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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
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(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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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Commission File Number: 001-14299
NATIONSRENT, INC.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C>
DELAWARE 31-1570069
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification Number)
Organization)
450 EAST LAS OLAS BOULEVARD, SUITE 1400 33301
FORT LAUDERDALE, FLORIDA (Zip Code)
(Address of Principal Executive Offices)
</TABLE>
Registrant's telephone number, including area code: (954) 760-6550
Securities Registered Pursuant To Section 12(b) of the Act:
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Title of Class Name of Each Exchange On Which Registered
------------------ ------------------------------------------
COMMON STOCK, NEW YORK STOCK EXCHANGE
PAR VALUE $.01 PER SHARE
</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 March 22, 2000, the registrant had 58,566,079 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 $158.1 million.
DOCUMENTS INCORPORATED BY REFERENCE
Part III Portions of the Registrant's Proxy Statement relating to the 2000
Annual Meeting of Stockholders.
Part IV Portions of previously filed reports and registration statements.
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INDEX
TO FORM 10-K
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PAGE
NUMBER
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 6
Item 3. Legal Proceedings........................................... 6
Item 4. Submission of Matters to a Vote of Security Holders......... 6
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 7
Item 6. Selected Financial Data..................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 10
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 17
Item 8. Financial Statements and Supplementary Data................. 18
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 52
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 52
Item 11. Executive Compensation...................................... 52
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 52
Item 13. Certain Relationships and Related Transactions.............. 52
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 52
Item 15. Change in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 52
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PART I
ITEM 1. BUSINESS
INTRODUCTION
NationsRent, Inc., a Delaware corporation, together with its subsidiaries
(the "Company," "NationsRent" or the "Registrant"), is one of the fastest
growing equipment rental companies in the United States. We have acquired a
platform of equipment rental businesses concentrated in selected markets and are
building a network of nationally branded locations. As of March 15, 2000, we
operated over 180 locations in 27 states across the United States. We have
become a leading provider of rental equipment as a result of our strategy to
acquire core businesses, open or acquire additional locations concentrated
around those businesses and expand our rental fleet. We believe that this
"cluster" strategy enables us to increase profitability in our acquired stores
and achieve profitability in our newly opened locations more quickly than our
competitors. By implementing the cluster strategy and expanding our fleet of
rental equipment, we are able to provide a full range of rental equipment to
customers with a wide variety of equipment rental needs.
We offer our customers a comprehensive line of equipment for rental. We
also sell used and new equipment, spare parts and supplies, and provide
maintenance and repair services. Our locations offer a full range of high
quality, well-maintained rental equipment, including the following:
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- - backhoes - aerial lifts and work platforms - articulated trucks
- - bulldozers - compressors and generators - excavators
- - skid steer loaders - specialized hand tools - wheel loaders
</TABLE>
We serve over 200,000 active accounts primarily in the construction and
industrial segments of the equipment rental industry. Construction customers
include heavy highway contractors, general contractors, speciality contractors,
subcontractors, excavating contractors and trade contractors (such as
electricians and plumbers). Construction customers rent equipment for all manner
of construction activities, typically on a daily, weekly or monthly basis, often
with relatively little lead time due to their need to react quickly to changes
in project scheduling. Industrial customers include operators of manufacturing
plants, petrochemical plants, distribution centers and transportation
facilities. Industrial customers typically rent equipment for
maintenance-oriented purposes on a weekly or monthly basis and are more likely
to place orders for rental equipment in advance of their regularly scheduled
maintenance requirements. In addition to construction and industrial customers,
we rent equipment to homeowners and other general rental customers.
INDUSTRY OVERVIEW
According to industry sources, the United States equipment rental industry
grew from an estimated $614.0 million in revenue in 1982 to an estimated $28.0
billion in 1999, which represents a compound annual growth rate of more than
10%. Construction and industrial companies primarily have driven this growth by
increasingly outsourcing their equipment needs to reduce investment in non-core
assets and convert costs from fixed to variable. According to industry sources,
the United States equipment rental industry is expected to grow to an estimated
range of $50.0 billion to $80.0 billion in annual revenue by the year 2008 due
to the overall growth in the economy and a continuing trend to rent rather than
buy equipment. In addition, the United States equipment rental industry is
highly fragmented, with more than 14,000 equipment rental locations. According
to industry sources, in 1999 the 100 largest equipment rental companies in the
United States had a combined market share of approximately 25%. No single
equipment rental company in the United States had a market share greater than
10%. We are taking advantage of the fragmentation in the equipment rental
industry and the absence of an equipment rental company with significant market
share by creating an integrated network of nationally branded locations offering
broad product selection and superior customer service.
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BUSINESS STRATEGY
Our objectives are to increase revenue, profitability, market share and
cash flow by building a nationally branded network of locations that offer a
comprehensive selection of high quality rental equipment in convenient and
accessible locations to customers in the construction and industrial markets.
Key elements of our growth strategy are as follows:
Enhance Operations. We enhance the operations at our locations by:
- increasing the breadth and depth of rental inventory and sharing rental
equipment among locations;
- implementing the NationsRent customer service approach;
- linking locations to the NationsRent management information system;
- branding locations and rental inventory with the NationsRent logo, colors
and distinctive store appearance; and
- increasing awareness of our brand through targeted local and national
marketing.
Expand National Presence. We expect to continue to acquire leading
companies to implement our cluster strategy and position NationsRent to achieve
significant market share. We target businesses that have one or more of the
following characteristics:
- strong positions in their geographic market;
- experienced local management teams that will continue to work with us
following the acquisition;
- high quality inventory of equipment rental; and
- physical and operating characteristics that are suited to conversion to
the NationsRent format.
Once we have entered a particular market, we seek to acquire additional
rental businesses in that market or adjacent markets with locations and
equipment selection that complement our existing operations, thus enabling us to
further penetrate that market.
Open New Rental Locations. Once we have established a presence in a
particular market, we seek to open new locations in that geographic area or
adjacent areas to enable us to offer a greater selection and availability of
equipment, maximize our equipment inventory utilization rates and achieve
economies of scale. We believe that this strategy allows our new locations to
achieve profitability at a faster rate than our competitors because these
locations (1) generate revenue more quickly as a result of the pre-existing
market presence, name recognition and referrals from existing locations and (2)
have lower overhead costs due to the sharing of service, maintenance,
administrative functions and personnel with our already-established locations.
Since August 1997, we have opened 22 new locations, four of which have been
opened since January 1, 2000.
Further Penetrate Industrial Rental Market. We believe that the equipment
needs of industrial customers are under served by the existing equipment rental
market in the United States and that there are significant opportunities to
further penetrate this market segment. We also believe that by offering a
comprehensive selection and available supply of rental equipment throughout an
integrated nationally branded network of locations, industrial customers will
become increasingly aware of the advantages of equipment rental relative to
ownership. Such advantages include reduced capital investment, reduced storage
and maintenance expense and greater access to the most modern equipment.
ACQUISITIONS
In furtherance of our growth strategy, since our inception in August 1997
through March 15, 2000, we had acquired 57 equipment rental businesses and
operated over 180 locations in 27 states. These locations are concentrated in
the following five geographic regions: Midwest Region, the Southeast Region, the
Central Region, the Northeast Region, and the West Region. We believe that each
of the equipment rental businesses which we have acquired meets one or more of
our acquisition criteria and promotes our cluster strategy. Furthermore, each of
these acquired businesses allows us to better meet the needs of the broad range
of
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construction and industrial customers to whom we primarily market our products
and services. To this end, many of the businesses we have acquired have been
doing business in their respective markets for more than 35 years.
OPERATIONS
We are one of the fastest growing equipment rental companies in the United
States, operating over 180 locations as of March 15, 2000. Our operations
primarily consist of:
- renting a full range of equipment to construction and industrial
customers;
- selling our used equipment inventory;
- selling new equipment as a distributor or dealer on behalf of several
nationally known equipment manufacturers; and
- selling parts, supplies and merchandise and providing repair and
maintenance services to complement our equipment rentals and sales.
Equipment Rentals. We rent on a daily, weekly and monthly basis a broad
variety of light, medium and heavy equipment serving contractors and other
commercial and industrial customers. Our rental inventory includes such
equipment as aerial lifts and work platforms, air compressors, backhoes, boom
lifts, bulldozers, ditching equipment, forklifts, generators, articulated
trucks, excavators, wheel loaders and skid loaders, pumps and scissor lifts. The
mix of equipment offered from each of our locations varies based on the needs of
the local market.
We make capital investments in new equipment, engage in periodic sales of
used equipment and conduct preventive maintenance. These practices are designed
to increase equipment utilization, enhance resale values and extend the useful
life of equipment.
We have developed operating initiatives that we are in the process of
introducing at all of our locations to offer our rental customers more
convenient access, faster check-in and check-out procedures, reduced equipment
downtime and shorter lead times for rentals than our competitors. For example,
nearly all of our new locations are being designed with drive-through lanes to
speed up equipment loading and unloading. In addition, our rental equipment is
being outfitted with universal trailer hitches designed to accept a broad range
of towing mechanisms to ease customer transport of equipment. To reduce the
downtime associated with flat tires, we fill the tires of equipment used in
areas prone to flats with foam instead of air. Our rental locations also offer
equipment delivery and pick-up, on-site repair service within two hours of
customer request, 24-hour customer assistance, and written instructional
materials for equipment usage and safety.
Used Equipment Sales. We periodically sell used equipment to adjust the
size and composition of our rental equipment inventory in response to changing
market conditions and to maintain the quality and low average age of our rental
equipment. We attempt to balance the revenue obtainable from used equipment
sales with the revenue obtainable from continued equipment rentals. We are
generally able to achieve favorable resale prices for our used equipment due to
a preventive maintenance program and practice of selling used equipment before
it becomes obsolete or irreparable. We believe that the proactive management of
new equipment purchases and used equipment sales allows us to maximize
utilization rates and respond to changing economic conditions.
New Equipment Sales. We are a distributor of new equipment on behalf of
several nationally known equipment manufacturers. We have dealership
arrangements in certain geographic areas with various equipment manufacturers.
Typically, dealership agreements do not have a specific term and may be
terminated by either party upon specific events and/or written notice. In the
future we may continue, amend or terminate dealership arrangements, if any, of
businesses we acquire or we may enter into new dealership agreements or
arrangements, depending on market conditions in the area and other factors.
