<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________.
----------------------------
COMMISSION FILE NUMBER 001-14299
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NATIONSRENT, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 31-1570069
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
450 EAST LAS OLAS BLVD.,
FORT LAUDERDALE, FL 33301
(Address of principal executive offices) (Zip Code)
</TABLE>
(954) 760-6550
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of Common Stock, par value $0.01 per share,
outstanding on November 6, 2000 was 57,839,003.
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<PAGE> 2
NATIONSRENT, INC.
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets as of September 30,
2000 and December 31, 1999............................. 1
Unaudited Consolidated Statements of Income for the Three
Months and Nine Months Ended September 30, 2000 and
1999................................................... 2
Unaudited Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2000 and 1999.......... 3
Notes to Unaudited Consolidated Financial Statements...... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................... 15
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds........... 16
Item 4. Submission of Matters to a Vote of Security
Holders................................................... 16
Item 6. Exhibits and Reports on Form 8-K.................... 18
Signatures.................................................. 21
</TABLE>
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONSRENT, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 6,458 $ 5,290
Accounts receivable, net.................................... 150,153 124,207
Inventories................................................. 41,032 39,556
Prepaid expenses and other assets........................... 36,723 30,894
Deferred financing costs.................................... 17,621 14,719
Rental equipment, net....................................... 640,643 574,846
Property and equipment, net................................. 94,996 68,394
Intangible assets related to acquired businesses, net....... 783,726 701,488
---------- ----------
Total Assets...................................... $1,771,352 $1,559,394
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable.......................................... $ 120,437 $ 72,727
Accrued compensation and related taxes.................... 6,798 5,039
Accrued expenses and other liabilities.................... 47,715 36,235
Debt...................................................... 1,024,407 989,428
Income taxes payable...................................... 751 777
Deferred income taxes..................................... 46,365 41,801
---------- ----------
Total liabilities................................. 1,246,473 1,146,007
---------- ----------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock -- $0.01 par value, 5,000,000 shares
authorized:
Series A convertible, $100,000 liquidation preference,
100,000 shares issued and outstanding at September 30,
2000 and December 31, 1999............................. 1 1
Series B convertible, $100,000 liquidation preference,
100,000 shares issued and outstanding at September 30,
2000................................................... 1 --
Common stock-- $0.01 par value, 250,000,000 shares
authorized, 58,417,403 shares and 56,844,414 shares
issued at September 30, 2000 and December 31, 1999,
respectively........................................... 584 568
Additional paid-in capital................................ 471,171 367,240
Retained earnings......................................... 55,124 45,578
Treasury stock, at cost, 542,400 shares................... (2,002) --
---------- ----------
Total stockholders' equity........................ 524,879 413,387
---------- ----------
Total Liabilities and Stockholders' Equity........ $1,771,352 $1,559,394
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
1
<PAGE> 4
NATIONSRENT, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Equipment rentals................................... $155,774 $121,915 $407,625 $293,943
Sales of equipment, merchandise, service, parts and
supplies......................................... 28,803 32,980 89,636 93,576
-------- -------- -------- --------
Total revenue............................... 184,577 154,895 497,261 387,519
-------- -------- -------- --------
Cost of revenue:
Cost of equipment rentals........................... 58,884 36,002 145,963 89,587
Rental equipment depreciation and lease expense..... 36,259 24,826 91,223 63,082
Cost of sales of equipment, merchandise, service,
parts and supplies............................... 19,265 21,912 60,911 62,543
-------- -------- -------- --------
Total cost of revenue....................... 114,408 82,740 298,097 215,212
-------- -------- -------- --------
Gross profit.......................................... 70,169 72,155 199,164 172,307
-------- -------- -------- --------
Operating expenses:
Selling, general and administrative expenses........ 32,852 29,171 89,267 72,667
Non-rental equipment depreciation and
amortization..................................... 7,293 5,293 19,233 14,843
Expenses related to abandoned merger, net........... -- -- -- 3,932
-------- -------- -------- --------
Operating income...................................... 30,024 37,691 90,664 80,865
-------- -------- -------- --------
Other (income)/expense:
Interest expense, net............................... 25,821 17,698 72,117 48,130
Other, net.......................................... 5 (287) 191 (2,885)
-------- -------- -------- --------
25,826 17,411 72,308 45,245
-------- -------- -------- --------
Income before provision for income taxes.............. 4,198 20,280 18,356 35,620
Provision for income taxes.......................... 2,935 8,416 8,810 14,782
-------- -------- -------- --------
Net income............................................ $ 1,263 $ 11,864 $ 9,546 $ 20,838
======== ======== ======== ========
Net income per share:
Basic............................................... $ 0.02 $ 0.21 $ 0.16 $ 0.37
======== ======== ======== ========
Diluted............................................. $ 0.02 $ 0.17 $ 0.13 $ 0.34
======== ======== ======== ========
Weighted average common shares outstanding:
Basic............................................... 57,935 56,454 58,290 55,976
======== ======== ======== ========
Diluted............................................. 82,376 75,805 76,177 68,460
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE> 5
NATIONSRENT, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 9,546 $ 20,838
Adjustments to reconcile net income to net cash provided
by/(used in) operating activities:
Depreciation and amortization............................. 70,345 55,089
Loss on disposal of non-rental equipment.................. 6 --
Gain on sale of rental equipment.......................... (15,380) (13,232)
Gain on sale of lift truck dealership..................... -- (1,818)
Deferred income tax provision............................. 7,992 15,418
Changes in operating assets and liabilities:
Accounts receivable.................................. (24,520) (36,340)
Inventories.......................................... (1,230) (10,890)
Prepaid expenses and other assets.................... (14,217) (13,754)
Accounts payable..................................... 47,128 (28,418)
Accrued expenses and other liabilities............... (2,198) (10,648)
Income taxes payable................................. 49 (2,997)
--------- ---------
Net cash provided by/(used in) operating
activities.......................................... 77,521 (26,752)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired........ (21,117) (134,179)
Payment of contingent acquisition consideration........ (11,750) (500)
Proceeds from sale of businesses....................... 6,657 23,315
Purchases of rental equipment.......................... (142,721) (133,774)
Purchases of property and equipment.................... (30,442) (24,742)
Investment in affiliate................................ (2,000) --
Proceeds from sale of rental equipment................. 49,390 42,808
--------- ---------
Net cash used in investing activities................ (151,983) (227,072)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock, net......... 95,317 93,569
