable..................................... 54,418 (26,157)
Accrued expenses and other liabilities............... (7,160) (3,515)
Income taxes payable................................. (91) (2,600)
--------- --------
Net cash provided by/(used in) operating
activities.......................................... 71,702 (24,083)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired........ (21,012) (14,916)
Payment of contingent acquisition consideration........ (10,750) (500)
Proceeds from sale of businesses....................... 6,657 23,315
Purchases of rental equipment.......................... (125,069) (92,551)
Purchases of property and equipment.................... (21,887) (23,728)
Proceeds from sale of rental equipment................. 31,173 29,348
--------- --------
Net cash used in investing activities................ (140,888) (79,032)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt..................................... 229,040 179,278
Repayments of debt..................................... (153,399) (74,862)
Purchase of Treasury stock............................. (1,073) --
Debt issuance costs.................................... (842) (1,945)
--------- --------
Net cash provided by financing activities............ 73,726 102,471
--------- --------
Net increase/(decrease) in cash and cash equivalents........ 4,540 (644)
Cash and cash equivalents, beginning of period.............. 5,290 10,597
--------- --------
Cash and cash equivalents, end of period.................... $ 9,830 $ 9,953
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................. $ 40,381 $ 35,574
========= ========
Cash paid for income taxes............................. $ 638 $ 5,348
========= ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
The Company acquired the net assets and assumed certain
liabilities of certain businesses as follows:
Total assets, net of cash acquired..................... $ 38,114 $ 24,358
Total liabilities assumed.............................. (12,427) (2,267)
Amount paid through the issuance of debt and future
contractual payments.................................. (4,675) (7,175)
--------- --------
Net cash paid........................................ $ 21,012 $ 14,916
========= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
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NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have
been prepared by NationsRent, Inc. (the "Company") and reflect all adjustments
of a normal recurring nature which are, in the opinion of management, necessary
for a fair presentation of financial results for the three and six months ended
June 30, 2000 and 1999, in accordance with generally accepted accounting
principles for interim financial reporting and pursuant to Article 10 of
Regulation S-X. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. For
interim reporting purposes, advertising expenses are charged to earnings in
proportion to the relationship that revenue for such period bears to estimated
full year revenue and related advertising expenses. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These unaudited interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements for the year ended December 31, 1999 appearing
in the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission. The results of operations for the three and six months
ended June 30, 2000 are not necessarily indicative of the results which may be
reported for the year ending December 31, 2000.
The unaudited interim consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All material
intercompany transactions and balances have been eliminated in consolidation.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2000, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities," which amends
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 was previously amended by SFAS No. 137 "Accounting For Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133," which deferred the effective date of SFAS No. 133 to fiscal
years commencing after June 15, 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
believes the adoption of SFAS No. 138 will not have a material impact on our
financial position or results of operations and will adopt SFAS No. 138
concurrently with SFAS No. 133 on January 1, 2001, as required.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain
of the SEC's views in applying generally accepted accounting principles to
revenue recognition in financial statements. Management does not expect the
adoption of SAB 101 to have a material effect on the Company's operations or
financial position.
NOTE 2 -- ACQUISITIONS
The Company made four acquisitions of equipment rental businesses during
the six months ended June 30, 2000. The aggregate consideration for these
acquisitions was $25,825,000 and consisted of (i) $21,150,000 of cash, (ii)
$3,475,000 of subordinated convertible debt and (iii) $1,200,000 of future
contractual cash payments. The cash portion of the consideration was funded
through borrowings under the Company's senior credit facility (the "Credit
Facility"). In addition, the Company repaid or assumed outstanding indebtedness
of the acquired companies in the aggregate amount of $9,793,000. These
acquisitions have been accounted for using the purchase method and, accordingly,
the acquired assets and assumed liabilities, including goodwill, have been
recorded at their estimated fair values as of the date of acquisition.
4
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NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Purchase accounting values for these acquisitions have been assigned on a
preliminary basis, and are subject to adjustment when final information as to
the fair values of the net assets acquired is available. The 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 date of acquisition.
The following table sets forth the estimated fair value of the assets
acquired and liabilities assumed for the aforementioned acquisitions (in
thousands):
<TABLE>
<S> <C>
Assets, including cash...................................... $12,340
Goodwill.................................................... 25,912
Liabilities................................................. 12,427
</TABLE>
The following table sets forth the unaudited pro forma consolidated results
of operations for the three and six months ended June 30, 2000 and 1999 giving
effect to the acquisitions completed during 2000 and 1999 as if the acquisitions
had occurred on January 1, 1999 (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue....................................... $170,488 $165,296 $312,886 $299,681
Net income.................................... 4,964 9,250 8,166 14,737
Basic earnings per share...................... 0.09 0.16 0.14 0.25
Diluted earnings per share.................... 0.07 0.12 0.11 0.20
</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, 1999, nor are they
necessarily indicative of results which will be reported in the future.
During the six months ended June 30, 2000, the Company paid consideration
of $10,900,000 of cash, $700,000 of subordinated convertible debt and 1,721,664
shares of Common Stock to the former owners of previously acquired businesses
related to the achievement of certain operating results. The Company records
amounts paid for contingent consideration as additional purchase price once they
are incurred since the consideration is required regardless of the former
owner's continued association with the Company.
As a part of the purchase of a certain business during 1999, the Company
acquired a dealership that sold new construction and agricultural equipment of a
single manufacturer. In May 2000, the Company decided to close the locations
that comprised the dealership portion of the acquisition after it was unable to
obtain the manufacturer's approval for the sale of the dealership to a third
party. As such, the Company began an orderly liquidation of the assets of the
acquired dealership. The fair value of the dealership assets have been recorded
at June 30, 2000 based on management's estimate of the proceeds from the sale of
the assets. The results of operations related to the dealership for the six
months ended June 30, 2000, which aggregated $3,683,000 of losses and $449,000
of interest expense, have been excluded from the Company's 2000 consolidated
statements of income.