Parts, Supplies and Service. We sell a full complement of parts, supplies
and merchandise to our customers in conjunction with our equipment rental and
sales business. We provide repair service to rental
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customers and, as part of our focus on customer service, we generally respond to
rental equipment service requests within two hours. We also offer maintenance
service to customers who own equipment and generate revenue from damage waiver
charges and delivery charges. We believe that revenue from parts and service is
more stable than equipment sales revenue because of the recurring nature of the
parts and service business. We also believe that during economic downturns the
parts and service business may increase as customers postpone new equipment
purchases and instead attempt to maintain their existing equipment.
CUSTOMERS
We serve over 200,000 active accounts primarily in the construction and
industrial segments of the equipment rental industry. No single customer
accounted for more than 2% of our 1999 revenue. Our customers vary in size from
large Fortune 500 companies to small construction contractors, subcontractors,
machine operators and homeowners.
We do not provide purchase financing to customers. We rent equipment, sell
parts and provide repair services on account to customers who are screened
through a credit application process. Customers can arrange financing of
purchases of large equipment through a variety of sources including
manufacturers, banks, finance companies and other financial institutions. We
have entered into agreements with financing sources to provide financing to our
customers for the purchase of new and used equipment.
SALES AND MARKETING
We maintain a strong marketing and sales orientation throughout our
organization in order to better understand and serve our customers and increase
our customer base. We undertake sales and marketing initiatives designed to
increase revenue and market share and build brand awareness. We prepare
marketing analyses which address key business issues such as market/industry
history, opportunities, company philosophy, sales trends, consumer behavior
trends, distribution channels, pricing issues, target markets, advertising and
media analysis, competitive situations and selling strategies. Based on the
results of our analyses, we develop marketing and sales strategies. To assist us
in implementing our marketing and sales strategies, we have retained a national
advertising agency.
Our regional managers are responsible for training, supervising and
directing the selling activities of the NationsRent sales force in their
markets. In addition, regional managers are also responsible for overseeing the
mix of equipment at their locations, keeping abreast of local construction and
industrial activity and monitoring competitors in their respective markets.
We employ over 300 equipment rental salespeople who utilize targeted local
marketing strategies to address specific customer needs and respond to
competitive pressures. To remain informed of local market activity, salespeople
track construction projects and new equipment sales in their area through
Equipment Data Reports, F.W. Dodge Reports and PEC Reports (Planning,
Engineering and Construction), follow up on referrals and visit construction
sites and potential equipment users who are new to the area.
TRADEMARKS
The Company owns a number of registered service marks which include the
name "NationsRent."
STORE LAYOUT AND DESIGN
Many of our locations are situated in high-visibility commercial and
industrial areas and are designed to offer easy and convenient access to our
customers. Our facilities are designed to meet local market needs and come in
three distinct sizes. Our smallest facility is typically situated on a two to
four acre site, housing a 8,000 to 10,000 square foot facility. Our medium
facility is typically situated on a four to six acre site, housing a 10,000 to
16,000 square foot facility. Our largest facility is typically situated on six
to 12 acre site, housing a 20,000 to 40,000 square foot facility. All of our
facilities feature reconditioning and service centers and a broad selection and
extensive inventory of equipment and supplies. The type of equipment rented at a
particular location and the needs of the local market usually determine the type
of general rental equipment that the
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facility has to offer its customers. The design attributes of our stores include
a customer retail showroom, sales and administrative offices, small equipment
pick-up and drop-off area, small equipment staging and storage area,
reconditioning and storage area, equipment cleaning area and outdoor and indoor
equipment storage facilities.
PURCHASING
We acquire equipment from vendors with reputations for product quality and
reliability. Our size and the quantity of equipment we acquire enable us to
purchase most equipment directly from manufacturers pursuant to national
purchasing agreements at lower prices and on more favorable terms than many
smaller competitors. We maintain close relationships with our vendors to ensure
the timely delivery of new equipment. We believe that we have sufficient
alternative sources of supply for the equipment we purchase in each of our
principal product categories. We acquire our rental equipment inventory through
a combination of purchase and lease arrangements.
We select the type and quantity of rental equipment to be purchased for
each of our locations based on the expected needs of the local market. We
determine rental rates for each type of equipment based on the cost and expected
utilization of the equipment, and adjust rental rates at each location for
demand, length of rental, volume of equipment rented and other competitive
considerations.
COMPETITION
The equipment rental industry is highly fragmented and competitive. We
compete with independent third parties in all of the markets in which we
operate. Most of our competitors in the rental business tend to operate in
specific, limited geographic areas, although some larger competitors compete on
a national basis. We also compete with equipment manufacturers which sell and
rent equipment directly to customers. Some of our competitors have greater
financial resources and name recognition than our company.
ENVIRONMENTAL, SAFETY AND OTHER GOVERNMENTAL REGULATION
Our equipment, facilities and operations are subject to certain federal,
state and local laws and regulations relating to environmental protection and
occupational health and safety, including those governing wastewater discharges,
the use, treatment, storage and disposal of solid and hazardous wastes and
materials, air quality and the remediation of contamination associated with the
release of hazardous substances. For example, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, provides for,
among other things, the remediation of sites from which there is a release or
threatened release of a hazardous substance into the environment and may impose
liability for the costs of cleanup and for damages to natural resources upon
past and current owners and operators of such sites. In addition, the Federal
Water Pollution Control Act of 1972 regulates the discharge of pollutants into
streams, rivers and other waters and may require that we obtain discharge
permits. The Occupational Safety and Health Act of 1970 authorizes the
promulgation of occupational safety and health standards which apply to our
facilities and operations. In addition to federal environmental and safety
regulations, the states and certain localities in which we operate have their
own laws and regulations governing solid waste disposal, water pollution and, in
most cases, releases and cleanup of hazardous substances as well as liability
for such matters, which may be applicable to our facilities and operations.
Certain of our existing and former locations use and have used substances,
and currently generate or have generated or disposed of wastes, which are or may
be considered hazardous or otherwise are subject to applicable environmental
requirements. In particular, we store and dispense, or in the past we or the
prior owners or operators have stored or dispensed, petroleum products from
above-ground storage tanks and, in certain cases, underground storage tanks. We
also operate locations which in the past used hazardous materials, including
solvents, to clean and maintain equipment, and generate and dispose of solid and
hazardous wastes, including batteries, used motor oil, radiator fluid and
solvents. In connection with such activities, we have incurred certain capital
expenditures and other compliance costs which are expensed on a current basis
and which, to date, have not been material to our financial condition or results
of operations.
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Additionally, in connection with acquisitions of equipment rental
businesses, we undertake environmental assessments of substantially all
locations that we will continue to operate following the acquisitions and expect
to continue to do so before acquiring any additional sites. We also undertake
environmental assessments at all facilities prior to leasing them for new
locations. We do not currently maintain comprehensive insurance covering
environmental liabilities at our sites. However, the sellers of each of the
equipment rental businesses which we have acquired and the landlords of
facilities we have leased have indemnified us with respect to pre-existing
environmental liabilities associated with such businesses or facilities. Based
on currently available information, we believe that it is unlikely that we will
have to incur material capital expenditures or other material compliance or
remediation costs for environmental and safety matters in the foreseeable
future. We cannot assure you, however, that federal, state or local
environmental and safety requirements will not become more stringent or be
interpreted and applied more stringently in the future. We also cannot assure
you that in connection with acquisitions or leasing new facilities we will
identify all existing adverse environmental conditions or that indemnification
from sellers or landlords will be enforceable or sufficient to cover such
conditions. Such future changes or interpretations, or the identification of
adverse environmental conditions following the time we begin operating a site,
could result in additional environmental compliance or remediation costs which
we do not currently anticipate, which could be material to our financial
condition or results of operations.
In addition to environmental and safety regulations, we may also be subject
to Department of Transportation regulations regarding the operation of motor
vehicles and consumer protection laws affecting our operations.
EMPLOYEES
As of March 15, 2000, we employed approximately 3,430 persons,
approximately 90 of which were covered by a collective bargaining agreement. We
believe our relations with our employees are good.
ITEM 2. PROPERTIES
Our corporate headquarters are located in Fort Lauderdale, Florida, in
leased premises. Certain of our property and equipment are subject to liens
securing payment of portions of our indebtedness. As of March 15, 2000, we
operated over 180 rental locations located in 27 states: Alabama, Arizona,
California, Colorado, Connecticut, Florida, Georgia, Indiana, Kentucky,
Louisiana, Maine, Massachusetts, Michigan, Nevada, New Hampshire, New Jersey,
New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina,
Tennessee, Texas, Utah, Vermont and West Virginia. We lease the real estate for
all but two of our locations and also lease certain of our equipment. We believe
that all of our facilities are sufficient for our current needs.
ITEM 3. LEGAL PROCEEDINGS
We are party to pending legal proceedings arising in the ordinary course of
business. While the results of such proceedings cannot be predicted with
certainty, we do not believe that any of these matters are material to our
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock, $.01 par value per share, began trading on the New York
Stock Exchange on August 7, 1998 under the symbol "NRI." The following table
sets forth, for the periods indicated, the range of the high and low sales
prices per share for the common stock.
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PRICE RANGE OF
COMMON STOCK
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HIGH LOW
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FISCAL YEAR ENDED DECEMBER 31, 1999:
First Quarter............................................... $8.625 $5.4375
Second Quarter.............................................. 7.125 5.3750
Third Quarter............................................... 7.750 5.3750
Fourth Quarter.............................................. 7.750 5.4375
FISCAL YEAR ENDED DECEMBER 31, 1998:
Third Quarter (from August 7, 1998)......................... $8.69 $6.06
Fourth Quarter.............................................. 7.19 4.39
</TABLE>
On March 22, 2000, the last reported sales price of the common stock on the
New York Stock Exchange was $4.75. As of the same date, there were approximately
156 holders of record of the common stock.