Proceeds from debt..................................... 312,240 764,750
Repayments of debt..................................... (325,509) (589,897)
Purchase of treasury stock............................. (2,002) --
Debt issuance costs.................................... (4,416) (7,589)
--------- ---------
Net cash provided by financing activities............ 75,630 260,833
--------- ---------
Net increase in cash and cash equivalents................... 1,168 7,009
Cash and cash equivalents, beginning of period.............. 5,290 10,597
--------- ---------
Cash and cash equivalents, end of period.................... $ 6,458 $ 17,606
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................. $ 62,985 $ 47,436
========= =========
Cash paid for income taxes............................. $ 645 $ 6,017
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
The Company acquired the net assets and assumed certain
liabilities of certain businesses as follows:
Total assets, net of cash acquired..................... $ 38,101 $ 220,666
Total liabilities assumed.............................. (12,414) (66,547)
Amount paid through the issuance of debt and future
contractual payments.................................. (4,570) (19,940)
--------- ---------
Net cash paid........................................ $ 21,117 $ 134,179
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 6
NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have
been prepared by NationsRent, Inc. (the "Company") and reflect all adjustments
of a normal recurring nature which are, in the opinion of management, necessary
for a fair presentation of financial results for the three and nine months ended
September 30, 2000 and 1999, in accordance with generally accepted accounting
principles for interim financial reporting and pursuant to Article 10 of
Regulation S-X. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. For
interim reporting purposes, advertising expenses are charged to earnings in
proportion to the relationship that revenue for such period bears to estimated
full year revenue and related advertising expenses. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These unaudited interim
consolidated financial statements should be read in conjunction with the
consolidated financial statements for the year ended December 31, 1999 appearing
in the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission. The results of operations for the three and nine months
ended September 30, 2000 are not necessarily indicative of the results which may
be reported for the year ending December 31, 2000.
The unaudited interim consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All material
intercompany transactions and balances have been eliminated in consolidation.
The Company's effective income tax rate for the three and nine months ended
September 30, 2000 was 69.9% and 48.0%, respectively. The amount above statutory
income tax rates is attributable primarily to non-deductible goodwill
amortization for federal income tax purposes.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2000, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities," which amends
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 was previously amended by SFAS No. 137 "Accounting For Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133," which deferred the effective date of SFAS No. 133 to fiscal
years commencing after June 15, 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
believes the adoption of SFAS No. 138 will not have a material impact on our
financial position or results of operations and will adopt SFAS No. 138
concurrently with SFAS No. 133 on January 1, 2001, as required.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain
of the SEC's views in applying generally accepted accounting principles to
revenue recognition in financial statements. The Company is required to adopt
SAB 101 during the fourth quarter of 2000. Management does not expect the
adoption of SAB 101 to have a material effect on the Company's financial
position or results of operations.
NOTE 2 -- CHANGE IN DEPRECIATION ESTIMATE
Effective as of July 1, 2000, the Company revised the estimated service
lives and residual values for certain of its rental assets to better allocate
the expense over the time that such assets are in its rental fleet. This change
decreased the estimated service lives and increased the residual values for
certain rental assets.
4
<PAGE> 7
NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The change in estimate resulted in a decrease in rental equipment depreciation
expense of approximately $3,200,000 and an increase in net income of
approximately $2,000,000 or $0.02 per diluted share for the three and nine
months ended September 30, 2000.
NOTE 3 -- ACQUISITIONS
The Company made four acquisitions of equipment rental businesses during
the nine months ended September 30, 2000. The aggregate consideration for these
acquisitions was $25,825,000 and consisted of (i) $21,255,000 of cash, (ii)
$3,475,000 of subordinated convertible debt and (iii) $1,095,000 of future
contractual cash payments. The cash portion of the consideration was funded
through borrowings under the Company's senior credit facility (the "Credit
Facility"). In addition, the Company repaid or assumed outstanding indebtedness
of the acquired companies in the aggregate amount of $9,793,000. These
acquisitions have been accounted for using the purchase method and, accordingly,
the acquired assets and assumed liabilities, including goodwill, have been
recorded at their estimated fair values as of the date of acquisition. Purchase
accounting values for these acquisitions have been assigned on a preliminary
basis, and are subject to adjustment when final information as to the fair
values of the net assets acquired is available. The Company is awaiting
information from third-party appraisers as to the fair value of certain rental
equipment acquired and the final determination of certain liabilities assumed.
The Company does not believe the final assignment of the fair value of the net
assets acquired will have a significant impact on future operating results. The
operations of the acquired businesses have been included in the Company's
consolidated statements of income since the date of acquisition.
The following table sets forth the estimated fair value of the assets
acquired and liabilities assumed for the aforementioned acquisitions (in
thousands):
<TABLE>
<S> <C>
Assets, including cash...................................... $10,609
Goodwill.................................................... 27,630
Liabilities................................................. 12,414
</TABLE>
The following table sets forth the unaudited pro forma consolidated results
of operations for the three and nine months ended September 30, 2000 and 1999
giving effect to the acquisitions completed during 2000 and 1999 as if the
acquisitions had occurred on January 1, 1999 (in thousands, except per share
data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue....................................... $184,577 $179,001 $497,463 $478,682
Net income.................................... 1,263 12,824 9,841 27,548
Basic earnings per share...................... 0.02 0.22 0.17 0.45
Diluted earnings per share.................... 0.02 0.15 0.13 0.35
</TABLE>
The above unaudited pro forma consolidated results of operations are based
upon certain assumptions and estimates which the Company believes are
reasonable. The unaudited pro forma consolidated results of operations may not
be indicative of the operating results that actually would have been reported
had the acquisitions been consummated on January 1, 1999, nor are they
necessarily indicative of results which will be reported in the future.
During the nine months ended September 30, 2000, the Company paid
consideration of $11,750,000 of cash, $1,200,000 of subordinated convertible
debt and 1,721,664 shares of Common Stock to the former owners of previously
acquired businesses related to the achievement of certain operating results. The
Company records amounts paid for contingent consideration as additional purchase
price once they are incurred since the consideration is required regardless of
the former owner's continued association with the Company.