5
<PAGE> 8
NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- SEASONALITY
The Company's revenue and income are dependent upon the activity in the
construction industry in the markets served by the Company. Construction
activity is dependent upon weather and the traditional seasons for construction
work. Because of this variability in demand, the Company's quarterly revenue may
fluctuate, and revenue for the first quarter of each year can be expected to be
lower than the remaining quarters. Although the Company believes that the
historical trend in quarterly revenue for the second, third and fourth quarters
of each year is generally higher than the first quarter, there can be no
assurance that this will occur in future periods. Accordingly, quarterly or
other interim results should not be considered indicative of results to be
expected for any quarter or for the full year.
NOTE 4 -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
2000 1999 2000 1999
------- ------- ------ -------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings per share-- net
income.................................... $4,965 $4,657 $8,283 $ 8,974
Interest expense on convertible subordinated
debt, net of income taxes................. -- 751 -- 1,479
------ ------ ------ -------
Numerator for diluted earnings per share..... $4,965 $5,408 $8,283 $10,453
====== ====== ====== =======
Denominator:
Denominator for basic earnings per
share--weighted-average shares............ 58,372 55,759 58,469 55,733
Effect of dilutive securities:
Convertible subordinated debt............. -- 8,840 -- 8,748
Preferred stock........................... 14,286 -- 14,286 --
Employee stock options.................... 235 169 288 233
------ ------ ------ -------
Denominator for diluted earnings per
share-- adjusted weighted-average shares..... 72,893 64,768 73,043 64,714
====== ====== ====== =======
Basic earnings per share....................... $ 0.09 $ 0.08 $ 0.14 $ 0.16
====== ====== ====== =======
Diluted earnings per share..................... $ 0.07 $ 0.08 $ 0.11 $ 0.16
====== ====== ====== =======
</TABLE>
Options and warrants to purchase 7,674,563 and 2,685,561 shares of Common
Stock were outstanding at June 30, 2000 and 1999, 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 anti-dilutive. The convertible subordinated debt
was excluded from the diluted earnings per share calculation for the three and
six months ended June 30, 2000 as such debt was anti-dilutive in such periods.
NOTE 5 -- COMPREHENSIVE INCOME
The objective of reporting comprehensive income is to disclose all changes
in equity of an enterprise that result from transactions and other economic
events in a period other than transactions with owners. The comprehensive income
of the Company was equal to net income for all periods presented.
6
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NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- TREASURY STOCK
In May 2000, the Board of Directors of the Company approved the repurchase
from time to time of up to $5,000,000 of the Company's Common Stock. As of June
30, 2000, the Company has repurchased 306,000 shares of its Common Stock in the
open market for a cost of approximately $1,073,000, which shares have been
recorded as treasury stock in the accompanying consolidated financial statement.
NOTE 7 -- NON-RECURRING ITEMS
In January 1999, the Company received net proceeds of $23,315,000 related
to the sale of a lift truck dealership acquired as part of an acquisition made
in April 1998. The carrying value of the tangible assets sold was $16,059,000
resulting in proceeds in excess of carrying value of $7,256,000. The Company
recorded a pre-tax gain of $1,818,000 included in other income, or $0.02 per
share, based on the increase in value of the dealership since the date of
acquisition. The remaining $5,438,000 of proceeds in excess of carrying value
was recorded as a reduction of goodwill.
In January 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. In
May 1999, the Company entered into a Termination and Release Agreement (the
"Termination Agreement"), with RSC, pursuant to which the Company and RSC
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 the transaction. The Company recorded a pre-tax charge of
$3,932,000 in the second quarter of 1999 for the unreimbursed portion of
expenses incurred related to the proposed merger.
NOTE 8 -- SUBSEQUENT EVENTS
In August 2000, the Company amended the Credit Facility to increase the
total aggregate commitment to $925,000,000. The Credit Facility consists of a
$525,000,000 revolving line of credit that matures in July 2004 and a
$400,000,000 term loan that matures in July 2006. Borrowings under the revolving
line of credit bear interest at either the Fleet National Bank base rate plus a
percentage ranging from .50% to 1.50% or, at our option, the Eurodollar market
rate plus a percentage ranging from 1.75% to 2.75%. The term loan bears interest
at the base rate plus 2.00% to 2.25%, or at our option the Eurodollar market
rate plus 3.25% to 3.50%. The percentage over the Eurodollar market rate and
base rate is based on our financial performance as measured by the total funded
debt ratio. The Credit Facility is secured by a security interest in
substantially all of our assets. The Credit Facility also imposes, among other
covenants, a tangible assets to senior debt covenant, a restriction on all of
our retained earnings including the declaration and payment of cash dividends,
consent requirements on certain acquisitions and a restriction on the ratio of
total funded debt to earnings before interest, income taxes, depreciation and
amortization.
In August 2000, the Company entered into a Preferred Stock Purchase
Agreement with NR2 Holdings Limited (an affiliate of Investcorp S.A.), DB
Capital Investors, L.P. (an affiliate of Deutsche Bank AG), J.P. Morgan Capital
Corporation and Sixty Wall Street Fund, L.P. (an affiliate of J.P. Morgan),
pursuant to which the Company agreed to sell 100,000 shares of its perpetual
Series B Convertible Preferred Stock ("Preferred Stock") for an aggregate
purchase price of $100,000,000. On August 2, 2000, pursuant to the Purchase
Agreement, the Company sold 52,000 shares of Preferred Stock for an aggregate
purchase price of $52,000,000. The proceeds of the initial closing were used to
pay down amounts outstanding under the Credit Facility. The sale of the
additional 48,000 shares of Preferred Stock, for an aggregate purchase price of
$48,000,000, is subject to stockholder approval at a special meeting of the
stockholders scheduled to be held within the next 45 days. Regardless of whether
the stockholders approve the sale of the additional 48,000
7
<PAGE> 10
NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
shares of Preferred Stock, the first closing for the 52,000 shares of Preferred
Stock will remain consummated. The 100,000 shares of Preferred Stock, when
issued, will be convertible into 22,222,222 shares of Common Stock, based on a
liquidation preference of $1,000 per share of Preferred Stock and a conversion
price of $4.50 per share of Common Stock. The holders of the Preferred Stock
were granted certain demand and piggy-back registration rights with respect to
the shares of the Company's Common Stock issuable upon conversion of the
Preferred Stock, pursuant to a Registration Rights Agreement among the Company,
such holders and certain of the Company's stockholders. The terms of the
Preferred Stock are set forth in the Certificate of Designation filed as an
exhibit to this Quarterly Report on Form 10-Q along with the Preferred Stock
Purchase Agreement and the Registration Rights Agreement.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of our consolidated results of
operations and financial condition should be read in conjunction with the
unaudited interim consolidated financial statements and the related notes
included herein and the consolidated financial statements for the year ended
December 31, 1999 appearing in our Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
GENERAL
NationsRent is a leading provider of rental equipment in the United States.