We have not paid any dividends in the past and presently anticipate that
earnings, if any, will be retained for the development of our business and that
we will not declare dividends on the common stock in the foreseeable future. In
addition, our ability to declare or pay dividends is restricted by the terms of
our credit facilities as well as the terms of the indenture governing our
10 3/8% senior subordinated notes due 2008. Any future dividends will be subject
to the discretion of our Board of Directors and will depend upon, among other
things, our future earnings, operating and financial condition, capital
requirements and general business conditions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with our Consolidated Financial Statements and notes thereto contained in Part
II, Item 8 of this Annual Report on Form 10-K. The following selected
consolidated financial information summarizes (1) the statement of operations
data and selected balance sheet data for Sam's Equipment Rental, Inc. and
Gabriel Trailer Manufacturing Company, Inc. (collectively, the "Predecessor") as
of and for the fiscal year ended March 31, 1996, which have been derived from
unaudited consolidated financial statements not included herein, (2) the
statement of operations data for the Predecessor for the fiscal years ended
March 31, 1997 and the five months ended August 31, 1997 and the selected
balance sheet data as of March 31, 1997 and August 31, 1997, which have been
derived from audited consolidated financial statements included herein, and (3)
the statement of operations data of NationsRent for the period from August 14,
1997 (inception) through December 31, 1997 and for the years ended December 31,
1998 and 1999, and selected balance sheet data as of December 31, 1997, 1998,
and 1999, which have been derived from the audited consolidated financial
statements of NationsRent included herein. The other data has been derived from
the consolidated financial statements referred to above for the applicable
periods. See also "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
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THE PREDECESSOR THE COMPANY(1)
--------------------------------- -----------------------------------------------
AUGUST 14,
TWELVE MONTHS ENDED APRIL 1 (INCEPTION)
MARCH 31, THROUGH THROUGH TWELVE MONTHS ENDED DECEMBER 31,
-------------------- AUGUST 31, DECEMBER 31, --------------------------------
1996 1997 1997 1997 1998 1999
------- ------- ---------- ------------ -------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Revenue:
Equipment rentals......................... $11,871 $15,328 $ 8,515 $ 7,410 $ 150,668 $415,629
Sales of equipment, merchandise, service,
parts and supplies...................... 4,302 4,177 1,205 1,895 85,730 142,792
------- ------- ------- ------- ---------- --------
Total revenue....................... 16,173 19,505 9,720 9,305 236,398 558,421
------- ------- ------- ------- ---------- --------
Cost of revenue:
Cost of equipment rentals................. 4,380 6,029 2,193 2,196 49,866 127,049
Rental equipment depreciation and lease
expense(2).............................. 2,053 3,465 1,848 1,526 30,681 87,358
Cost of sales of equipment, merchandise,
service, parts and supplies............. 4,491 2,791 984 1,691 61,455 94,594
------- ------- ------- ------- ---------- --------
Total cost of revenue............... 10,924 12,285 5,025 5,413 142,002 309,001
------- ------- ------- ------- ---------- --------
Gross profit................................ 5,249 7,220 4,695 3,892 94,396 249,420
Selling, general and administrative
expenses.................................. 2,972 3,564 1,683 1,081 44,411 101,873
Expenses related to abandoned merger,
net(3).................................... -- -- -- -- -- 3,932
Non-rental equipment depreciation and
amortization(2)........................... 180 238 115 284 7,266 22,136
------- ------- ------- ------- ---------- --------
Operating income............................ 2,097 3,418 2,897 2,527 42,719 121,479
------- ------- ------- ------- ---------- --------
Other (income)/expense:
Interest expense, net..................... 583 866 580 760 20,858 69,228
Other, net................................ (196) (203) 62 -- (401) (2,320)
------- ------- ------- ------- ---------- --------
387 663 642 760 20,457 66,908
------- ------- ------- ------- ---------- --------
Income before provision for income taxes.... 1,710 2,755 2,255 1,767 22,262 54,571
Provision for income taxes................ 732 1,128 939 766 9,608 22,648
------- ------- ------- ------- ---------- --------
Net income.................................. $ 978 $ 1,627 $ 1,316 $ 1,001 $ 12,654 $ 31,923
======= ======= ======= ======= ========== ========
Earnings per share:(4)
Basic:.................................... $ 0.04 $ 0.37 $ 0.57
======= ========== ========
Diluted:.................................. $ 0.04 $ 0.37 $ 0.49
======= ========== ========
OTHER DATA:
Gross margin.............................. 32.5% 37.0% 48.3% 41.8% 39.9% 44.7%
Operating margin.......................... 13.0 17.5 29.8 27.2 18.1 21.8
Amortization of goodwill(2)............... $ -- $ -- $ -- $ 170 $ 5,038 $ 15,123
Depreciation and other amortization....... 2,233 3,703 1,963 1,640 26,691 53,726
</TABLE>
<TABLE>
<CAPTION>
THE PREDECESSOR THE COMPANY
--------------------------------- ----------------------------------
AS OF MARCH 31, AS OF AS OF DECEMBER 31,
-------------------- AUGUST 31, ----------------------------------
1996 1997 1997 1997 1998 1999
------- ------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Rental equipment, net......................... $14,722 $21,789 $21,886 $30,619 $ 382,573 $ 574,846
Goodwill, net................................. -- -- -- 36,686 523,785 701,139
Total assets.................................. 17,423 27,614 29,088 79,157 1,075,812 1,559,394
Total debt.................................... 9,944 16,100 16,559 42,928 678,035 989,428
Stockholders' equity.......................... 2,840 4,467 5,768 26,001 282,230 413,387
</TABLE>
- ---------------
(1) All of our acquisitions to date have been accounted for as purchases and,
accordingly, the operations of the acquired businesses are included in the
statement of operations data and other data from the effective date of
acquisition.
(2) The amortization period for rental equipment depreciation ranges from 18 to
120 months. The amortization period for goodwill is 40 years.
(3) Represents the unreimbursed portion of expenses incurred related to the
proposed merger with Rental Service Corporation ("RSC") that was abandoned
in May 1999. The Company received $6.0 million from RSC as reimbursement for
expenses incurred by the Company in connection with the abandoned merger.
(4) Earnings per share data is not included for the Predecessor as such
information would not be representative of the capital structure of the
Company.
9
<PAGE> 12
ITEM 7. 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
consolidated financial statements and the related notes included elsewhere in
this Annual Report on Form 10-K. Unless otherwise indicated, all information
contained in this Item 7 is as of December 31, 1999.
GENERAL
NationsRent is one of the fastest growing equipment rental companies in the
United States. We have acquired a platform of equipment rental businesses
concentrated in selected markets and are building a network of nationally
branded locations. As of March 15, 2000, we operated over 180 equipment rental
locations in 27 states. We have become a leading provider of rental equipment as
a result of our strategy to acquire core businesses, open or acquire additional
locations concentrated around those businesses and expand our rental fleet. We
believe that this cluster strategy enables us to increase profitability in our
acquired stores and achieve profitability in our newly opened locations more
quickly than our competitors. By implementing the cluster strategy and expanding
our fleet of rental equipment, we are able to provide a full range of rental
equipment to customers with a wide variety of equipment rental needs.
During 1999, we acquired 17 equipment rental businesses. We paid an
aggregate of approximately $194.5 million for these 17 acquisitions which
consisted of approximately:
- $156.2 million in cash;
- $25.1 million of convertible subordinated debt;
- $5.8 million of subordinated debt;
- $4.5 million of future contractual cash payments; and
- 390,634 shares of common stock.
We funded the cash portion of the consideration paid for these acquisitions
with borrowings under our senior credit facilities. The acquisitions have been
accounted for using the purchase method and, accordingly, the acquired assets
and assumed liabilities have been recorded at their estimated fair values as of
the date of acquisition. Purchase accounting values for certain acquisitions
have been assigned on a preliminary basis, and are subject to adjustment when
additional information as to the fair values of the net assets acquired is
available. We are awaiting information from third-party appraisers as to the
fair value of certain rental equipment acquired and the final determination of
certain liabilities assumed. We do not believe the final assignment of the fair
value of the net assets acquired will have a significant impact on future
operating results.
After making an acquisition, we convert acquired locations to the
NationsRent format. Distinguishing characteristics of this format include
drive-through lanes, clearly marked equipment aisles, prominent use of the
NationsRent logo and colors and clean, attractive and well-organized store
facilities. The cost of converting an acquired location to the NationsRent
format varies depending on the physical properties of the acquired location and
the condition, breadth and depth of rental equipment inventory at such location,
which are factors considered in the selection and pricing of acquisition
candidates. Once we have established a presence in a particular market, we may
open new locations in that geographic area or adjacent areas. During 1999, we
opened 12 new locations. 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. 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
10
<PAGE> 13
conditions and the condition of the equipment. Revenue from the sale of new
equipment is affected by price and general economic conditions. Revenue from the
sale of spare parts and supplies as well as maintenance and repair services is
primarily affected by equipment rental and sales volume.
The principal components of our cost of revenue include depreciation of
rental equipment, costs of new and used equipment sold, personnel costs,
occupancy costs, the cost of rental equipment under operating leases, repair and
maintenance costs and vehicle operations. Rental equipment depreciation is
calculated using the straight-line method over the estimated useful life of such
equipment. The range of useful lives estimated by management for rental
equipment is primarily 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 $279.5 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.
During 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 Termination Agreement, RSC reimbursed us
for $6.0 million of expenses incurred in connection with the transaction, which
partially offset a total of $9.9 million of expenses incurred by the Company in
connection with the transaction. The net $3.9 million of unreimbursed expenses
is included in operating expenses in the year ended December 31, 1999.
HISTORICAL RESULTS OF OPERATIONS
Year Ended December 31, 1999 as Compared to Year Ended December 31, 1998
Revenue. The following table sets forth our revenue by type for the years
ended December 31, 1999 and 1998 (in thousands, except percentages):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C> <C> <C>
Equipment rentals........................... $415,629 74.4% $150,668 63.7%
Sales of equipment, merchandise, service,
parts and supplies........................ 142,792 25.6 85,730 36.3
-------- ----- -------- -----
$558,421 100.0% $236,398 100.0%
======== ===== ======== =====
</TABLE>
Total revenue increased $322.0 million for the year ended December 31, 1999
when compared to the prior year. This increase was due primarily to the
inclusion of revenue from businesses acquired during 1998 and 1999. Also
contributing to the growth in revenue was an increase in equipment rental
revenue resulting from the expansion of our rental fleet at existing locations.
Equipment rental revenue as a percentage of total revenue was 74.4% and 63.7%
for the years ended December 31, 1999 and 1998, respectively. The higher mix of
rental revenue in 1999 compared to 1998 was due primarily to the expansion of
our rental fleet and the acquisition of companies with a higher percentage of
equipment rentals. This higher mix of rental revenue was also the result of a
decrease in the sales of new equipment, parts and service resulting from the
sale in January 1999 of a lift truck dealership that derived the majority of its
revenue from sales of new equipment and related parts and service.