5
<PAGE> 8
NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As a part of the purchase of a certain business during 1999, the Company
acquired an equipment dealership which the Company intended to dispose of and
accounted for as an asset held for sale pursuant to EITF No. 87-11 "Allocation
of Purchase Price to Assets to be Sold." In May 2000, the Company decided to
close the locations that comprised the dealership portion of the acquisition
after it was unable to obtain the manufacturer's approval for the sale of the
dealership to a third party. As such, the Company began an orderly liquidation
of the assets of the acquired dealership. The fair value of the dealership
assets have been recorded at September 30, 2000 based on management's estimate
of the proceeds from the sale of the assets. The results of operations related
to the dealership for the nine months ended September 30, 2000, which aggregated
$5,795,000 of losses and $449,000 of interest expense, have been excluded from
the Company's 2000 consolidated statements of income.
NOTE 4 -- SEASONALITY
The Company's revenue and income are dependent upon the activity in the
construction industry in the markets served by the Company. Construction
activity is dependent upon weather and the traditional seasons for construction
work. Because of this variability in demand, the Company's quarterly revenue may
fluctuate, and revenue for the first quarter of each year can be expected to be
lower than the remaining quarters. Although the Company believes that the
historical trend in quarterly revenue for the second, third and fourth quarters
of each year is generally higher than the first quarter, there can be no
assurance that this will occur in future periods. Accordingly, quarterly or
other interim results should not be considered indicative of results to be
expected for any quarter or for the full year.
NOTE 5 -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
2000 1999 2000 1999
------- -------- ------- -------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings per
share-- net income...................... $1,263 $11,864 $ 9,546 $20,838
Interest expense on convertible
subordinated debt, net of income
taxes................................... -- 789 -- 2,268
------ ------- ------- -------
Numerator for diluted earnings per share... $1,263 $12,653 $ 9,546 $23,106
====== ======= ======= =======
Denominator:
Denominator for basic earnings per
share--weighted-average shares.......... 57,935 56,454 58,290 55,976
Effect of dilutive securities:
Convertible subordinated debt........... -- 9,177 -- 8,892
Preferred stock......................... 24,247 9,745 17,630 3,284
Employee stock options.................. 194 429 257 308
------ ------- ------- -------
Denominator for diluted earnings per
share-- adjusted weighted-average shares... 82,376 75,805 76,177 68,460
====== ======= ======= =======
Basic earnings per share..................... $ 0.02 $ 0.21 $ 0.16 $ 0.37
====== ======= ======= =======
Diluted earnings per share................... $ 0.02 $ 0.17 $ 0.13 $ 0.34
====== ======= ======= =======
</TABLE>
6
<PAGE> 9
NATIONSRENT, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options and warrants to purchase 7,330,251 and 2,260,360 shares of Common
Stock were outstanding at September 30, 2000 and 1999, respectively, but were
not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market value of the shares
of Common Stock for the periods presented and, therefore, the effect would be
anti-dilutive. The convertible subordinated debt was excluded from the diluted
earnings per share calculation for the three and nine months ended September 30,
2000 as such debt was anti-dilutive in such periods.
NOTE 6 -- COMPREHENSIVE INCOME
The objective of reporting comprehensive income is to disclose all changes
in equity of an enterprise that result from transactions and other economic
events in a period other than transactions with owners. The comprehensive income
of the Company was equal to net income for all periods presented.
NOTE 7 -- TREASURY STOCK
In May 2000, the Board of Directors of the Company approved the repurchase
from time to time of up to $5,000,000 of the Company's Common Stock. As of
September 30, 2000, the Company has repurchased 542,400 shares of its Common
Stock in the open market for a cost of approximately $2,002,000, which shares
have been recorded as treasury stock in the accompanying consolidated financial
statement.
NOTE 8 -- ISSUANCE OF CONVERTIBLE PREFERRED STOCK
In August and September 2000, the Company issued an aggregate of 100,000
shares of its Series B Convertible Preferred Stock (the "Series B Preferred
Stock"), to NR2 Holdings Limited, DB Capital Investors, L.P., J.P. Morgan
Capital Corporation and Sixty Wall Street Fund, L.P. for an aggregate purchase
price of $100,000,000. The Series B Preferred Stock ranks senior to the Common
Stock, and on par with the Series A Convertible Preferred Stock, with respect to
distributions upon the liquidation, winding-up and dissolution of the Company.
The Series B Preferred Stock also has additional rights, including certain class
voting, dividend participation, conversion, redemption and preemptive rights,
among others. The 100,000 shares of Series B Preferred Stock are convertible
into 22.2 million shares of Common Stock based on a liquidation preference of
$1,000 per share of Series B Preferred Stock and a conversion price of $4.50 per
share of Common Stock.
NOTE 9 -- NON-RECURRING ITEMS
In January 1999, the Company received net proceeds of $23,315,000 related
to the sale of a lift truck dealership acquired as part of an acquisition made
in April 1998. The carrying value of the tangible assets sold was $16,059,000
resulting in proceeds in excess of carrying value of $7,256,000. The Company
recorded a pre-tax gain of $1,818,000 included in other income based on the
increase in value of the dealership since the date of acquisition. The remaining
$5,438,000 of proceeds in excess of carrying value was recorded as a reduction
of goodwill.
In January 1999, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Rental Service Corporation ("RSC"), a Delaware
corporation, pursuant to which the Company was to be merged with and into RSC
with RSC continuing as the surviving corporation to be named RSC NationsRent. In
May 1999, the Company entered into a Termination and Release Agreement (the
"Termination Agreement"), with RSC, pursuant to which the Company and RSC
mutually agreed to terminate the Merger Agreement and to abandon the proposed
merger between the parties. As part of the Termination Agreement, RSC paid the
Company $6,000,000 as reimbursement of out-of-pocket costs and expenses incurred
in connection with the transaction. The Company recorded a pre-tax charge of
$3,932,000 in the second quarter of 1999 for the unreimbursed portion of
expenses incurred related to the proposed merger.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of our consolidated results of
operations and financial condition should be read in conjunction with the
unaudited interim consolidated financial statements and the related notes
included herein and the consolidated financial statements for the year ended
December 31, 1999 appearing in our Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
GENERAL
NationsRent is a leading provider of rental equipment in the United States.