We offer a comprehensive line of equipment for rent primarily to a broad range
of construction and industrial customers including general contractors,
subcontractors, highway contractors, manufacturing plants and distribution
centers. The Company also sells used and new equipment, spare parts and
supplies. As of June 30, 2000, we operated over 190 equipment rental locations
in 27 states. We have become a leading provider of rental equipment as a result
of our strategy to establish a significant presence in target markets by
acquiring platform companies, opening or acquiring additional convenient
locations concentrated around those businesses and expanding the selection and
availability of our rental fleet.
As part of building a nationally branded network, we seek to conform the
physical appearance and product offerings of all of our stores to a uniform
format. Distinguishing characteristics of this format include clearly marked
aisles, a wide variety of newer, name brand, well maintained rental equipment,
prominent use of the NationsRent logo and colors and attractive, well-organized
and clean store facilities. In addition, our stores seek to offer a high level
of customer service which is supported through employee training and the
integration of information systems. The cost of converting an acquired location
to the NationsRent format varies depending on the physical properties of the
acquired location and the condition, breadth and depth of rental equipment
inventory at such location, which are factors considered in the selection and
pricing of acquisition candidates. The cost of opening our new locations has
varied depending on whether we leased or purchased the underlying real property,
the size of the location and the breadth and depth of inventory at each
location. See "Liquidity and Capital Resources."
We derive our revenue from equipment rentals, sales of new and used
equipment, spare parts and supplies and maintenance and repair services. Rental
revenue is dependent on several factors including demand for rental equipment,
the amount and quality of equipment available for rent, rental rates and general
economic conditions. Revenue generated from the sale of used equipment is
affected by price, general economic conditions and the condition of the
equipment. Revenue from the sale of new equipment is affected by price and
general economic conditions. Revenue from the sale of spare parts and supplies
as well as maintenance and repair services is primarily affected by equipment
rental and sales volume.
The principal components of our cost of revenue include equipment
depreciation and lease expense, costs of new and used equipment sold, personnel
costs, occupancy costs, repair and maintenance costs and vehicle operations.
Rental equipment depreciation is calculated using the straight-line method over
the estimated useful life of such equipment. The range of useful lives estimated
by management for rental equipment is primarily 18 to 120 months and is
depreciated to a salvage value ranging from zero to ten percent of original
cost. Since 1998, we have financed approximately $336.9 million of rental fleet
additions with operating leases. In order to more clearly reflect the cost of
our rental fleet, we have combined operating lease expense related to our rental
fleet with rental equipment depreciation and reported these amounts on a
separate line in our statements of income.
Selling, general and administrative expenses include management salaries,
advertising and marketing, travel, administrative and clerical salaries and data
processing.
Non-rental equipment depreciation and amortization includes the
depreciation of fixed assets that are not offered for rent, amortization of
leasehold improvements and amortization of intangible assets related to the
acquired businesses.
In May 1999, we abandoned our merger with Rental Service Corporation
("RSC") and entered into a Termination and Release Agreement (the "Termination
Agreement") with RSC. Pursuant to the Termina-
9
<PAGE> 12
tion Agreement RSC reimbursed us for $6.0 million of expenses incurred in
connection with the transaction, which offset a total of $9.9 million of
expenses incurred in connection with the transaction. The net $3.9 million of
unreimbursed expenses is included in operating expenses in the three and six
months ended June 30, 1999.
ACQUISITIONS AND NEW STORES
While we expect to concentrate our growth initiatives around the opening of
new locations, we may continue to acquire select leading companies either to
enter new high growth markets or to complement our operations in existing
markets. During the six months ended June 30, 2000, we acquired four equipment
rental businesses. We paid an aggregate of approximately $25.8 million for these
four acquisitions which consisted of approximately:
- $21.1 million in cash;
- $3.5 million of subordinated convertible debt; and
- $1.2 million of future contractual payments.
We funded the cash portion of the consideration paid for these acquisitions
with borrowings under our senior credit facilities. The acquisitions have been
accounted for using the purchase method and, accordingly, the acquired assets
and assumed liabilities have been recorded at their estimated fair values as of
the date of acquisition. Purchase accounting values for certain acquisitions
have been assigned on a preliminary basis, and are subject to adjustment when
additional information as to the fair values of the net assets acquired is
available. We are awaiting information from third-party appraisers as to the
fair value of certain rental equipment acquired and the final determination of
certain liabilities assumed. We do not believe the final assignment of the fair
value of the net assets acquired will have a significant impact on future
operating results.
In markets in which we have established a presence, we may open new
locations in that geographic area or adjacent areas. During the six months ended
June 30, 2000, we have opened 12 of the 20 new locations we plan to open in
2000. We continue to evaluate the need for new locations in markets in which we
have a presence as well as in new markets that we may enter as we acquire
additional companies.
In April 2000, we announced a strategic partnership with Lowe's Companies,
Inc., the world's second largest home improvement retailer, to operate
NationsRent stores within select Lowe's stores. Operating as a store within a
store, the NationsRent stores rent our full line of construction equipment to
Lowe's customers. Since the announcement, we have opened six test NationsRent
rental centers in Lowe's stores. If the test rental centers are successful and a
long-term agreement with Lowe's is negotiated, we expect to open a significant
number of these rental centers nationwide. The Lowe's strategic partnership will
require us to accelerate investments in systems, training, brand support and
other store start-up costs.