Gross Profit. Gross profit increased $155.0 million for the year ended
December 31, 1999 when compared to the prior year. This increase in gross profit
was primarily due to the increase in total revenue. Gross profit as a percentage
of total revenue was 44.7% and 39.9% for the years ended December 31, 1999 and
1998, respectively. The increase in gross profit as a percentage of total
revenue was due to the growth in
11
<PAGE> 14
revenue from equipment rentals. We derive higher gross profit margins from
equipment rental revenue than revenue from sales of equipment, merchandise,
service, parts and supplies.
Operating Expenses. Selling, general and administrative expenses increased
$57.5 million for the year ended December 31, 1999 when compared to the prior
year. This increase was due primarily to the inclusion of such costs from
companies acquired during 1998 and 1999 and additional corporate expenses
including costs associated with our strategic marketing initiatives. Also
included in operating expenses for the year ended December 31, 1999 is the $3.9
million of unreimbursed expenses incurred in connection with the abandoned
merger with RSC discussed above. Selling, general and administrative expenses as
a percentage of total revenue were 18.2% and 18.8% for the years ended December
31, 1999 and 1998, respectively.
Non-rental equipment depreciation and amortization increased $14.9 million
for the year ended December 31, 1999 when compared to the prior year. This
increase was due primarily to the increase in goodwill amortization in
connection with acquisitions completed during 1998 and 1999.
Operating Income. Operating income increased $78.8 million for the year
ended December 31, 1999 when compared to the prior year. Operating income as a
percentage of total revenue was 21.8% and 18.1% for the years ended December 31,
1999 and 1998, respectively. These increases were due primarily to the higher
percentage of revenue from equipment rentals in 1999.
Other Income and Expense. Interest expense increased $48.4 million for the
year ended December 31, 1999 when compared to the prior year. This increase was
due primarily to the increase in debt incurred to finance acquisitions and the
expansion of our rental fleet during 1998 and 1999. Interest expense is
primarily attributable to borrowings under our senior credit facilities, notes
issued to finance the purchase of equipment, subordinated notes issued to
sellers of businesses we acquired and our senior subordinated notes issued in
December 1998.
Other income for the year ended December 31, 1999 includes a pre-tax gain
of approximately $1.8 million from the sale in January of a lift truck
dealership.
Income Taxes. Our effective income tax rate was 41.5% and 43.2% for the
years ended December 31, 1999 and 1998, respectively. 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 $19.3 million for the year ended December
31, 1999 when compared to prior year. The increase in net income was due to the
factors discussed above, offset by the charge related to the abandoned merger
with RSC discussed above. Net income, excluding the charge related to the
abandoned merger with RSC, would have been $34.2 million or $0.52 diluted
earnings per share for the year ended December 31, 1999.
Year Ended December 31, 1998
The acquisitions completed during 1998 and 1997 significantly altered our
cost structure primarily due to changes to owners' compensation, depreciation
methodologies, interest expense and real estate costs. We believe that the
pre-acquisition historical results of the acquired businesses are not indicative
of future results. In addition, because we were only in operation for
approximately four months during 1997 and acquired 32 businesses in 1998,
meaningful comparison to the prior year cannot be made. As such, the following
discussion of the historical results of operations does not set forth any prior
year comparisons.
12
<PAGE> 15
Revenue. The following table sets forth our revenue by type for the year
ended December 31, 1998 (in thousands, except percentages):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-------------------
<S> <C> <C>
Equipment rentals................................... $150,668 63.7%
Sale of equipment, merchandise, service, parts and
supplies....................................... 85,730 36.3
-------- -----
$236,398 100.0%
======== =====
</TABLE>
Equipment rental revenue as a percentage of total revenue was 63.7% for the
year ended December 31, 1998 due primarily to the mix of revenue of companies
acquired during the year.
Gross Profit. Gross profit for the year ended December 31, 1998 was $94.4
million or 39.9% of total revenue. Our rental equipment depreciation as a
percent of rental revenue was 16.2% for 1998. We financed approximately $115.5
million of our rental fleet with operating leases during 1998 resulting in
reported depreciation expense below what it would have been had such fleet been
purchased.
Operating Expenses. Selling, general and administrative expenses for the
year ended December 31, 1998 were $44.4 million or 18.8% of total revenue.
Non-rental equipment depreciation and amortization for the year ended December
31, 1998 was $7.3 million or 3.1% of total revenue.
Operating Income. Operating income for the year ended December 31, 1998
was $42.7 million or 18.1% of total revenue.
Other Income and Expense. Interest expense for the year ended December 31,
1998 was $20.9 million or 8.8% of total revenue. Interest expense is primarily
attributable to borrowings under our senior credit facilities for acquisitions
and capital expenditures, the issuance of notes to finance the purchase of
equipment, the issuance of subordinated notes to sellers in acquisitions and the
issuance of senior subordinated notes.
Income Taxes. Our effective income tax rate for the year ended December
31, 1998 was 43.2%. The amount above statutory income tax rates is attributable
primarily to non-deductible goodwill amortization for federal income tax
purposes.
LIQUIDITY AND CAPITAL RESOURCES
Our primary uses of cash have been the funding of acquisitions and capital
expenditures. To date, we have funded our cash requirements primarily with
borrowings under our senior credit facilities, proceeds from the issuance of
debt and equity securities, equity contributions from our founding stockholders
and cash provided by operations.
Our net cash provided by operations was $8.5 million for the year ended
December 31, 1999 compared to $60.5 million for the year ended December 31,
1998. The decrease in cash provided by operations was due primarily to an
increase in the working capital required as a result of our acquisitions and to
fund our internal growth. Net cash used in investing activities was $317.3
million for the year ended December 31, 1999. Cash used in investing activities
in 1999 was primarily a result of $221.4 million of purchases of rental
equipment, $39.7 million for purchases of and improvements to property and
equipment and net cash consideration of $151.8 million for the acquisition of
businesses. Cash provided by financing activities was $303.5 million for year
ended December 31, 1999 and was primarily a result of net borrowings under our
senior credit facilities and the sale of perpetual convertible preferred stock.
In July 1999, we increased our senior credit facilities from $500.0 million
to $800.0 million consisting of a $300.0 million term loan due July 2006 and a
$500.0 million revolving line of credit due July 2004. The senior credit
facilities can be used to complete permitted acquisitions, make capital
expenditures, enter into standby letters of credit or for working capital and
other general corporate purposes. Borrowings under the revolving line of credit
bear interest at either the BankBoston, N.A. base rate or, at our option, the
Eurodollar market rate plus a percentage ranging from 1.5% to 2.5%. The term
loan bears interest at 3.0% over the Eurodollar
13
<PAGE> 16
market rate. The percentage over the Eurodollar market rate is based on our
financial performance as measured by the total funded debt ratio. The senior
credit facilities are secured by a security interest in substantially all of our
assets. The senior credit facilities also impose, among other covenants, a
tangible assets to senior debt covenant, a restriction on all of our retained
earnings including cash dividends, consent requirements on certain acquisitions
and a restriction on the ratio of total funded debt to earnings before interest,
income taxes, depreciation and amortization. On December 31, 1999, $323.0
million and $300.0 million of cash borrowings were outstanding under the
revolving line of credit and term loan, respectively.
In July and August 1999, we sold an aggregate of 100,000 shares of
perpetual convertible preferred stock for an aggregate purchase price of $100.0
million to certain affiliates of Investcorp, S.A., a global investment group
with a prior successful investment in the equipment rental industry. The 100,000
shares of preferred stock are convertible into approximately 14.3 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 $7.00 per share of common
stock. Proceeds from the private placement have been used to repay borrowings
under our senior credit facilities.
During 1999, we added $164.0 million of new equipment to our rental
equipment fleet using operating leases. These operating leases have terms
expiring over the next seven years.
Our short-term cash requirements for our existing operations consist
primarily of:
- capital expenditures to maintain, modernize and expand our rental
equipment inventory;
- working capital requirements; and
- repair and maintenance of rental equipment, purchase of merchandise
inventory and other operating activities.
We estimate that equipment expenditures over the next 12 months for our
existing locations and for new store openings will be in the range of $175.0
million to $225.0 million, net of proceeds from used equipment sales.
Approximately one-third of the estimated net capital expenditures is to replace
existing rental equipment. We believe that we will be able to finance our
short-term cash needs through borrowings under the senior credit facilities, the
use of equipment leases and cash generated from operations. We estimate that
such sources will be sufficient to fund the cash required for our existing
operations for at least 12 months.
During 1999, we opened 12 new locations in markets where we already had a
presence. 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 22 new locations in 2000. We believe
that cash generated from operations and borrowings under our senior credit
facilities will be sufficient to fund these costs without the issuance of
additional debt or equity securities.
We are developing a management information system that became operational
at certain locations in the fourth quarter of 1998. We estimate the total cost
to complete development and installation of the system at our existing locations
will range from $8.0 million to $10.0 million over the next 12 months and we
believe cash generated from operations and borrowings under our senior credit
facilities will be sufficient to fund these costs.
We plan to continue our acquisition strategy and believe that, in
connection with new acquisitions, we will be required to make additional
expenditures to expand and modernize rental equipment of acquired companies. We
expect to finance future acquisitions and related rental equipment expenditures
using cash, capital stock, notes and/or assumption of indebtedness. To fully
implement our growth strategy and meet the resulting capital requirements, we
will be required to increase amounts available under our senior credit
facilities or raise additional capital through issuance of additional debt or
equity securities. There can be no assurance that additional capital, if and
when required, will be available on terms satisfactory to us or at all.
There may be liabilities that we fail or are unable to discover in the
course of performing due diligence investigations on each company or business we
have acquired or seek to acquire in the future. Such liabilities could include,
among others, those arising from employee benefits contribution obligations of a
prior owner or
14
<PAGE> 17
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.
Operating results may fluctuate due to other factors including, but not
limited to:
- changes in general economic conditions including changes in national,
regional or local construction or industrial activities;
- the timing of acquisitions and opening of new locations;
- the timing of expenditures for new rental equipment and the disposition
of used equipment;
- competitive pricing pressures; and
- changes in interest rates.