We offer a comprehensive line of equipment for rent primarily to a broad range
of construction and industrial customers including general contractors,
subcontractors, highway contractors, manufacturing plants and distribution
centers. The Company also sells used and new equipment, spare parts and
supplies. As of September 30, 2000, we operated 195 equipment rental locations
in 27 states. We have become a leading provider of rental equipment as a result
of our strategy to establish a significant presence in target markets by
acquiring platform companies, opening or acquiring additional convenient
locations concentrated around those businesses and expanding the selection and
availability of our rental fleet.
As part of building a nationally branded network, we seek to conform the
physical appearance and product offerings of all of our stores to a uniform
format. Distinguishing characteristics of this format include clearly marked
aisles, a wide variety of newer, name brand, well maintained rental equipment,
prominent use of the NationsRent logo and colors and attractive, well-organized
and clean store facilities. In addition, our stores seek to offer a high level
of customer service which is supported through employee training and the
integration of information systems. The cost of converting acquired locations to
the NationsRent format has varied depending on the physical properties of the
acquired location and the condition, breadth and depth of rental equipment
inventory at such location, which were factors considered in the selection and
pricing of acquisition candidates. The cost of opening our new locations has
varied depending on whether we leased or purchased the underlying real property,
the size of the location and the breadth and depth of inventory at each
location. See "Liquidity and Capital Resources."
We derive our revenue from equipment rentals, sales of new and used
equipment, spare parts and supplies and maintenance and repair services. Rental
revenue is dependent on several factors including demand for rental equipment,
the amount and quality of equipment available for rent, rental rates and general
economic conditions. Revenue generated from the sale of used equipment is
affected by price, general economic conditions and the condition of the
equipment. Revenue from the sale of new equipment is affected by price and
general economic conditions. Revenue from the sale of spare parts and supplies
as well as maintenance and repair services is primarily affected by equipment
rental and sales volume.
The principal components of our cost of revenue include equipment
depreciation and lease expense, costs of new and used equipment sold, personnel
costs, occupancy costs, repair and maintenance costs and vehicle operations.
Rental equipment depreciation is calculated using the straight-line method over
the estimated useful life of such equipment. Effective July 1, 2000, we revised
the estimated service lives and residual values for certain of our rental assets
to better allocate the expense over the time that such assets are in our rental
fleet. This change decreased the estimated service lives and increased the
residual values for certain rental assets. The change in estimate resulted in a
decrease of rental equipment depreciation expense of approximately $3.2 million
and an increase in net income of approximately $2.0 million or $0.02 per diluted
share for the three and nine months ended September 30, 2000. 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.
8
<PAGE> 11
In May 1999, we abandoned our merger with Rental Service Corporation
("RSC") and entered into a Termination and Release Agreement (the "Termination
Agreement") with RSC. Pursuant to the Termination Agreement, RSC reimbursed us
for $6.0 million of expenses incurred in connection with the transaction, which
offset a total of $9.9 million of expenses incurred in connection with the
transaction. The net $3.9 million of unreimbursed expenses is included in
operating expenses in the nine months ended September 30, 1999.
ACQUISITIONS AND NEW STORES
During the nine months ended September 30, 2000, we acquired four equipment
rental businesses. We paid an aggregate of approximately $25.8 million for these
four acquisitions which consisted of approximately:
- $21.2 million in cash;
- $3.5 million of subordinated convertible debt; and
- $1.1 million of future contractual payments.
We funded the cash portion of the consideration paid for these acquisitions
with borrowings under our senior credit facilities. The acquisitions have been
accounted for using the purchase method and, accordingly, the acquired assets
and assumed liabilities have been recorded at their estimated fair values as of
the date of acquisition. Purchase accounting values for certain acquisitions
have been assigned on a preliminary basis, and are subject to adjustment when
additional information as to the fair values of the net assets acquired is
available. We are awaiting information from third-party appraisers as to the
fair value of certain rental equipment acquired and the final determination of
certain liabilities assumed. We do not believe the final assignment of the fair
value of the net assets acquired will have a significant impact on future
operating results.
In the future our growth initiatives are expected to be focused on the
opening of new locations. In markets in which we have established a presence, we
may open new locations in that geographic area or adjacent areas. During the
nine months ended September 30, 2000, we have opened 16 of the 18 new locations
we plan to open in 2000. We continue to evaluate the need for new locations in
markets in which we have a presence as well as in new markets.
In October 2000, we entered into an exclusive multi-year strategic alliance
with Lowe's Companies, Inc., the world's second largest home improvement
retailer, to operate NationsRent rental centers within select Lowe's home
improvement stores. This multi-year alliance follows a six-month six-store pilot
program which commenced in April 2000. Operating as a store within a store
adjacent to the entrance of a Lowe's store, the NationsRent stores will rent the
company's full line of construction tools and equipment to Lowe's customers. We
anticipate opening approximately 60 NationsRent stores within Lowe's stores by
the end of 2001 in approximately 22 major markets. These rental centers will be
leased by NationsRent from Lowe's for a term initially expiring in 2008 with two
five-year renewal options. The Lowe's strategic alliance has and will require us
to accelerate investments in systems, training, brand support and other store
start-up costs.
HISTORICAL RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Revenue. The following table sets forth our revenue by type for the three
and nine months ended September 30, 2000 and 1999 (in thousands, except
percentages):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------ ------------------------------------
2000 1999 2000 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equipment rentals............. $155,774 84.4% $121,915 78.7% $407,625 82.0% $293,943 75.9%
Sales of equipment,
merchandise, service, parts
and supplies................ 28,803 15.6% 32,980 21.3% 89,636 18.0% 93,576 24.1%
-------- ----- -------- ----- -------- ----- -------- -----
$184,577 100.0% $154,895 100.0% $497,261 100.0% $387,519 100.0%
======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
9
<PAGE> 12
Total revenue increased $29.7 million, or 19.2% and $109.7 million, or
28.3% for the three and nine months ended September 30, 2000, respectively, when
compared to the same periods in 1999. Rental revenue increased $33.9 million, or
27.8% and $113.7 million, or 38.7% for the three and nine months ended September
30, 2000, respectively, when compared to the same periods in 1999. The increase
in rental revenue for the three and nine months ended September 30, 2000, when
compared to the same periods in 1999, was comprised of 13.8% and 17.0%,
respectively, from internal growth and 14.0% and 21.7%, respectively, from the
inclusion of rental revenue from businesses acquired during 1999 and 2000. The
internal growth in rental revenue was primarily a result of the expansion of our
rental fleet at existing locations. Equipment rental revenue as a percentage of
total revenue was 84.4% and 82.0% for the three and nine months ended September
30, 2000, respectively, up from 78.7% and 75.9%, respectively, for the same
periods in 1999. The higher mix of rental revenue in 2000 was due primarily to
the expansion of our rental fleet.