HISTORICAL RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Revenue. The following table sets forth our revenue by type for the three
and six months ended June 30, 2000 and 1999 (in thousands, except percentages):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------------- -----------------------------------
2000 1999 2000 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equipment rentals................... $141,505 83.0% $ 96,928 74.4% $251,851 80.5% $172,028 74.0%
Sales of equipment, merchandise,
service, parts and supplies....... 28,983 17.0% 33,381 25.6% 60,833 19.5% 60,596 26.0%
-------- ----- -------- ----- -------- ----- -------- -----
$170,488 100.0% $130,309 100.0% $312,684 100.0% $232,624 100.0%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
Total revenue increased $40.2 million, or 30.8% and $80.1 million, or 34.4%
for the three and six months ended June 30, 2000, respectively, when compared to
the same periods in 1999. Rental revenue increased $44.6 million, or 46.0% and
$79.8 million, or 46.4% for the three and six months ended June 30, 2000,
respectively, when compared to the same periods in 1999. The increase in rental
revenue for the three and six months ended June 30, 2000, when compared to the
same periods in 1999, was comprised of 20.0% and 19.3%,
10
<PAGE> 13
respectively, from internal growth and 26.0% and 27.1%, respectively, from the
inclusion of rental revenue from businesses acquired during 1999 and 2000. The
internal growth in rental revenue was primarily a result of the expansion of our
rental fleet at existing locations. Equipment rental revenue as a percentage of
total revenue was 83.0% and 80.5% for the three and six months ended June 30,
2000, respectively, up from 74.4% and 74.0%, respectively, for the same periods
in 1999. The higher mix of rental revenue in 2000 is due primarily to the
acquisition of companies with a higher percentage of equipment rentals and the
expansion of our rental fleet.
Gross Profit. Gross profit increased $12.4 million and $28.8 million for
the three and six months ended June 30, 2000, respectively, when compared to the
same periods in 1999. The increase in gross profit was primarily due to the
increase in total revenue. Gross profit as a percentage of total revenue was
40.7% and 41.3%, respectively, for the three and six months ended June 30, 2000,
respectively, compared to 43.7% and 43.1% for the same periods in 1999.
Operating Expenses. Selling, general and administrative expenses increased
$6.1 million and $12.9 million for the three and six months ended June 30, 2000,
respectively, when compared to the same periods in 1999. This increase was due
primarily to the inclusion of such costs from businesses acquired during 1999
and 2000 and additional corporate expenses. Also included in operating expenses
for the three and six months ended June 30, 1999 is $3.9 million of unreimbursed
expenses incurred in connection with the abandoned merger with RSC. Selling,
general and administrative expenses as a percentage of total revenue were 18.0%
for the three and six months ended June 30, 2000, respectively, compared to
18.8% and 18.7%, respectively, for the same periods in 1999.
Non-rental equipment depreciation and amortization increased $1.3 million
and $2.4 million for the three and six months ended June 30, 2000, respectively,
when compared to the same periods in 1999. This increase was due primarily to
additional goodwill amortization incurred in connection with acquisitions
completed during 1999 and 2000.
Operating Income. Operating income increased $8.9 million and $17.5
million for the three and six months ended June 30, 2000 when compared to the
same periods in 1999. Operating income as a percentage of total revenue was
19.0% and 19.4% for the three and six months ended June 30, 2000, respectively,
compared to 18.1% and 18.6% for the same periods in 1999. These increases were
due primarily to the higher percentage of revenue from equipment rentals in 2000
and the impact of the aforementioned charge in 1999 related to the abandoned
merger with RSC.
Other Income and Expense. Interest expense increased $7.7 million and
$15.9 million for the three and six months ended June 30, 2000, respectively,
when compared to the same periods in 1999. This increase was due primarily to
the increase in debt incurred to finance acquisitions and the expansion of our
rental fleet during 1999 and 2000, as well as an increase in the interest rates
charged on the variable portion of our bank debt. Interest expense is primarily
attributable to borrowings under our senior credit facilities, notes issued to
finance the purchase of equipment, subordinated convertible notes issued to
sellers of businesses we acquired and our senior subordinated notes.
Other income for the six months ended June 30, 1999 included a pre-tax gain
of approximately $1.8 million, or $0.02 per share, from the sale in January of a
lift truck dealership.
Income Taxes. Our effective income tax rate for the three and six months
ended June 30, 2000 was 41.5%. The amount above statutory income tax rates is
attributable primarily to non-deductible goodwill amortization for federal
income tax purposes.
Net Income. Net income increased $0.3 million and decreased $0.7 million
for the three and six months ended June 30, 2000, respectively, when compared to
the same periods in 1999. The variances in net income are a result of the
factors discussed above. Net income, excluding the charge related to the
abandoned merger with RSC, would have been $6.9 million or $0.12 diluted
earnings per share and $11.3 million or $0.20 diluted earnings per share for the
three and six months ended June 30, 1999, respectively.
11
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
Our primary uses of cash have been the funding of acquisitions and capital
expenditures. To date, we have funded our cash requirements primarily with
borrowings under our credit facility, proceeds from the issuance of debt and
equity securities, equity contributions from our founding stockholders and cash
provided by operations.
Our net cash provided by operations was $71.7 million for the six months
ended June 30, 2000 compared to net cash used of $24.1 million for the same
period in 1999. The increase in cash provided by operations was due primarily to
an increase in accounts payable. Net cash used in investing activities was
$140.9 million for the six months ended June 30, 2000. Cash used in investing
activities consisted primarily of $125.1 million for purchases of rental
equipment, $21.9 million for purchases of and improvements to property and
equipment and net cash consideration of $21.1 million for the acquisition of
businesses. Included in investment activities was $6.7 million relating to
proceeds from the sale of assets of a specialty rental location. Cash provided
by financing activities was $73.7 million for the six months ended June 30, 2000
and was a result of net borrowings under our senior credit facilities.