We will incur significant expenses in opening new locations, such as
employee training, marketing and facility set-up costs. Initially, new locations
may generate lower operating margins than established locations and may operate
at a loss for a period of time. Our new locations have on average achieved
profitability within approximately five months of their opening. In addition,
when we purchase new rental equipment, the depreciation related to such
equipment may contribute to near-term margin decline, because such equipment may
not initially generate revenue at a rate that is sufficient to match such
increased depreciation expense. As such, the opening of new rental locations and
the purchase of new equipment to expand our current rental equipment inventory
may reduce our operating margins during a start-up period.
INFLATION
We do not believe that inflation has been a significant factor to the cost
of our operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 establishes criteria
for determining which costs of developing or obtaining internal-use computer
software should be charged to expense and which should be capitalized. SOP 98-1
is effective for all transactions entered into in fiscal years beginning after
December 15, 1998. We adopted SOP 98-1 prospectively effective January 1, 1999.
The adoption of SOP 98-1 did not have a material effect on our financial
position or results of operations.
15
<PAGE> 18
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. We adopted SOP 98-5 effective January 1, 1999. The
adoption of SOP 98-5 did not have a material effect on our financial position or
results of operations.
The Company is required to adopt SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133." This statement is effective for all fiscal quarters
of all fiscal years beginning 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 the hedging
activities. It requires that an entity shall recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. The Company believes that the adoption of SFAS No. 133 will not have a
material impact on its 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
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 Annual Report on Form 10-K 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 Annual
Report on Form 10-K. 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;
16
<PAGE> 19
- 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.
ITEM 7A. 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 December 31, 1999, we had $659.0 million of variable rate
indebtedness, representing approximately 67% of our total debt outstanding, at
an average interest rate of 8.49%. In January 2000, the Company entered into a
two-year modified interest rate swap contract to hedge the impact of interest
rate fluctuations on certain variable rate debt. The Company does 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.
17
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE REGISTRANT
Report of Independent Certified Public Accountants.......... 19
Consolidated Balance Sheets at December 31, 1999 and 1998... 20
Consolidated Statements of Income for the years ended
December 31, 1999 and 1998 and the period from August 14,
1997 (inception) to December 31, 1997..................... 21
Consolidated Statement of Stockholders' Equity.............. 22
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998 and the period from August 14,
1997 (inception) to December 31, 1997..................... 23
Notes to Consolidated Financial Statements.................. 24
Schedule II -- Valuation and Qualifying Accounts............ 41
THE PREDECESSOR COMPANY
GABRIEL TRAILER MANUFACTURING COMPANY, INC.
Report of Independent Certified Public Accountants.......... 42
Consolidated Balance Sheets as of March 31, 1997 and August
31, 1998.................................................. 43
Consolidated Statements of Income for the year ended March
31, 1997 and the period from April 1, 1997 to August 31,
1997...................................................... 44
Consolidated Statement of Stockholders' Equity for the year
ended March 31, 1997 and the period from April 1, 1997 to
August 31, 1997........................................... 45
Consolidated Statements of Cash Flows for the year ended
March 31, 1997 and the period from April 1, 1997 to August
31, 1997.................................................. 46
Notes to Consolidated Financial Statements.................. 47
</TABLE>
18
<PAGE> 21
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,
1999 and 1998, and the related consolidated statements of income, stockholders'
equity and cash flows for the years ended December 31, 1999 and 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the results of their
operations and their cash flows for the years ended December 31, 1999 and 1998
and for the period from August 14, 1997 (inception) to December 31, 1997 in
conformity with accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken 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, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
March 7, 2000.
19
<PAGE> 22
NATIONSRENT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 5,290 $ 10,597
Accounts receivable, net of allowance for doubtful accounts
of $7,605 and $4,732 at December 31, 1999 and 1998,
respectively.............................................. 124,207 72,951
Inventories................................................. 39,556 23,147
Prepaid expenses and other assets........................... 30,894 15,685
Deferred financing costs.................................... 14,719 8,766
Rental equipment, net....................................... 574,846 382,573
Property and equipment, net................................. 68,394 37,839
Intangible assets related to acquired businesses, net....... 701,488 524,254
---------- ----------
Total Assets...................................... $1,559,394 $1,075,812
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.......................................... $ 72,727 $ 68,177
Accrued compensation and related taxes.................... 5,039 4,901
Accrued expenses and other liabilities.................... 36,235 32,970
Debt...................................................... 989,428 678,035
Income taxes payable...................................... 777 3,115
Deferred income taxes..................................... 41,801 6,384
---------- ----------
Total liabilities................................. 1,146,007 793,582
---------- ----------
Commitments and Contingencies (Note 13)
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 December 31,
1999.................................................. 1 --
Common stock -- $0.01 par value, 250,000,000 shares
authorized, 56,844,414 and 55,618,023 shares issued and
outstanding at December 31, 1999 and 1998,
respectively........................................... 568 556
Additional paid-in capital............................. 367,240 268,019
Retained earnings...................................... 45,578 13,655
---------- ----------
Total stockholders' equity........................ 413,387 282,230
---------- ----------
Total Liabilities and Stockholders' Equity........ $1,559,394 $1,075,812
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
20
<PAGE> 23
NATIONSRENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 14,
1997
YEAR ENDED (INCEPTION)
DECEMBER 31, TO
-------------------- DECEMBER 31,
1999 1998 1997
-------- -------- ------------
<S> <C> <C> <C>
Revenue:
Equipment rentals......................................... $415,629 $150,668 $7,410
Sales of equipment, merchandise, service, parts and
supplies............................................... 142,792 85,730 1,895
-------- -------- ------
Total revenue..................................... 558,421 236,398 9,305
-------- -------- ------
Cost of revenue:
Cost of equipment rentals................................. 127,049 49,866 2,196
Rental equipment depreciation and lease expense........... 87,358 30,681 1,526
Cost of sales of equipment, merchandise, service, parts
and supplies........................................... 94,594 61,455 1,691
-------- -------- ------
Total cost of revenue............................. 309,001 142,002 5,413
-------- -------- ------
Gross profit................................................ 249,420 94,396 3,892
Operating expenses:
Selling, general and administrative expenses.............. 101,873 44,411 1,081
Expenses related to abandoned merger, net................. 3,932 -- --
Non-rental equipment depreciation and amortization........ 22,136 7,266 284
-------- -------- ------
Operating income............................................ 121,479 42,719 2,527
-------- -------- ------
Other (income)/expense:
Interest expense.......................................... 69,479 21,063 760
Interest income........................................... (251) (205) (29)
Other, net................................................ (2,320) (401) 29
-------- -------- ------
66,908 20,457 760
-------- -------- ------
Income before provision for income taxes.................... 54,571 22,262 1,767
Provision for income taxes................................ 22,648 9,608 766
-------- -------- ------
Net income.................................................. $ 31,923 $ 12,654 $1,001
======== ======== ======
Net income per share:
Basic..................................................... $ 0.57 $ 0.37 $ 0.04
======== ======== ======
Diluted................................................... $ 0.49 $ 0.37 $ 0.04
======== ======== ======
Weighted average common shares outstanding:
Basic..................................................... 56,137 33,999 25,000
======== ======== ======
Diluted................................................... 71,826 38,545 25,007
======== ======== ======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
21
<PAGE> 24
NATIONSRENT, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------ ------------------- ADDITIONAL
NUMBER OF NUMBER OF PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ---------- ------ ---------- -------- --------
<S> <C> <C> <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
Proceeds from sale of preferred stock, less
issuance cost of $8,927........................ 100,000 1 -- -- 91,072 -- 91,073
Issuance of Common Stock in connection with
acquisitions................................... -- -- 485,559 5 3,586 -- 3,591
Conversion of unsecured subordinated convertible
promissory notes............................... -- -- 740,832 7 4,563 -- 4,570
Net income....................................... -- -- -- -- -- 31,923 31,923
------- -- ---------- ---- -------- ------- --------
Balance, December 31, 1999....................... 100,000 $1 56,844,414 $568 $367,240 $45,578 $413,387
======= == ========== ==== ======== ======= ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
22
<PAGE> 25
NATIONSRENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FROM
YEAR ENDED AUGUST 14, 1997
DECEMBER 31, (INCEPTION) TO
-------------------- DECEMBER 31,
1999 1998 1997
-------- -------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 31,923 $ 12,654 $ 1,001
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 70,842 32,180 1,810
Gain on sale of non-rental equipment...................... (186) -- --
Gain on sale of rental equipment.......................... (25,041) (9,530) (59)
Gain on sale of lift truck dealership..................... (1,818) -- --
Deferred income tax provision............................. 20,653 6,709 357
Changes in operating assets and liabilities:
Accounts receivable..................................... (40,684) (17,485) 334
Inventories............................................. (7,667) (342) 83
Prepaid expenses and other assets....................... (12,780) (8,312) (296)
Accounts payable........................................ (1,784) 43,412 776
Accrued expenses and other liabilities.................. (23,628) 719 (428)
Income taxes payable.................................... (1,326) 453 117
-------- -------- --------
Net cash provided by operating activities............... 8,504 60,458 3,695
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES, NET OF ACQUISITIONS:
Acquisitions of businesses, net of cash acquired.......... (151,765) (345,845) (34,137)
Proceeds from sale of lift truck dealership............... 23,315 -- --
Purchases of rental equipment............................. (221,394) (118,798) (2,461)
Payment of contingent acquisition consideration........... (500) -- --
Purchases of property and equipment....................... (39,743) (15,305) (963)
Proceeds from sale of rental equipment.................... 71,774 36,602 1,159
Proceeds from sale of non-rental equipment................ 1,000 -- --
Decrease in notes receivable from affiliates.............. -- -- 1,358
-------- -------- --------
Net cash used in investing activities................... (317,313) (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........................................ 896,255 909,952 21,917
Proceeds from issuance of preferred stock................. 91,073 -- --
Payment of deferred financing costs....................... (7,930) (9,172) --
Repayments of debt........................................ (675,896) (654,183) (14,075)
-------- -------- --------
Net cash provided by financing activities............... 303,502 391,992 32,842
-------- -------- --------
Net (decrease)/increase in cash and cash equivalents........ (5,307) 9,104 1,493
Cash and cash equivalents, beginning of period.............. 10,597 1,493 --
-------- -------- --------
Cash and cash equivalents, end of period.................... $ 5,290 $ 10,597 $ 1,493
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................. $ 75,241 $ 13,737 $ 621
======== ======== ========
Cash paid for income taxes.............................. $ 3,342 $ 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:
Total assets acquired, net of cash acquired............. $271,620 $875,711 $ 78,629
Total liabilities assumed............................... (81,485) (331,996) (27,311)
Amounts paid through the issuance of debt and future
contractual payments.................................... (35,387) (149,690) (17,181)
Amounts paid through the issuance of common stock, options
and warrants............................................ (2,983) (48,180) --
======== ======== ========
Net cash paid............................................. $151,765 $345,845 $ 34,137
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
23
<PAGE> 26
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
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, 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, 1999 and 1998.