Gross Profit. Gross profit decreased by $2.0 million and increased by
$26.9 million for the three and nine months ended September 30, 2000,
respectively, when compared to the same periods in 1999. Gross profit as a
percentage of total revenue was 38.0% and 40.1%, for the three and nine months
ended September 30, 2000, respectively, compared to 46.6% and 44.5% for the same
periods in 1999.
The increase in gross profit for the nine months ended September 30, 2000,
when compared to the same period in 1999, was primarily due to the increase in
total revenue. Gross profit was negatively impacted for the three months ended
September 30, 2000 by an imbalance in our cost structure relative to our rental
revenue. As previously stated, our rental revenue grew approximately 13.8% from
internal growth during the three months ended September 30, 2000 when compared
to the same period in 1999. However, we anticipated growth of over 25% in rental
revenue and put in place an infrastructure to handle such revenue growth. Our
growth plans were negatively impacted by competitive market conditions in the
peak rental season. We have initiated an aggressive cost reduction program to
adjust such imbalance, however, we expect this condition to continue during the
fourth quarter of 2000.
Gross profit during the three months ended September 30, 2000 was
positively impacted by the aforementioned change in rental equipment
depreciation estimates.
Operating Expenses. Selling, general and administrative expenses increased
$3.7 million and $16.6 million for the three and nine months ended September 30,
2000, respectively, when compared to the same periods in 1999. This increase was
due primarily to the inclusion of such costs from businesses acquired during
1999 and 2000 and additional corporate expenses. Also included in operating
expenses for the nine months ended September 30, 1999 is $3.9 million of
unreimbursed expenses incurred in connection with the abandoned merger with RSC.
Selling, general and administrative expenses as a percentage of total revenue
were 17.8% and 18.0% for the three and nine months ended September 30, 2000,
respectively, compared to 18.8%, for the same periods in 1999.
Non-rental equipment depreciation and amortization increased $2.0 million
and $4.4 million for the three and nine months ended September 30, 2000,
respectively, when compared to the same periods in 1999. This increase was due
primarily to additional goodwill amortization incurred in connection with
acquisitions completed during 1999 and 2000.
Operating Income. Operating income decreased $7.7 million and increased
$9.8 million for the three and nine months ended September 30, 2000,
respectively, when compared to the same periods in 1999. Operating income as a
percentage of total revenue was 16.3% and 18.2% for the three and nine months
ended September 30, 2000, respectively, compared to 24.3% and 20.9% for the same
periods in 1999.
The increase in operating income for the nine months ended September 30,
2000, when compared to the same period in 1999, was primarily due to increased
revenue, the higher mix of rental revenue relative to total revenue and the
impact of the aforementioned charge in 1999 related to the abandoned merger with
RSC. The decrease in operating income for the three months ended September 30,
2000, when compared to the same period in 1999, was primarily due to the
aforementioned imbalance of costs and revenue.
Other Income and Expense. Interest expense increased $8.1 million and
$24.0 million for the three and nine months ended September 30, 2000,
respectively, when compared to the same periods in 1999. This
10
<PAGE> 13
increase was due primarily to the increase in debt incurred to finance
acquisitions and the expansion of our rental fleet during 1999 and 2000, as well
as an increase in the interest rates charged on the variable portion of our bank
debt. Interest expense is primarily attributable to borrowings under our senior
credit facilities, notes issued to finance the purchase of equipment,
subordinated convertible notes issued to sellers of businesses we acquired and
our senior subordinated notes.
Other income for the nine months ended September 30, 1999 included a
pre-tax gain of approximately $1.8 million from the sale in January 1999 of a
lift truck dealership.
Income Taxes. Our effective income tax rate for the three and nine months
ended September 30, 2000 was 69.9% and 48.0%, 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 decreased $10.6 million and $11.3 million for the
three and nine months ended September 30, 2000, respectively, when compared to
the same periods in 1999. The variances in net income are a result of the
factors discussed above. Net income, excluding the charge related to the
abandoned merger with RSC, would have been $23.1 million or $0.37 diluted
earnings per share for the nine months ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Our primary uses of cash have been the funding of acquisitions and capital
expenditures. To date, we have funded our cash requirements primarily with
borrowings under our credit facility, proceeds from the issuance of debt and
equity securities, equity contributions from our founding stockholders and cash
provided by operations.
Our net cash provided by operations was $77.5 million for the nine months
ended September 30, 2000 compared to net cash used of $26.8 million for the same
period in 1999. The increase in cash provided by operations was due primarily to
an increase in accounts payable. Net cash used in investing activities was
$152.0 million for the nine months ended September 30, 2000. Cash used in
investing activities consisted primarily of $142.7 million for purchases of
rental equipment, $30.4 million for purchases of and improvements to property
and equipment and net cash consideration of $21.1 million for the acquisition of
businesses. Included in investment activities was $6.7 million relating to
proceeds from the sale of assets of a specialty rental location. Cash provided
by financing activities was $75.6 million for the nine months ended September
30, 2000 and was a result of net borrowings under our senior credit facilities.
In August 2000, we increased our senior credit facility from $800.0 million
to $925.0 million. Our credit facility consists of a $525.0 million revolving
line of credit due July 2004 and a $400.0 million term loan due July 2006. The
credit facility can be used to complete permitted acquisitions, make capital
expenditures, enter into standby letters of credit or for working capital and
other general corporate purposes. Borrowings under the revolving line of credit
bear interest at either the Fleet National Bank base rate plus a percentage
ranging from .50% to 1.50% or, at our option, the Eurodollar market rate plus a
percentage ranging from 1.75% to 2.75%. The term loan bears interest at the base
rate plus 2.00% to 2.25%, or at our option the Eurodollar market rate plus 3.25%
to 3.50%. The percentage over the Eurodollar market rate and base rate is based
on our financial performance as measured by the total funded debt ratio. The
credit facility is secured by a security interest in substantially all of our
assets. The credit facility also imposes, among other covenants, a tangible
assets to senior debt covenant, a restriction on all of our retained earnings
including the declaration and payment of cash dividends, consent requirements on
certain acquisitions and a restriction on the ratio of total and senior funded
debt to earnings before interest, income taxes, depreciation and amortization.