In August 2000, we increased our credit facility from $800.0 million to
$925.0 million. Our credit facility consists of a $525.0 million revolving line
of credit due July 2004 and a $400.0 million term loan due July 2006. The credit
facility can be used to complete permitted acquisitions, make capital
expenditures, enter into standby letters of credit or for working capital and
other general corporate purposes. Borrowings under the revolving line of credit
bear interest at either the Fleet National Bank base rate plus a percentage
ranging from .50% to 1.50% or, at our option, the Eurodollar market rate plus a
percentage ranging from 1.75% to 2.75%. The term loan bears interest at the base
rate plus 2.00% to 2.25%, or at our option the Eurodollar market rate plus 3.25%
to 3.50%. The percentage over the Eurodollar market rate and base rate is based
on our financial performance as measured by the total funded debt ratio. The
credit facility is secured by a security interest in substantially all of our
assets. The credit facility also imposes, among other covenants, a tangible
assets to senior debt covenant, a restriction on all of our retained earnings
including the declaration and payment of cash dividends, consent requirements on
certain acquisitions and a restriction on the ratio of total funded debt to
earnings before interest, income taxes, depreciation and amortization. On June
30, 2000, $429.9 million and $300.0 million of cash borrowings were outstanding
under the revolving line of credit and term loan, respectively.
In August 2000, we entered into an agreement to sell 100,000 shares of
series B perpetual convertible preferred stock for an aggregate purchase price
of $100.0 million to a group of investors including: $20.0 million to NR2
Holdings Limited (an affiliate of Investcorp S.A.), $40.0 million to DB Capital
Investors, L.P. (an affiliate of Deutsche Bank AG), $30.0 million to J.P. Morgan
Capital Corporation and $10.0 million to Sixty Wall Street Fund, L.P. (an
affiliate of J.P. Morgan). The preferred stock is convertible into approximately
22.2 million shares of our common stock at any time based on a liquidation
preference of $1,000 per share of preferred stock and a conversion price of
$4.50 per share of common stock. The private placement of $52.0 million was
completed in August with the remaining $48.0 million to be funded following
stockholder approval to be sought at a special meeting to be held within 45
days. Proceeds from the private placement have been and will be used to repay
borrowings under our revolving credit facility.
Our short-term cash requirements for our existing operations consist
primarily of:
- capital expenditures to maintain, modernize and expand our rental
equipment inventory;
- working capital requirements; and
- repair and maintenance of rental equipment, purchase of merchandise
inventory and other operating activities.
We estimate that equipment expenditures over the next 12 months for our
existing locations and for new store openings will be in the range of $250.0
million to $300.0 million, net of proceeds from used equipment
12
<PAGE> 15
sales. Approximately one-third of the estimated net capital expenditures is to
replace existing rental equipment. We believe that we will be able to finance
our short-term cash needs for equipment expenditures through cash generated from
operations, borrowings under our credit facility and the use of equipment
leases. We estimate that such sources will be sufficient to fund the cash
required for our existing operations for at least 12 months.
During the six months ended June 30, 2000, we opened 12 new locations in
markets where we already had a presence, excluding our test locations at select
Lowe's Home Improvement Centers. We estimate that the average aggregate capital
costs associated with each such new location were in the range of $2.0 million
to $4.5 million. We expect to open a total of approximately 8 additional new
locations in 2000. We believe that cash generated from operations and borrowings
under our credit facility will be sufficient to fund these costs.
As discussed above, if the Lowe's test rental centers are successful, we
expect to open a significant number of these rental locations nationwide. We
believe cash generated from operations and borrowings under our credit facility
will be sufficient to fund these costs for at least 12 months.
We are developing additional modules for our management information system.
We estimate the total cost to complete development and installation of the
modules at our existing locations will range from $8.0 million to $10.0 million
over the next 12 months and we believe cash generated from operations and
borrowings under our credit facility will be sufficient to fund these costs.
We may make additional select acquisitions of leading companies in order to
either enter new markets or compliment our operations in existing markets and
believe that, in connection with new acquisitions, we will be required to make
additional expenditures to expand and modernize rental equipment of acquired
companies. We expect to finance future acquisitions and related rental equipment
expenditures using cash, equity, debt and/or assumption of indebtedness. To
complete future acquisitions, we may be required to increase amounts available
under our credit facility or raise additional capital through issuance of
additional debt or equity securities. There can be no assurance that additional
capital, if and when required, will be available on terms satisfactory to us or
at all.
There may be liabilities that we fail or are unable to discover in the
course of performing due diligence investigations on each company or business we
have acquired or seek to acquire in the future. Such liabilities could include,
among others, those arising from employee benefits contribution obligations of a
prior owner or non-compliance with applicable federal, state or local
environmental requirements by prior owners for which we, as a successor owner or
operator, may be responsible. We try to minimize these risks by conducting such
due diligence, including employee benefit and environmental reviews, as we deem
appropriate under the circumstances. However, we cannot assure you that we have
identified, or in the case of future acquisitions, will identify, all existing
or potential risks. We also generally require each seller of acquired businesses
or properties to indemnify us against undisclosed liabilities. In some cases
this indemnification obligation may be supported by deferring payment of a
portion of the purchase price or other appropriate security. However, we cannot
assure you that the indemnification, even if obtained, will be enforceable,
collectible or sufficient in amount, scope or duration to fully offset the
possible liabilities associated with the business or property acquired. Any such
liabilities, individually or in the aggregate, could have a material adverse
effect on our business, financial condition or results of operations.
SEASONALITY AND FLUCTUATIONS IN OPERATING RESULTS
Our revenue and income are dependent upon activity in the construction
industry in the markets we serve. Construction activity is dependent upon
weather and other seasonal factors affecting construction in the geographic
areas where we have operations. Because of this variability in demand, our
quarterly revenue may fluctuate, and revenue for the first quarter of each year
can be expected to be lower than the remaining quarters. Although we believe
that the historical trend in quarterly revenue for the second, third and fourth
quarters of each year is generally higher than the first quarter, there can be
no assurance that this will occur in future periods. Accordingly, quarterly or
other interim results should not be considered indicative of results to be
expected for any other quarter or for a full year.