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.
Significant estimates include the lives and salvage value of rental equipment,
the allocation of purchase price of acquired businesses and the life of
intangible assets related to the acquired businesses.
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 18 to 120 months. Rental equipment is depreciated to a
salvage value ranging from zero to ten percent of cost. Accumulated depreciation
on rental equipment was $63,986,000 and $22,785,000 at December 31, 1999 and
1998, respectively. Depreciation expense of rental equipment was $46,713,000,
$24,463,000 and $1,526,000 for the years ended December 31, 1999 and 1998 and
the period from August 14, 1997 (inception) to December 31, 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.
24
<PAGE> 27
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>
Depreciation expense of property and equipment was $6,894,000, $2,109,000
and $104,000 for the years ended December 31, 1999 and 1998 and the period from
August 14, 1997 (inception) to December 31, 1997, respectively. 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 $70,412,000, $21,146,000 and $760,000
for the years ended December 31, 1999 and 1998 and the period from August 14,
1997 (inception) to December 31, 1997, respectively. Total interest capitalized
was $933,000 and $83,000 for the years ended December 31, 1999 and 1998,
respectively. 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 $20,579,000 and $5,337,000 at December 31, 1999 and
1998, respectively. Amortization expense of intangible assets was $15,242,000,
$5,157,000 and $180,000 for the years ended December 31, 1999 and 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 and other
intangibles, 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.
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,
25
<PAGE> 28
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rental equipment delivery and pick-up fees and fuel sales. Revenue from the
sales of equipment, parts and supplies and retail merchandise is recognized at
the time of delivery to, or pick-up by, the customer. When used 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 consolidated statements of
income.
ADVERTISING
Advertising costs are charged to expense as incurred. The Company incurred
advertising costs of $15,319,000, $2,339,000 and $171,000 for the years ended
December 31, 1999 and 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 with respect to realization of those assets 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 customer credit risk through
credit approvals, credit limits, and monitoring procedures.
STOCK-BASED COMPENSATION
The Company accounts for stock compensation arrangements in accordance with
Accounting Principles Board 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.
26
<PAGE> 29
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEASONALITY
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.
RECLASSIFICATIONS
Certain amounts presented for the year ended December 31, 1998 and the
period from August 14, 1997 (inception) to December 31, 1997 have been
reclassified to conform to the 1999 presentation.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." SOP 98-1
establishes criteria for determining which costs of developing or obtaining
internal-use computer software should be charged to expense and which should be
capitalized. SOP 98-1 is effective for all transactions entered into in fiscal
years beginning after December 15, 1998. The Company adopted SOP 98-1 effective
January 1, 1999. The adoption of SOP 98-1 did not have a material effect on the
Company's financial position or results of operations.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities." SOP 98-5 requires that all non-governmental entities
expense costs of start-up activities, including pre-operating, pre-opening and
organization activities, as those costs are incurred. The Company adopted SOP
98-5 effective January 1, 1999. The adoption of SOP 98-5 did not have a material
effect on the Company's financial position or results of operations.
The Company is required to adopt SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133." This statement is effective for all fiscal quarters
of all fiscal years beginning 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.
It requires that an entity shall recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The Company believes that the adoption of SFAS No. 133 will not have a material
impact on its financial position or results of operations.
2. ACQUISITIONS
The Company is building a nationally branded network of equipment rental
locations. Pursuant to this strategy, the Company acquired 17 equipment rental
businesses during 1999. The aggregate consideration for these businesses was
$194,545,000 and consisted of (i) $156,175,000 of cash, (ii) $25,134,000 of
convertible subordinated debt, (iii) $5,750,000 of subordinated debt, (iv)
$4,503,000 of future contractual cash payments, and (v) 390,634 shares of the
Company's common stock, $0.01 par value per share ("Common Stock"). The cash
portion of the consideration was funded through borrowings under the Company's
credit facility. The Company repaid or assumed outstanding indebtedness of the
acquired companies in the aggregate amount of $64,720,000. 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
27
<PAGE> 30
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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. The manufacturer of the equipment and the Company could not
come to an agreement that would allow the Company to continue to operate that
portion of the acquired business. Accordingly, the dealership portion of the
acquired business has been accounted for as an asset held for sale for the year
ended December 31, 1999 pursuant to the Emerging Issues Task Force Issue No.
87-11, "Allocation of Purchase Price to Assets to be Sold." The net assets of
the dealership have been recorded in prepaid expenses and other assets in the
accompanying consolidated balance sheet at December 31, 1999 and aggregate
$6,606,000 less the estimated loss from operations expected during the holding
period of September 1999 through April 2000 of $2,036,000. The fair value of the
dealership assets were recorded based on management's estimate of the proceeds
from the sale of such assets. The results of operations related to the
dealership for the year ended December 31, 1999, which aggregated $1,645,000 of
losses and $391,000 of interest expense on allocated debt, have been excluded
from the Company's 1999 consolidated statement of income.
The Company acquired 32 equipment rental businesses during 1998. The
aggregate consideration for these businesses was $545,087,000 and consisted of
(i) $347,217,000 of cash, (ii) $115,821,000 of convertible subordinated debt,
(iii)$29,634,000 of subordinated debt, (iv) $4,235,000 of future contractual
cash payments, (v) 5,542,812 shares of Common Stock, (vi) options to purchase
196,293 shares of Common Stock and (vii) warrants to purchase 100,000 shares of
Common Stock. In addition, the Company repaid or assumed outstanding
indebtedness of the acquired companies in the aggregate amount of $282,318,000.
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. During 1999, the Company paid consideration of
$650,000 of cash and 94,925 shares of Common Stock to former owners of a
previously acquired business 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.
The following table sets forth the estimated fair value of the assets
acquired and liabilities assumed for the aforementioned acquisitions:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Assets, including cash............................. $122,739 $386,016
Goodwill........................................... 153,291 491,067
Liabilities........................................ 81,485 331,996
</TABLE>
28
<PAGE> 31
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, 1999 and 1998 giving effect to
the aforementioned acquisitions completed during 1999 and 1998 as if such
acquisitions had occurred on January 1, 1998 (in thousands, except per share
data):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Revenue............................................ $637,760 $593,265
Net Income......................................... 39,234 27,332
Basic earnings per share........................... 0.70 0.48
Diluted earnings per share......................... 0.58 0.42
</TABLE>
The above unaudited pro forma consolidated results of operations are based
upon certain assumptions and estimates which the Company believes are
reasonable. The unaudited pro forma consolidated results of operations may not
be indicative of the operating results that actually would have been reported
had the acquisitions been consummated on January 1, 1998, nor are they
necessarily indicative of results which will be reported in the future.
3. PROPERTY AND EQUIPMENT
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Buildings and improvements........................... $16,026 $10,530
Furniture, fixtures and office equipment............. 20,312 10,691
Vehicles, delivery and shop equipment................ 25,363 17,819
Construction in progress............................. 15,538 971
------- -------
77,239 40,011
Less: accumulated depreciation and amortization...... (8,845) (2,172)
------- -------
Property and equipment, net........................ $68,394 $37,839
======= =======
</TABLE>
29
<PAGE> 32
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Notes payable to financial institutions:
Term loan................................................. $300,000 $151,000
Revolving credit facility................................. 322,960 174,900
10.375% Senior Subordinated Notes due December 15, 2008 with
interest due semi-annually each June 15 and December 15,
beginning June 15, 1999................................... 175,000 175,000
Subordinated promissory notes, bearing interest at 6.0% to
8.5%, interest payable quarterly and maturities through
November 2002............................................. 7,303 2,923
Subordinated convertible promissory notes, bearing interest
at 6.0% to 8.5%, interest payable quarterly and maturities
through December 2006..................................... 96,730 76,511
Rental equipment financing obligations, secured by
equipment, payable in monthly installments, through April
2002, capitalized by the Company.......................... 17,721 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.............. 11,667 14,375
Note payable, with interest at the London Interbank Offered
Rate plus 2.75%, payable in monthly installments through
March 2000, secured by equipment.......................... 17,541 32,155
Note payable, with interest at 6.63%, payable in quarterly
installments through July 2001............................ 857 1,566
Equipment notes, bearing interest at 6.2% to 9.25% or at the
Prime Rate less 0.25%, payable in various monthly
installments through April 2003, secured by equipment..... 39,577 23,240
Other....................................................... 72 327
-------- --------
Total debt........................................ $989,428 $678,035
======== ========
</TABLE>
Notes payable to financial institutions at December 31, 1999 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, 1999, the Credit Facility
included a term loan of $300,000,000 (the "Term Loan") and a revolving credit
facility with an aggregate commitment of up to $500,000,000 (the "Revolver").
The Revolver has a five-year term scheduled to expire in July 2004 and the Term
Loan has a seven-year term scheduled to expire in July 2006. Borrowings under
the Revolver bear interest at either the BankBoston base rate or, at the
Company's option, the Eurodollar market rate plus a percentage ranging from
1.50% to 2.50%. The Term Loan bears interest at 3.00% over the Eurodollar market
rate. The percentage over 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 8.5% at December 31, 1999. 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, 1999.
30
<PAGE> 33
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 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. In February 1999, the Company completed an exchange offer
to replace its privately issued Notes with publicly registered notes. 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 fair value of the Notes based on a quoted market price, approximates
$174,528,000 at December 31, 1999.
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 a portion thereof, into Common Stock with various
exercise prices ranging 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
$20,829,000 and $23,149,000 and the accumulated depreciation related to these
assets is $3,527,000 and $1,468,000 at December 31, 1999 and 1998, respectively.
Future minimum lease payments under capital leases at December 31, 1999 total
$8,725,000, $7,458,000 and $3,017,000 for the years ending December 31, 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 $1,479,000. 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 $51,214,000, $30,870,000, $25,046,000,
$66,534,000 and $346,156,000 for the five years ending December 31, 2000, 2001,
2002, 2003 and 2004, respectively, and $469,607,000 thereafter. The amortization
of deferred financing and debt issuance costs was $1,977,000, $451,000 and
$3,000 for the years ended December 31, 1999 and 1998 and the period from August
14, 1997 (inception) to December 31, 1997, respectively.
5. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company has authorized 5,000,000 shares of $0.01 par value preferred
stock. In July and August 1999, pursuant to a Preferred Stock Purchase
Agreement, the Company sold an aggregate of 100,000 shares of Series A
Convertible Preferred Stock ("Preferred Stock") to NR Holdings Limited and NR
Investments Limited, affiliates of Investcorp, S.A., for an aggregate price of
$100,000,000. The net proceeds of the sale of
31
<PAGE> 34
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Preferred Stock were used to pay down amounts outstanding under the Credit
Facility. The 100,000 shares of Preferred Stock are convertible into 14,285,714
shares of Common Stock based on a liquidation preference of $1,000 per share of
Preferred Stock and a conversion price of $7.00 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, NR Holdings Limited, NR Investments Limited
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 the Annual
Report on Form 10-K along with the Preferred Stock Purchase Agreement and the
Registration Rights Agreement.
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
Rental") into 6,956,517 shares of Common Stock at a price of $7.1875 per share.
During 1999, the Company converted $4,070,000 and $500,000 of unsecured
subordinated convertible promissory notes issued in connection with four
acquisitions into 678,332 and 62,500 shares of Common Stock at a price of $6.00
and $8.00 a share, respectively.
6. INCOME TAXES
The components of the provision for federal and state income taxes are
summarized as follows:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED AUGUST 14, 1997
DECEMBER 31, (INCEPTION) TO
----------------- DECEMBER 31,
1999 1998 1997
------- ------ -------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current............................................. $ 1,995 $2,899 $409
Deferred............................................ 20,653 6,709 357
------- ------ ----
$22,648 $9,608 $766
======= ====== ====
Federal............................................. $20,353 $8,087 $602
State............................................... 2,295 1,521 164
------- ------ ----
$22,648 $9,608 $766
======= ====== ====
</TABLE>
32
<PAGE> 35
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the statutory federal income tax rate to the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED AUGUST 14, 1997
DECEMBER 31, (INCEPTION) TO
------------ DECEMBER 31,
1999 1998 1997
---- ---- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal statutory income tax rate........................ 35.0% 35.0% 34.0%
Add:
Non-deductible goodwill amortization..................... 3.6 3.0 3.0
State income taxes, net of federal tax benefit........... 2.7 4.4 6.1
Other, net............................................... 0.2 0.8 0.3
---- ---- ----
41.5% 43.2% 43.4%
==== ==== ====
</TABLE>
Deferred income taxes reflect the tax effects of temporary differences
between the carrying value of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accrued liabilities and other reserves.................... $ 6,521 $ 3,292
Bad debt provision not currently deductible............... 2,144 1,300
Net operating loss carryforwards.......................... 31,990 9,071
Alternative minimum tax and other credits................. 3,708 3,578
Valuation allowance....................................... (6,132) (4,689)
-------- --------
38,231 12,552
-------- --------
Deferred tax liabilities:
Depreciation and amortization............................. (78,609) (18,492)
Other..................................................... (1,423) (444)
-------- --------
(80,032) (18,936)
-------- --------
Net deferred income tax liabilities....................... $(41,801) $ (6,384)
======== ========
</TABLE>
At December 31, 1999, the Company had net operating loss carryforwards for
federal and state income tax purposes of $82,029,000, of which $6,770,000
related to certain of the equipment rental companies acquired by the Company,
that expire in the years 2006 through 2019. The net operating loss carryforwards
of the companies acquired by the Company 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 $2,640,000 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, 1999, the Company had alternative minimum tax credit and
general business credit carryforwards of $3,613,000, of which $1,618,000 relate
to certain of the equipment rental companies acquired by the Company. These
credits are 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 the net operating loss
carryforwards of the companies acquired by the Company also restrict the use of
tax credit carryforwards of such companies. For financial reporting purposes, a
valuation allowance of $1,618,000 has been recognized to offset the deferred tax
asset related to the tax credit carryforwards obtained in connection with these
acquisitions.
33
<PAGE> 36
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The valuation allowance for deferred tax assets is $6,132,000 and
$4,689,000 at December 31, 1999 and 1998, respectively. The change in the
valuation allowance for the current year is primarily due to purchase accounting
adjustments for certain acquisitions recorded in 1999 and 1998. The change in
the valuation allowance offsets the net deferred tax assets recorded from these
acquisitions. In the event the valuation allowance is not required, a reduction
to goodwill will be recorded in accordance with SFAS No. 109.
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
YEAR ENDED AUGUST 14, 1997
DECEMBER 31, (INCEPTION) TO
------------------ DECEMBER 31,
1999 1998 1997
------- -------- ----------------
<S> <C> <C> <C>
Numerator:
Net income.................................................. $31,923 $ 12,654 $1,001
Interest expense on convertible subordinated debt, net of
income taxes.............................................. 3,203 1,416 --
------- -------- ------
Numerator -- diluted earnings per share..................... $35,126 $ 14,070 $1,001
======= ======== ======
Denominator:
Denominator for basic earnings per
share -- weighted-average shares....................... 56,137 33,999 25,000
Effect of dilutive securities:
Convertible subordinated debt.......................... 9,305 4,381 --
Convertible preferred stock............................ 6,057 -- --
Employee stock options................................. 327 165 7
------- -------- ------
Denominator for diluted earnings per share -- adjusted
weighted-average shares................................ 71,826 38,545 25,007
======= ======== ======
Basic earnings per share.................................... $ 0.57 $ 0.37 $ 0.04
======= ======== ======
Diluted earnings per share.................................. $ 0.49 $ 0.37 $ 0.04
======= ======== ======
</TABLE>
Options and warrants to purchase 1,667,501, 1,898,440 and 113,752 shares of
Common Stock were outstanding at December 31, 1999, 1998 and 1997, respectively,
but were not included in the computation of diluted earnings per share because
the exercise prices of such options and warrants were 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 July
1999, the Board of Directors and stockholders of the Company authorized an
increase of the shares available for grant under the 1998 Plan to 7,000,000
shares. In addition, the Company has granted to certain employees 1,087,571
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 1999 and 1998, a total of 2,415,219 and 3,496,671
stock options were granted with exercise prices ranging from $5.56 to $7.38 and
$4.40 to $8.00 per share, respectively.
34
<PAGE> 37
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 an
exercise price of $0.86 per share. See Note 2. In December 1999, pursuant to the
acquisition agreement with Logan, these options were automatically converted
into options to purchase 291,347 shares of Common Stock with an exercise price
of $0.58 per share as a result of certain market performance criteria relating
to the Common Stock.
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 SFAS No. 123. The Company's pro forma net income, pro forma
earnings per share and pro forma weighted average fair value of options granted
(with related assumptions) would have been as follows:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED AUGUST 14, 1997
DECEMBER 31, (INCEPTION) TO
------------------ DECEMBER 31,
1999 1998 1997
-------- ------- -----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Pro forma net income........................................ $26,398 $9,562 $ 978
Pro forma net income per share:
Basic..................................................... $ 0.47 $ 0.28 $0.04
Diluted................................................... $ 0.41 $ 0.28 $0.04
Pro forma weighted average fair value of options granted.... $ 3.40 $ 5.03 $2.86
Expected life (years)....................................... 6 6 7
Risk-free interest rate..................................... 6.20% 5.47% 6.00%
Expected volatility......................................... 68.04% 78.15% 75.00%
Dividend yield.............................................. 0.00% 0.00% 0.00%
</TABLE>
The weighted average grant date fair value of options issued in the year
ended December 31, 1998 whose exercise price equals and exceeds the market price
of the stock on the grant date is $5.10 and $0.68, respectively.
As of December 31, 1999, a total of 8,283,916 shares of Common Stock have
been reserved for issuance of options to purchase shares of Common Stock with
2,302,573 remaining available for grant. A summary of the Company's outstanding
stock option activity, and related information, for the years ended December 31,
1999 and 1998 and the period from August 14, 1997 (inception) to December 31,
1997 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE
OUTSTANDING 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
Granted................................................... 2,706,566 5.76
Canceled.................................................. (593,212) 5.13
Exercised................................................. -- --
--------- -----
Balance at December 31, 1999................................ 5,981,343 $6.06
========= =====
</TABLE>
35
<PAGE> 38
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 the date
of grant, except for options granted to non-employee directors of the Company
which are fully exercisable at the time of grant. At December 31, 1999, 390,000
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, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
-------- ----------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.58-5.50................................. 778,019 8.23 $2.87 331,236 $2.56
5.51-5.56................................. 1,907,772 9.48 5.56 9,318 5.51
5.63-6.67................................. 1,387,141 8.73 6.13 388,534 6.14
6.75-8.00................................. 1,908,411 8.65 7.80 611,497 7.87
--------- ---------
5,981,343 8.88 6.06 1,340,585 6.04
========= =========
</TABLE>
9. 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.
10. 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 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. The Company
continues to evaluate the carrying value of its goodwill for impairment in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of."
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. 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
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 proposed merger. The Company recorded a pre-tax charge of
$3,932,000 in the second quarter of 1999 for the un-reimbursed portion of
expenses incurred related to the proposed merger.
36
<PAGE> 39
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. 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 $907,000, $511,000 and $160,000 for the years ended
December 31, 1999 and 1998 and the period from August 14, 1997 (inception) to
December 31, 1997, respectively.
The Company leases certain office space from Boca Resorts, Inc. ("Boca
Resorts"). Lease payments for such space totaled $568,000 and $313,000 for the
years ended December 31, 1999 and 1998, respectively. In addition, the Company
leases certain other facilities and related services from the Arena Operating
Company, which is controlled by Boca Resorts, with lease payments totaling
$106,000 and $125,000 for the years ended December 31, 1999 and 1998. There were
no lease payments made to Boca Resorts 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 Boca Resorts, one of which controls a
majority of the voting interests of Boca Resorts.
The Company has purchased certain building construction services from
Alvada Construction, Inc. ("Alvada"), which totaled $411,000 and $1,162,000 for
the years ended December 31, 1999 and 1998, respectively. 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 $201,000 and
$212,000 for the years ended December 31, 1999 and 1998, respectively. 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 Rental in 1998, 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 for the year ended December 31, 1998. There were no
interest payments made on such subordinated debt in the year ended December 31,
1999. Lease payments for such facilities totaled $1,531,000 and $325,000 for the
years ended December 31, 1999 and 1998, respectively.