In the event the Company's financial performance in the future fails to meet
certain covenants in the credit facility, borrowings under the credit facility
could be restricted or become more costly. On September 30, 2000, $252.8 million
and $400.0 million of cash borrowings were outstanding under the revolving line
of credit and term loan, respectively.
In August 2000, we entered into an agreement to sell 100,000 shares of
series B perpetual convertible preferred stock for an aggregate purchase price
of $100.0 million to a group of investors including: $20.0
11
<PAGE> 14
million to NR2 Holdings Limited (an affiliate of Investcorp S.A.), $40.0 million
to DB Capital Investors, L.P. (an affiliate of Deutsche Bank AG), $30.0 million
to J.P. Morgan Capital Corporation and $10.0 million to Sixty Wall Street Fund,
L.P. (an affiliate of J.P. Morgan). The preferred stock is convertible into
approximately 22.2 million shares of our common stock at any time based on a
liquidation preference of $1,000 per share of preferred stock and a conversion
price of $4.50 per share of common stock. The private placement was completed in
two steps, $52.0 million was completed in August 2000 and $48.0 million was
completed in September 2000 following stockholder approval at a special meeting
of stockholders. Proceeds from the private placement have been used to repay
borrowings under our revolving credit facility.
Our short-term cash requirements for our existing operations consist
primarily of:
- capital expenditures to maintain, modernize and expand our rental
equipment inventory;
- working capital requirements; and
- repair and maintenance of rental equipment, purchase of merchandise
inventory and other operating activities.
We estimate that equipment expenditures over the next 12 months for our
existing locations and for new store openings will be in the range of $50.0
million to $75.0 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 for equipment expenditures through cash generated from
operations, borrowings under our credit facility and the use of equipment
leases. We estimate that such sources will be sufficient to fund the cash
required for our existing operations for at least 12 months.
During the nine months ended September 30, 2000, we opened 16 new locations
in markets where we already had a presence (excluding our Lowe's locations
described below). We estimate that the average aggregate capital costs
associated with opening a new location is in the range of $2.0 million to $4.5
million. We expect to open 2 additional new locations in 2000. We believe that
cash generated from operations and borrowings under our credit facility will be
sufficient to fund these costs.
As discussed above, we expect to open approximately 60 NationsRent stores
within Lowe's stores by the end of 2001 nationwide. We estimate that the average
aggregate capital costs associated with opening a Lowe's location to be in the
range of $0.3 million to $0.5 million. We believe cash generated from operations
and borrowings under our credit facility will be sufficient to fund these costs
for at least 12 months.
We are developing additional modules for our management information system.
We estimate the total cost to complete development and installation of the
modules at our existing locations will range from $3.0 million to $5.0 million
over the next 12 months and we believe cash generated from operations and
borrowings under our credit facility will be sufficient to fund these costs.
There may be liabilities that we failed or were unable to discover in the
course of performing due diligence investigations on each company or business we
have acquired. Such liabilities could include, among others, those arising from
employee benefits contribution obligations of a prior owner or non-compliance
with applicable federal, state or local environmental requirements by prior
owners for which we, as a successor owner or operator, may be responsible. We
tried 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 all
existing or potential risks. We also generally required 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.
12
<PAGE> 15
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 three to six months of their opening. In
addition, when we purchase new rental equipment, the depreciation related to
such equipment may contribute to near-term margin decline, because such
equipment may not initially generate revenue at a rate that is sufficient to
match such increased depreciation expense. As such, the opening of new rental
locations and the purchase of new equipment to expand our current rental
equipment inventory may reduce our operating margins during a start-up period.
INFLATION
We do not believe that inflation has been a significant factor to the cost
of our operations.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
We are required to adopt SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," which amends SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 was
previously amended by SFAS No. 137 "Accounting For Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133,"
which deferred the effective date of SFAS No. 133 to fiscal years commencing
after June 15, 2000. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. We believe the adoption of SFAS No.
138 will not have a material impact on our financial position or results of
operations and will adopt SFAS No. 138 concurrently with SFAS No. 133 on January
1, 2001, as required.
We are required to adopt Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" during the fourth quarter of 2000. Staff
Accounting Bulletin No. 101 summarizes certain of the SEC's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. We do not expect the adoption of SAB 101 to have a material effect
on our financial position or results of operations.
YEAR 2000
Since many computer systems and other equipment with embedded chips or
microprocessors use only two digits to represent the year, these systems may be
unable to process accurately certain data before, during
13
<PAGE> 16
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 Quarterly Report on Form 10-Q
may include "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including in particular the statements about
our plans, strategies and prospects under the heading "Management's Discussion
and Analysis of Financial Condition and Results of Operations." These statements
are based on our current plans and expectations and involve risks and
uncertainties that could cause actual future activities and results to be
materially different from those set forth in these forward-looking statements.
Important factors that could cause actual results to differ materially from our
forward-looking statements are set forth below and elsewhere in this Quarterly
Report on Form 10-Q. Such factors include, among others:
- our substantial indebtedness and our ability to generate cash in order to
service our indebtedness depends on many factors beyond our control;
- the availability of additional capital on terms acceptable to us which
could affect our ability to execute growth and operating strategies;
- rising interest rates which could affect our ability to operate within
the limitations imposed by financing arrangements;
- our limited operating history makes it difficult to evaluate us, our
growth strategy and our prospects in light of the risks, expenses and
difficulties frequently encountered by companies in the early stages of
development;
- compliance with and future changes in safety and environmental regulation
may increase expenses and liabilities;
- claims for personal injury or death resulting from the use of our
equipment or in connection with our operations may exceed our insurance
coverage;
- stock price volatility;
- the ability to identify and 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;
14
<PAGE> 17
- 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is limited primarily to the fluctuating
interest rates associated with our variable rate indebtedness. Our variable
interest rates are subject to interest rate changes in the United States and the
Eurodollar market. At September 30, 2000 we had $500.0 million of variable rate
indebtedness, representing approximately 49% of our total debt outstanding, at
an average interest rate of 9.72%. In January 2000, we entered into a two-year
modified interest rate swap contract to hedge the impact of interest rate
fluctuations on certain variable rate debt. In September 2000, we entered into
two additional two-year modified interest rate swap contracts. We do not hold or
issue derivative financial instruments for trading or speculative purposes. The
January 2000 interest rate swap fixes the Eurodollar interest rate at 6.80% on
$165.0 million of variable rate debt through January 30, 2002. The September
2000 interest rate swaps fix the Eurodollar interest rate at 6.5915% and 6.582%
on $15.0 million of variable rate debt, respectively, through October 2, 2000.