13
<PAGE> 16
Operating results may fluctuate due to other factors including, but not
limited to:
- changes in general economic conditions including changes in national,
regional or local construction or industrial activities;
- the timing of acquisitions and opening of new locations;
- the timing of expenditures for new rental equipment and the disposition
of used equipment;
- competitive pricing pressures; and
- changes in interest rates.
We will incur significant expenses in opening new locations, such as
employee training, marketing and facility set-up costs. Initially, new locations
may generate lower operating margins than established locations and may operate
at a loss for a period of time. Our new locations have, on average, achieved
profitability within approximately three to six months of their opening. In
addition, when we purchase new rental equipment, the depreciation related to
such equipment may contribute to near-term margin decline, because such
equipment may not initially generate revenue at a rate that is sufficient to
match such increased depreciation expense. As such, the opening of new rental
locations and the purchase of new equipment to expand our current rental
equipment inventory may reduce our operating margins during a start-up period.
INFLATION
We do not believe that inflation has been a significant factor to the cost
of our operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
We are required to adopt SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," which amends SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 was
previously amended by SFAS No. 137 "Accounting For Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133,"
which deferred the effective date of SFAS No. 133 to fiscal years commencing
after June 15, 2000. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. We believe the adoption of SFAS No.
138 will not have a material impact on our financial position or results of
operations and will adopt SFAS No. 138 concurrently with SFAS No. 133 on January
1, 2001, as required.
We are required to adopt Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements." Staff Accounting Bulletin No. 101
summarizes certain of the SEC's views in applying generally accepted accounting
principles to revenue recognition in financial statements. We do not expect the
adoption of SAB 101 to have a material effect on our financial position or
results of operations.
YEAR 2000
Since many computer systems and other equipment with embedded chips or
microprocessors use only two digits to represent the year, these systems may be
unable to process accurately certain data before, during or after the year 2000.
As a result, business and governmental entities are at risk for possible
miscalculations or systems failures causing disruptions in their business
operations. This is commonly known as the "Y2K" issue. The Y2K issue concerns
not only information systems used solely within a company, but also concerns
third parties, such as customers, vendors and creditors, using information
systems that may interact with or affect a company's operations.
If needed remediations and conversions to the information systems are not
made on a timely basis by our materially-significant customers or suppliers, we
could be affected by business disruption, operational problems, financial loss,
legal liability to third parties and similar risks, any of which could have a
material adverse effect on our operations, liquidity or financial condition.
Factors which could cause material differences in results, many of which are
outside of our control, include, but are not limited to, the accuracy of
14
<PAGE> 17
representations by manufacturers of our information systems that their products
are Y2K compliant, the ability of their companies' customers and suppliers to
identify and resolve their own Y2K issues, and our ability to respond to
unforeseen Y2K complications.
As of the date hereof, we have not experienced any material disruption in
our business or operations as a result of Y2K issues. However, there is no
assurance that we will not experience disruptions in the future.
FORWARD-LOOKING STATEMENTS
Certain statements and information in this Quarterly Report on Form 10-Q
may include "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including in particular the statements about
our plans, strategies and prospects under the headings "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." These statements are based on our current plans and expectations
and involve risks and uncertainties that could cause actual future activities
and results to be materially different from those set forth in these
forward-looking statements. Important factors that could cause actual results to
differ materially from our forward-looking statements are set forth below and
elsewhere in this Quarterly Report on Form 10-Q. Such factors include, among
others:
- our substantial indebtedness and our ability to generate cash in order to
service our indebtedness depends on many factors beyond our control;
- the availability of additional capital on terms acceptable to us which
could affect our ability to execute growth and operating strategies;
- rising interest rates which could affect our ability to operate within
the limitations imposed by financing arrangements;
- our limited operating history makes it difficult to evaluate us, our
growth strategy and our prospects in light of the risks, expenses and
difficulties frequently encountered by companies in the early stages of
development;
- compliance with and future changes in safety and environmental regulation
may increase expenses and liabilities;
- claims for personal injury or death resulting from the use of our
equipment or in connection with our operations may exceed our insurance
coverage;
- stock price volatility;
- the ability to identify and complete acquisitions and open new locations
on favorable terms;
- the difficulty of integrating acquired companies which could affect our
ability to derive synergies and achieve growth;
- undiscovered liabilities of businesses acquired;
- competition and seasonality in the equipment rental industry;
- a downturn in the economy in general, or construction spending in
particular, which could decrease demand for our equipment and drive down
rental rates; and
- other risks and uncertainties described in our other filings with the
Securities and Exchange Commission.
We make no commitment to disclose any revisions to forward-looking
statements, or any fact, events or circumstances after the date hereof that may
bear upon forward-looking statements.
15
<PAGE> 18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is limited primarily to the fluctuating
interest rates associated with our variable rate indebtedness. Our variable
interest rates are subject to interest rate changes in the United States and the
Eurodollar market. At June 30, 2000 we had $610.0 million of variable rate
indebtedness, representing approximately 56% of our total debt outstanding, at
an average interest rate of 9.12%. In January 2000, we entered into a two-year
modified interest rate swap contract to hedge the impact of interest rate
fluctuations on certain variable rate debt. We do not hold or issue derivative
financial instruments for trading or speculative purposes. The interest rate
swap fixes the Eurodollar interest rate at 6.80% on $165.0 million of variable
rate debt through January 30, 2002. The interest differential is paid or
received on a monthly basis and recognized as a component of interest expense.
The counterparty to the swap is a major financial institution and management
believes that the risk of incurring credit losses is remote.