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 $263,000, $336,000 and $115,000 for the years ended
December 31, 1999 and 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.
12. 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
37
<PAGE> 40
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $1,059,000 and $33,000 to the Plan
for the years ended December 31, 1999 and 1998, respectively.
13. 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, 1999 total $81,796,000, $80,958,000, $79,649,000,
$75,269,000 and $67,529,000 for the years ending December 31, 2000, 2001, 2002,
2003 and 2004, respectively and $117,106,000 thereafter. Lease expense under
noncancelable operating leases was $60,248,000, $12,586,000 and $410,000 for the
years ended December 31, 1999 and 1998 and the period from August 14, 1997
(inception) to December 31, 1997, respectively.
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 analyses 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.
38
<PAGE> 41
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables set forth the Company's condensed consolidated
statements of income by quarter for the years ended December 31, 1999 and 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>
1999
Revenue............................................... $102,315 $130,309 $154,895 $170,902
Gross profit.......................................... 43,212 56,940 72,155 77,113
Operating income...................................... 19,640 23,534 37,691 40,614
Net income............................................ $ 4,317 $ 4,657 $ 11,864 $ 11,085
======== ======== ======== ========
Basic net income per share............................ $ 0.08 $ 0.08 $ 0.21 $ 0.20
======== ======== ======== ========
Diluted net income per share.......................... $ 0.08 $ 0.08 $ 0.17 $ 0.15
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1998
Revenue............................................... $ 9,039 $ 35,359 $ 68,330 $123,670
Gross profit.......................................... 3,049 12,268 30,571 48,508
Operating income...................................... 845 4,554 15,271 22,049
Net income............................................ $ 93 $ 1,200 $ 5,561 $ 5,800
======== ======== ======== ========
Basic net income per share............................ $ 0.00 $ 0.04 $ 0.15 $ 0.13
======== ======== ======== ========
Diluted net income per share.......................... $ 0.00 $ 0.04 $ 0.14 $ 0.12
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FROM
AUGUST 14, 1997
(INCEPTION) THROUGH
SEPTEMBER 30,
1997 FOURTH 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>
15. SUBSEQUENT EVENTS
The Company has completed three acquisitions of rental equipment businesses
since December 31, 1999 for aggregate consideration of $20,796,000. Such
consideration consisted of $17,321,000 of cash and $3,475,000 of convertible
subordinated debt. The cash portion of the consideration was funded through
borrowings under the Credit Facility. In addition, the Company repaid or assumed
outstanding indebtedness of the acquired companies in the aggregate amount of
$10,620,000. Each of the acquisitions has been accounted for using the purchase
method.
39
<PAGE> 42
NATIONSRENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In January 2000, the Company entered into a two-year modified interest rate
swap contract to hedge the impact of interest rate fluctuations on certain
variable debt. The interest rate swap fixes the Eurodollar interest rate at
6.80% on $165,000,000 of variable rate debt through January 2002. The interest
differential is paid or received on a monthly basis and recognized as a
component of interest expense.
In February 2000, the Company paid consideration of $10,000,000 of cash and
1,721,664 shares of Common Stock to a former owner of a previously acquired
business related to the achievement of certain operating results. Such amounts
will be recorded as additional purchase price.
40
<PAGE> 43
NATIONSRENT, INC.
VALUATION AND QUALIFYING ACCOUNT AND RESERVES
SCHEDULE II
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGED
AT TO COSTS ACCOUNTS BALANCE
BEGINNING AND WRITTEN AT END OF
DESCRIPTIONS OF PERIOD EXPENSES OFF OTHER(a) YEAR
- ------------ --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Allowance for Doubtful Accounts................... $4,732 $3,698 $(2,287) $1,462 $7,605
Year ended December 31, 1998
Allowance for Doubtful Accounts................... 587 1,436 (1,784) 4,493 4,732
Period ended December 31, 1997...................... --(b) -- (40) 627 587
</TABLE>
- ---------------
(a) Represents allowance for doubtful accounts of acquired companies.
(b) August 14, 1997 (Inception)
41
<PAGE> 44
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 auditing standards generally accepted
in the United States. 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 accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
May 8, 1998.
42
<PAGE> 45
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.
43
<PAGE> 46
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.
44
<PAGE> 47
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.
45
<PAGE> 48
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.
46
<PAGE> 49
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.
47
<PAGE> 50
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>
48
<PAGE> 51
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>
49
<PAGE> 52
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
50
<PAGE> 53
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.
51
<PAGE> 54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information required by Items 10, 11, 12 and 13 of Part III of Form
10-K will be set forth in the Proxy Statement relating to the 2000 Annual
Meeting of Stockholders.
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
None.
ITEM 15. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
52
<PAGE> 55
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized.
March 30, 2000
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>
/s/ JAMES L. KIRK Chairman of the Board and Chief
- ----------------------------------------------------- Executive Officer (Principal
James L. Kirk Executive Officer) March 30, 2000
/s/ GENE J. OSTROW Executive Vice President and
- ----------------------------------------------------- Chief Financial Officer
Gene J. Ostrow (Principal Financial Officer) March 30, 2000
/s/ KRIS E. HANSEL Vice President and Controller
- ----------------------------------------------------- (Principal Accounting Officer)
Kris E. Hansel March 30, 2000
/s/ H. WAYNE HUIZENGA Director
- -----------------------------------------------------
H. Wayne Huizenga March 30, 2000
/s/ HARRIS W. HUDSON Director
- -----------------------------------------------------
Harris W. Hudson March 30, 2000
/s/ GARY L. GABRIEL Director
- -----------------------------------------------------
Gary L. Gabriel March 30, 2000
/s/ THOMAS H. BRUINOOGE Director
- -----------------------------------------------------
Thomas H. Bruinooge March 30, 2000
/s/ IVAN W. GORR Director
- -----------------------------------------------------
Ivan W. Gorr March 30, 2000
/s/ CHRISTOPHER J. O'BRIEN Director
- -----------------------------------------------------
Christopher J. O'Brien March 30, 2000
/s/ CHARLES J. PHILIPPIN Director
- -----------------------------------------------------
Charles J. Philippin March 30, 2000
</TABLE>
53
<PAGE> 56
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
2.1 -- Agreement and Plan of Merger, dated as of January 20, 1999,
between the Company and Rental Service Corporation.(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)
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 -- Fourth Amended and Restated Revolving Credit and Term Loan
Agreement, dated as of July 20, 1999, by and among the
Company, its subsidiaries, BankBoston N.A., as
administrative agent, Bankers Trust Company, as syndication
agent, BancBoston Robertson Stevens Inc. and Deutsche Bank
Securities Inc., as coarrangers, and the other lending
institutions named therein.(8)
4.7 -- Amended and Restated Security Agreement, dated as of July
20, 1999, between the Company, its subsidiaries and
BankBoston, N.A.(8)
4.8 -- Amended and Restated Stock Pledge Agreement, dated as of
July 20, 1999, between the Company, NRGP, Inc. and
BankBoston, N.A.(8)
10.1 -- Stock Purchase Agreement, dated August 15, 1997, by and
among the Company, Sam's and the shareholders of Sam's,
together with Amendment Nos. 1-6.(1)
10.2 -- Form of Unsecured Subordinated Promissory Notes -- Sam's.(1)
10.3 -- Form of Unsecured Convertible Promissory Notes -- Sam's.(1)
10.4 -- Form of Unsecured Contingent Convertible Subordinated
Promissory Notes -- Sam's.(1)
10.5 -- Agreement, dated September 22, 1997, between the Company and
Gary L. Gabriel.(1)
</TABLE>
54
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
10.6 -- Asset Purchase Agreement, dated December 8, 1997, by and
among NationsRent of Ohio, Inc., R&R Rental, Inc. ("R&R")
and the sole shareholder of R&R, together with an Amendment
dated December 10, 1997.(1)
10.7 -- Form of Unsecured Subordinated Promissory Note-R&R.(1)
10.8 -- Asset Purchase Agreement, dated December 8, 1997, as
amended, among NationsRent of Indiana, Inc. and C&E Rental
and Service, Inc. ("C&E"), together with an Amendment dated
December 23, 1997.(1)
10.9 -- Form of Unsecured Convertible Subordinated Promissory Note
C&E.(1)
10.10 -- Stock Purchase Agreement, dated December 20, 1997, as
amended, among NationsRent of West Virginia, Inc., Titan,
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 Amended and Restated 1998 Stock Option Plan.(8)
10.31 -- Form of Stock Option Agreement.(1)
</TABLE>
55
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
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)
21.1* -- Subsidiaries of the Company.
23.1* -- Consent of Arthur Andersen LLP.
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.
56
<PAGE> 1
NATIONSRENT, INC.
SUBSIDIARIES
(AS OF MARCH 23, 2000)
NRGP, Inc., a Delaware corporation
NationsRent West, Inc., a Delaware corporation
Logan Equipment Corp., a Delaware corporation
NationsRent USA, Inc., a Delaware corporation
NationsRent Transportation Services, Inc., a Delaware corporation
NR Delaware, Inc., a Delaware corporation
NationsRent of Texas, LP, a Delaware limited partnership
NationsRent of Indiana, LP, a Delaware limited partnership
NR Dealer, Inc., a Delaware corporation
NR Franchise Company, a Delaware corporation
BDK Equipment Company, Inc., a California corporation
57
<PAGE> 1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Form S-8 Registration Statement (File No. 33-70647).
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
March 26, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,290
<SECURITIES> 0
<RECEIVABLES> 131,812
<ALLOWANCES> 7,605
<INVENTORY> 39,556
<CURRENT-ASSETS> 0
<PP&E> 716,071
<DEPRECIATION> 72,831
<TOTAL-ASSETS> 1,559,394
<CURRENT-LIABILITIES> 0
<BONDS> 989,428
0
1
<COMMON> 568
<OTHER-SE> 412,818
<TOTAL-LIABILITY-AND-EQUITY> 1,559,394
<SALES> 142,792
<TOTAL-REVENUES> 558,421
<CGS> 94,594
<TOTAL-COSTS> 309,001
<OTHER-EXPENSES> 127,941
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69,479
<INCOME-PRETAX> 54,571
<INCOME-TAX> 22,648
<INCOME-CONTINUING> 31,923
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 31,923
<EPS-BASIC> .57
<EPS-DILUTED> .49
</TABLE>