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.
15
<PAGE> 18
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(b) ISSUANCE OF SERIES B CONVERTIBLE PREFERRED STOCK
In August and September 2000, the Company issued an aggregate of 100,000
shares of its Series B Convertible Preferred Stock (the "Series B Preferred
Stock"), to NR2 Holdings Limited, DB Capital Investors, L.P., J.P. Morgan
Capital Corporation and Sixty Wall Street Fund, L.P. for an aggregate purchase
price of $100,000,000. The Series B Preferred Stock ranks senior to the common
stock, and on par with our Series A Convertible Preferred Stock, with respect to
distributions upon the liquidation, winding-up and dissolution of the Company.
The Series B Preferred Stock also had additional rights, including certain class
voting, dividend participation, conversion, redemption and preemptive rights,
among others. For a description of the rights and preferences of the Series B
Preferred Stock, refer to the Certificate of Designation for the Series B
Preferred Stock filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the period ending June 30, 2000.
(c) RECENT SALES OF UNREGISTERED SECURITIES
During the period from July 1, 2000 through September 30, 2000, we issued
securities in the transactions set forth below. Each of these transactions was
intended to be exempt from the registration requirements of the Securities Act
of 1933, as amended, by virtue of Section 4(2) thereunder based on being issued
in a transaction not involving a public offering.
In July 2000, in connection with the acquisition of the assets of Chapman
Equipment Company, the Company issued promissory notes in the aggregate
principal amount of $220,000, which are convertible into shares of common stock
at the option of the holders at a price of $10.00 per share.
In July 2000, in connection with the acquisition of the assets of Action
Equipment Company, Inc. and Action Supply Co., Inc., the Company issued
promissory notes in the aggregate principal amount of $1,250,000, which are
convertible into shares of common stock at the option of the holders at a price
of $12.50 per share.
In August and September 2000, the Company issued an aggregate of 100,000
shares of its Series B Preferred Stock, to NR2 Holdings Limited, DB Capital
Investors, L.P., J.P. Morgan Capital Corporation and Sixty Wall Street Fund,
L.P. for an aggregate purchase price of $100,000,000. The 100,000 shares of
Series B Preferred Stock are convertible into 22,222,222 shares of common stock
based on a liquidation preference of $1,000 per share of Series B Preferred
Stock and a conversion price of $4.50 per share of common stock. The Company
paid to certain affiliates of the purchasers of the Series B Preferred Stock a
fee equal to 4% of the aggregate purchase price.
From July 1, 2000 through September 30, 2000, we granted options to certain
of our employees to purchase an aggregate of 387,000 shares of common stock at
exercise prices ranging from $2.5625 to $3.9375 per share. These options
generally vest over a four-year period at the rate of 25% per year beginning on
the first anniversary of the date of grant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 8, 2000, the Company held a special meeting of the
stockholders to approve the following matters: (1) the issuance, in a series of
transactions, of 100,000 shares of Series B Preferred Stock to NR2 Holdings
Limited, DB Capital Investors, L.P., J.P. Morgan Capital Corporation and Sixty
Wall Street Fund, L.P., 52,000 shares of which had already been issued and
48,000 shares of which were to be issued after stockholder approval was
obtained, as well as the issuance of shares of common stock upon the conversion
of such Series B Preferred Stock; and (2) the future issuance of common stock or
securities convertible into or exercisable for common stock to the holders of
the Series B Preferred Stock, or their permitted transferees, from time to time
pursuant to the exercise of their preemptive rights to which they were entitled
under the
16
<PAGE> 19
Certificate of Designation for the Series B Preferred Stock. The Company's
stockholders approved the foregoing matters as follows:
With respect to approval of the issuance of 100,000 shares of Series B
Preferred Stock, 51,630,759 votes were cast for this matter (including
37,345,045 votes of common stock and 14,285,714 votes of Series A Preferred
Stock), 6,936,272 votes were cast against this matter, there were 27,951
abstentions and no broker non-votes.
With respect to approval of future issuance of common stock or
securities convertible into or exercisable for common stock to the holders
of the Series B Preferred Stock, or their permitted transferees, from time
to time pursuant to the exercise of their preemptive rights to which they
are entitled under the Certificate of Designation for Series B Preferred
Stock, 51,628,253 votes were cast for this matter (including 37,342,539
votes of common stock and 14,285,714 votes of Series A Preferred Stock),
6,937,362 votes were cast against this matter, there were 29,367
abstentions and no broker non-votes.
17
<PAGE> 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
-------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of January 20, 1999,
between the Company and Rental Service Corporation.(5)
2.2 Stock Option Agreement, dated as of January 20, 1999,
between the Company and Rental Service Corporation.(5)
2.3 Stock Option Agreement, dated as of January 20, 1999,
between Rental Service Corporation and the Company.(5)
2.4 Voting Agreement, dated as of January 20, 1999, between Kirk
Holdings Limited Partnership, H. Family Investments, Inc.