16
<PAGE> 19
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(C) RECENT SALES OF UNREGISTERED SECURITIES
During the period from April 1, 2000 through June 30, 2000, we issued
securities in the transactions set forth below. Each of these transactions was
intended to be exempt from the registration requirements of the Securities Act
of 1933, as amended, by virtue of Section 4(2) thereunder based on being issued
in a transaction not involving a public offering.
In May 2000, the stockholders of the Company approved an amendment to the
Company's Amended and Restated 1998 Stock Option Plan to increase from 7,000,000
to 10,000,000 the number of shares available for grants under the plan.
From April 1, 2000 through June 30, 2000, we granted options to certain of
our employees to purchase an aggregate of 150,000 shares of Common Stock at
exercise prices ranging from $4.31 to $5.25 per share. These options generally
vest over a four year period at the rate of 25% per year beginning on the first
anniversary of the date of grant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 12, 2000, the Company held an annual meeting of the stockholders
with respect to the following matters: (1) for the holders of the Company's
Common Stock to elect six persons to the Company's Board of Directors, (2) for
the holders of the Company's Series A Convertible Preferred Stock to elect two
persons to the Company's Board of Directors; and (3) to approve an amendment to
the Company's Amended and Restated 1998 Stock Option Plan (the "1998 Stock
Option Plan") to increase from 7,000,000 to 10,000,000 the maximum number of
shares of the Company's Common Stock subject to awards under the 1998 Stock
Option Plan:
The following table sets forth the votes for and votes withheld with
respect to the election of the Common Stock directors:
<TABLE>
<CAPTION>
NAME VOTES FOR VOTES WITHHELD
---- ---------- --------------
<S> <C> <C>
James L. Kirk............................................... 40,451,168 132,010
H. Wayne Huizenga........................................... 40,440,918 142,260
Harris W. Hudson............................................ 40,430,518 152,660
Gary L. Gabriel............................................. 40,441,193 141,985
Thomas H. Bruinooge......................................... 40,429,743 153,435
Ivan W. Gorr................................................ 40,427,543 155,635
</TABLE>
The following table sets forth the votes for and votes withheld with
respect to the election of the Series A Preferred Stock directors:
<TABLE>
<CAPTION>
NAME VOTES FOR VOTES WITHHELD
---- --------- --------------
<S> <C> <C>
Christopher J. O'Brien...................................... 100,000 0
Charles J. Philippin........................................ 100,000 0
</TABLE>
With respect to the approval of the amendment to the Company's 1998 Stock
Option Plan, 47,378,074 votes were cast for this matter (including 33,092,360
votes of Common Stock and 14,285,714 votes of Series A Preferred Stock), 554,978
votes were cast against this matter and there were 188,771 abstentions and
6,747,069 broker non-votes.
17
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of January 20, 1999,
between the Company and Rental Service Corporation.(5)
2.2 Stock Option Agreement, dated as of January 20, 1999,
between the Company and Rental Service Corporation.(5)
2.3 Stock Option Agreement, dated as of January 20, 1999,
between Rental Service Corporation and the Company.(5)
2.4 Voting Agreement, dated as of January 20, 1999, between Kirk
Holdings Limited Partnership, H. Family Investments, Inc.
and Huizenga Investments Limited Partnership, as
shareholders, and Rental Service Corporation.(5)
2.5 Termination and Release Agreement, dated May 20, 1999,
between the Company and Rental Service Corporation.(6)
2.6 Stock Option Termination Agreement dated May 20, 1999,
between the Company and Rental Service Corporation.(6)
3.1 Amended and Restated Certificate of Incorporation of the
Company.(2)
3.2 Amended and Restated By-Laws of the Company.(1)
3.3 Certificate of Designation for Series A Convertible
Preferred Stock.(8)
3.4 Certificate of Amendment to Certificate of Designation for
Series A Convertible Preferred Stock.(7)
3.5* Certificate of Designation for Series B Convertible
Preferred Stock
4.1 Unregistered 10 3/8% Global Senior Subordinated Notes due
2008.(4)
4.2 Registered 10 3/8% Senior Subordinated Notes due 2008.(4)
4.3 Senior Subordinated Guarantee dated December 11, 1998, of
the Guarantors as defined therein.(4)
4.4 Indenture, dated December 11, 1998, by and among Company,
the Guarantors and The Bank of New York.(4)
4.5 Registration Rights Agreement, dated December 11, 1998, by
and among the Company, the Guarantors and the Initial
Purchasers as defined therein.(4)
4.6* Fifth Amended and Restated Revolving Credit and Term Loan
Agreement, dated as of August 2, 2000, by and among the
Company, certain of its subsidiaries, Fleet National Bank
(f/k/a BankBoston, N.A.) and the other lending institutions
party thereto, Fleet National Bank, as administrative agent,
Bankers Trust Company, as syndication agent, and Scotiabanc
Inc., as documentation agent
4.7* Second Amended Restated Security Agreement, dated as of
August 2, 2000, between the Company, certain of its
subsidiaries, and Fleet National Bank (f/k/a BankBoston,
N.A.), as administrative agent
10.1 Stock Purchase Agreement, dated August 15, 1997, by and
among the Company, Sam's and the shareholders of Sam's,
together with Amendment Nos. 1-6.(1)
10.2 Form of Unsecured Subordinated Promissory Notes -- Sam's.(1)
10.3 Form of Unsecured Convertible Promissory Note -- Sam's.(1)
10.4 Form of Unsecured Contingent Convertible Subordinated
Promissory Notes -- Sam's.(1)
10.5 Agreement, dated September 22, 1997, between the Company and
Gary L. Gabriel.(1)
10.6 Asset Purchase Agreement, dated December 8, 1997, by and