and Huizenga Investments Limited Partnership, as
shareholders, and Rental Service Corporation.(5)
2.5 Termination and Release Agreement, dated May 20, 1999,
between the Company and Rental Service Corporation.(6)
2.6 Stock Option Termination Agreement dated May 20, 1999,
between the Company and Rental Service Corporation.(6)
3.1 Amended and Restated Certificate of Incorporation of the
Company.(2)
3.2 Amended and Restated By-Laws of the Company.(1)
3.3 Certificate of Designation for Series A Convertible
Preferred Stock.(8)
3.4 Certificate of Amendment to Certificate of Designation for
Series A Convertible Preferred Stock.(7)
3.5 Certificate of Designation for Series B Convertible
Preferred Stock(10)
4.1 Unregistered 10 3/8% Global Senior Subordinated Notes due
2008.(4)
4.2 Registered 10 3/8% Senior Subordinated Notes due 2008.(4)
4.3 Senior Subordinated Guarantee dated December 11, 1998, of
the Guarantors as defined therein.(4)
4.4 Indenture, dated December 11, 1998, by and among Company,
the Guarantors and The Bank of New York.(4)
4.5 Registration Rights Agreement, dated December 11, 1998, by
and among the Company, the Guarantors and the Initial
Purchasers as defined therein.(4)
4.6 Fifth Amended and Restated Revolving Credit and Term Loan
Agreement, dated as of August 2, 2000, by and among the
Company, certain of its subsidiaries, Fleet National Bank
(f/k/a BankBoston, N.A.) and the other lending institutions
party thereto, Fleet National Bank, as administrative agent,
Bankers Trust Company, as syndication agent, and Scotiabanc
Inc., as documentation agent.(10)
4.7 Second Amended Restated Security Agreement, dated as of
August 2, 2000, between the Company, certain of its
subsidiaries, and Fleet National Bank (f/k/a BankBoston,
N.A.), as administrative agent.(10)
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 Note -- Sam's.(1)
10.3 Form of Unsecured Convertible Promissory Note -- Sam's.(1)
10.4 Form of Unsecured Contingent Convertible Subordinated
Promissory Note -- Sam's.(1)
10.5 Agreement, dated September 22, 1997, between the Company and
Gary L. Gabriel.(1)
10.6 Asset Purchase Agreement, dated December 8, 1997, by and
among NationsRent of Ohio, Inc., R&R Rental, Inc. ("R&R")
and the sole shareholder of R&R, together with an Amendment
dated December 10, 1997.(1)
10.7 Form of Unsecured Subordinated Promissory Note -- R&R.(1)
10.8 Asset Purchase Agreement, dated December 8, 1997, as
amended, among NationsRent of Indiana, Inc. and C&E Rental
and Service, Inc. ("C&E"), together with an Amendment dated
December 23, 1997.(1)
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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
Note -- 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
Note -- Raymond Equipment.(1)
10.22 Asset Purchase Agreement, dated May 14, 1998, among the
Company and General Rental, Inc.(1)
10.23 Stock Purchase Agreement, dated May 30, 1998, among the
Company, J. Kelly Co., Inc. ("J. Kelly") and the
shareholders of J. Kelly.(1)
10.24 Form of Unsecured convertible Subordinated Promissory
Note -- J. Kelly.(1)
10.25 Form of Registration Rights Agreement among the Company and
the shareholders of J. Kelly.(1)
10.26 Asset Purchase Agreement, dated June 7, 1998, among the
Company, Associated Rental Equipment Management Company,
Inc. ("Associated") and the sole shareholder of
Associated.(1)
10.27 Form of Unsecured Convertible Subordinated Promissory
Note -- Associated.(1)
10.28 Form of Registration Rights Agreement -- Associated.(1)
10.29 Form of Subscription Agreement, dated May 1998, between the
Company and certain subscribers.(1)
10.30 NationsRent Second Amended and Restated 1998 Stock Option
Plan.(9)
10.31 Form of Stock Option Agreement.(1)
10.32 Amended and Restated Purchase Agreement, dated as of
September 9, 1998, by and among NationsRent, Inc., Ray L.
O'Neal, Inc., Arenco, L.L.C., Don R. O'Neal, Elizabeth M.
O'Neal and the O'Neal Revocable Trust dated December 29,
1987.(3)
10.33 Unsecured Convertible Subordinated Promissory Note, dated as
of October 23, 1998, from the Company to Ray L. O'Neal,
Inc.(3)
10.34 Preferred Stock Purchase Agreement, dated July 20, 1999, by
and among the Company, NR Holdings Limited and NR
Investments Limited.(8)
10.35 Registration Rights Agreement, dated as of July 20, 1999, by
and between the Company, NR Holdings Limited, NR Investments
Limited, James L. Kirk and H. Wayne Huizenga.(8)
10.36 Preferred Stock Purchase Agreement, dated August 2, 2000, by
and among the Company, NR2 Holdings Limited, DB Capital
Investors, L.P., J.P. Morgan Capital Corporation and Sixty
Wall Street Fund, L.P.(10)
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10.37 Registration Rights Agreement, dated as of August 2, 2000,
by and among the Company, NR2 Holdings Limited, DB Capital
Investors, L.P., J.P. Morgan Capital Corporation, Sixty Wall
Street Fund, L.P., James L. Kirk and H. Wayne Huizenga and
holders of the Series A Convertible Preferred Stock.(10)
27.1* Financial Data Schedule. (for SEC use only)
</TABLE>
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* Filed herewith
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1, as amended, Commission File No. 333-56233.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1998.
(3) Incorporated by reference to the Company's Current Report on Form 8-K filed
on November 9, 1998.
(4) Incorporated by reference to the Company's Registration Statement on Form
S-4, Commission File No. 333-69691.
(5) Incorporated by reference to the Company's Current Report on Form 8-K filed
on April 8, 1999.
(6) Incorporated by reference to the Company's Current Report on Form 8-K filed
on May 21, 1999.
(7) Incorporated by reference to the Company's Registration Statement on Form
S-3, Commission File No. 333-88603.
(8) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1999.
(9) Incorporated by reference to the Company's Registration Statement on Form
S-8, Commission File No. 333-38870.
(10) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for period ending June 30, 2000.
(b) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K on August 4, 2000 relating
to the issuance of Series B Preferred Stock.
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONSRENT, INC.
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Date: November 14, 2000 By: /s/ JAMES L. KIRK
-------------------------------------
James L. Kirk
Chairman of the Board and Chief
Executive Officer
(Duly Authorized Officer)
Date: November 14, 2000 By: /s/ GENE J. OSTROW
--------------------------------------
Gene J. Ostrow
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
Date: November 14, 2000 By: /s/ KRIS E. HANSEL
--------------------------------------
Kris E. Hansel
Vice President and Controller
(Principal Accounting Officer)
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