among NationsRent of Ohio, Inc., R&R Rental, Inc. ('R&R')
and the sole shareholder of R&R, together with an Amendment
dated December 10, 1997.(1)
10.7 Form of Unsecured Subordinated Promissory Note -- R&R.(1)
10.8 Asset Purchase Agreement, dated December 8, 1997, as
amended, among NationsRent of Indiana, Inc. and C&E Rental
and Service, Inc. ('C&E'), together with an Amendment dated
December 23, 1997.(1)
</TABLE>
18
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
10.9 Form of Unsecured Convertible Subordinated Promissory Note
C&E.(1)
10.10 Stock Purchase Agreement, dated December 20, 1997, as
amended, among NationsRent of West Virginia, Inc., Titan,
together with an Amendment dated December 31, 1997.(1)
10.11 Form of Unsecured Convertible Subordinated Promissory
Note -- Titan.(1)
10.12 Stock Purchase Agreement, dated March 24, 1998, among the
Company, Bode-Finn Limited Partnership ('Bode-Finn') and the
shareholders of Bode-Finn, together with Amendment No. 1,
dated April 6, 1998, and Amendment No. 2, dated April 17,
1998.(1)
10.13 Form of Unsecured Convertible Subordinated Promissory
Notes -- Bode-Finn.(1)
10.14 Form of Warrant -- Bode-Finn.(1)
10.15 Registration Rights Agreement, dated May 5, 1998, among the
Company, Bode-Finn, and Raymond E. Mason Foundation.(1)
10.16 Asset Purchase Agreement, dated March 25, 1998, among
NationsRent of Indiana, Inc., RFL, Enterprises, Inc. and the
sole shareholder of RFL Enterprises, Inc. ('RFL').(1)
10.17 Asset Purchase Agreement, dated April 21, 1998, among
NationsRent of Florida, Inc. and Naples Rent-All and Sales
Company, Inc. ('Naples').(1)
10.18 Form of Unsecured Convertible Subordinated Promissory
Note -- Naples.(1)
10.19 Stock Purchase Agreement, dated May 7, 1998, among the
Company, Raymond Equipment Co. ('Raymond Equipment') and the
shareholders of Raymond Equipment.(1)
10.20 Form of Unsecured Subordinated Promissory Notes -- Raymond
Equipment.(1)
10.21 Form of Unsecured Convertible Subordinated Promissory
Notes -- Raymond Equipment.(1)
10.22 Asset Purchase Agreement, dated May 14, 1998, among the
Company and General Rental, Inc.(1)
10.23 Stock Purchase Agreement, dated May 30, 1998, among the
Company, J. Kelly Co., Inc. ('J. Kelly') and the
shareholders of J. Kelly.(1)
10.24 Form of Unsecured convertible Subordinated Promissory
Note -- J. Kelly.(1)
10.25 Form of Registration Rights Agreement among the Company and
the shareholders of J. Kelly.(1)
10.26 Asset Purchase Agreement, dated June 7, 1998, among the
Company, Associated Rental Equipment Management Company,
Inc. ('Associated') and the sole shareholder of
Associated.(1)
10.27 Form of Unsecured Convertible Subordinated Promissory
Note -- Associated.(1)
10.28 Form of Registration Rights Agreement -- Associated.(1)
10.29 Form of Subscription Agreement, dated May 1998, between the
Company and certain subscribers.(1)
10.30 NationsRent Second Amended and Restated 1998 Stock Option
Plan.(9)
10.31 Form of Stock Option Agreement.(1)
10.32 Amended and Restated Purchase Agreement, dated as of
September 9, 1998, by and among NationsRent, Inc., Ray L.
O'Neal, Inc., Arenco, L.L.C., Don R. O'Neal, Elizabeth M.
O'Neal and the O'Neal Revocable Trust dated December 29,
1987.(3)
10.33 Unsecured Convertible Subordinated Promissory Note, dated as
of October 23, 1998, from the Company to Ray L. O'Neal,
Inc.(3)
10.34 Preferred Stock Purchase Agreement, dated July 20, 1999, by
and among the Company, NR Holdings Limited and NR
Investments Limited.(8)
10.35 Registration Rights Agreement, dated as of July 20, 1999, by
and between the Company, NR Holdings Limited, NR Investments
Limited, James L. Kirk and H. Wayne Huizenga.(8)
10.36* Preferred Stock Purchase Agreement, dated August 2, 2000, by
and among the Company, NR2 Holdings Limited, DB Capital
Investors, L.P., J.P. Morgan Capital Corporation and Sixty
Wall Street Fund, L.P.
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
10.37* Registration Rights Agreement, dated as of August 2, 2000,
by and among the Company, NR2 Holdings Limited, DB Capital
Investors, L.P., J.P. Morgan Capital Corporation, Sixty Wall
Street Fund, L.P., James L. Kirk and H. Wayne Huizenga and
holders of the Series A Convertible Preferred Stock
27.1* Financial Data Schedule. (for SEC use only)
</TABLE>
---------------
* Filed herewith
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1, as amended, Commission File No. 333-56233.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the period ended June 30, 1998.
(3) Incorporated by reference to the Company's Current Report on Form 8-K filed
on November 9, 1998.
(4) Incorporated by reference to the Company's Registration Statement on Form
S-4, Commission File No. 333-69691.
(5) Incorporated by reference to the Company's Current Report on Form 8-K filed
on April 8, 1999.
(6) Incorporated by reference to the Company's Current Report on Form 8-K filed
on May 21, 1999.
(7) Incorporated by reference to the Company's Registration Statement on Form
S-3, Commission File No. 333-88603.
(8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the period ended June 30, 1999.
(9) Incorporated by reference to the Company's Registration Statement on Form
S-8, Commission File No. 333-38870.
(b) REPORTS ON FORM 8-K
The Company filed no Current Reports on Form 8-K during the quarter ended
June 30, 2000.
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONSRENT, INC.
<TABLE>
<S> <C>
Date: August 11, 2000 By: /s/ JAMES L. KIRK
----------------------------------------------------
James L. Kirk
Chairman of the Board and Chief Executive Officer
(Duly Authorized Officer)
Date: August 11, 2000 By: /s/ GENE J. OSTROW
----------------------------------------------------
Gene J. Ostrow
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Date: August 11, 2000 By: /s/ KRIS E. HANSEL
----------------------------------------------------
Kris E. Hansel
Vice President and Controller
(Principal Accounting Officer)
</TABLE>
21
