<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
United Rentals, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-1522496
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
--------------
Four Greenwich Office Park
Greenwich, Connecticut 06830
(203) 622-3131
(Address, including Zip Code, and Telephone
Number, Including Area Code, of
Registrant's Principal Executive Offices)
Bradley S. Jacobs
Four Greenwich Office Park
Greenwich, Connecticut 06830
(203) 622-3131
(Name, Address, including Zip Code,
and Telephone Number, Including
Area Code, of Agent For Service)
--------------
A copy of all communications, including communications
sent to the agent for service, should be sent to:
Joseph Ehrenreich, Stephen M. Besen, Esq. Vincent Pisano, Esq.
Esq. Weil, Gotshal & Manges LLP Skadden, Arps, Slate,
Ehrenreich Eilenberg 767 Fifth Avenue Meagher & Flom LLP
Krause New York, NY 10153 919 Third Avenue
& Zivian LLP (212) 310-8000 New York, NY 10022
11 East 44th Street (212) 735-3000
New York, NY 10017 --------------
(212) 986-9700
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box. [_]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Proposed Maximum
Maximum Aggregate Amount of
Title of Each Class of Amount to be Aggregate Price Offering Registration
Securities to be Registered Registered Per Unit(2) Price(2) Fee
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<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share....... 9,200,000 Shares(1) $34.84 $320,528,000 $89,106.78
</TABLE>
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(1) Includes (i) 3,490,000 shares to be issued by the Registrant and (ii)
5,710,000 outstanding shares held by a selling stockholder.
(2) Calculated solely for the purpose of determining the registration fee
pursuant to Rule 457(c) under the Securities Act based upon the average of
the high and low sales prices of the Company's Common Stock on February 3,
1999, as reported on the New York Stock Exchange Composite Tape.
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The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated February 4, 1999.
8,000,000 Shares
[LOGO] United Rentals
Common Stock
------------
This is an offering of shares of common stock of United Rentals, Inc. This
prospectus relates to an offering of 6,400,000 shares in the United States. In
addition, 1,600,000 shares are being offered outside the United States in an
international offering.
United Rentals, Inc. is offering 2,290,000 of the shares to be sold in the
offering. The selling stockholder identified in this prospectus is offering an
additional 5,710,000 shares. United Rentals will not receive any of the
proceeds from the sale of shares being sold by the selling stockholder.
United Rentals' common stock is traded on the New York Stock Exchange under
the symbol "URI". The last reported sale price of the common stock on February
3, 1999 was $34.3125 per share.
See "Risk Factors" beginning on page 13 to read about certain factors you
should consider before buying shares of the common stock.
------------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price................................... $ $
Underwriting discount........................................... $ $
Proceeds, before expenses, to United Rentals.................... $ $
Proceeds, before expenses, to the selling stockholder........... $ $
</TABLE>
The U.S. underwriters may, under certain circumstances, purchase up to an
additional 960,000 shares from United Rentals at the initial public offering
price less the underwriting discount. The international underwriters may
similarly purchase up to an aggregate of an additional 240,000 shares.
------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
Goldman, Sachs & Co.________________________________Donaldson, Lufkin & Jenrette
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Prospectus dated , 1999.
<PAGE>
MAP SHOWING LOCATIONS IN THE U.S. AND CANADA
<PAGE>
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in, or incorporated by reference in, this
prospectus are forward-looking in nature. Such statements can be identified by
the use of forward-looking terminology such as "believes," "expects," "may,"
"will," "should," or "anticipates" or the negative thereof or comparable
terminology, or by discussions of strategy. You are cautioned that our business
and operations are subject to a variety of risks and uncertainties and,
consequently, our actual results may materially differ from those projected by
any forward-looking statements. Certain of such risks and uncertainties are
discussed below under "Risk Factors." We make no commitment to revise or update
any forward-looking statements in order to reflect events or circumstances
after the date any such statement is made.
WHERE YOU CAN FIND MORE INFORMATION
We file reports, proxy statements, and other information with the SEC. Such
reports, proxy statements, and other information can be read and copied at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the Public
Reference Room. The SEC maintains an internet site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC, including our company.
INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" the documents that we file
with the SEC. This means that we can disclose important information to you by
referring you to those documents. Any information we incorporate in this manner
is considered part of this prospectus. Any information we file with the SEC
after the date of this prospectus and until this offering is completed will
automatically update and supersede the information contained in this
prospectus.
We incorporate by reference the following documents that we have filed with
the SEC and any filings that we will make with the SEC in the future under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 until
this offering is completed:
. Annual Report on Form 10-K for the year ended December 31, 1997;
. Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998;
. Current Report on Form 8-K dated January 27, 1998 and Amendment No. 1
thereto on Form 8-K/A dated February 4, 1998;
. Current Report on Form 8-K dated June 18, 1998 and Amendment No. 1
thereto on Form 8-K/A dated July 21, 1998;
. Current Report on Form 8-K dated June 19, 1998;
. Current Report on Form 8-K dated July 21, 1998;
. Current Report on Form 8-K dated August 7, 1998;
. Current Report on Form 8-K dated September 16, 1998;
. Current Report on Form 8-K dated October 9, 1998;
. Current Report on Form 8-K dated December 15, 1998;
. Current Report on Form 8-K dated December 24, 1998; and
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. Registration Statement on Form 8-A dated November 7, 1998 (filed on
December 3, 1998) and Registration Statement on Form 8-A dated August
6, 1998.
We will provide without charge, upon written or oral request, a copy of any
or all of the documents which are incorporated by reference into this
prospectus. Requests should be directed to: United Rentals, Inc., Attention:
Corporate Secretary, Four Greenwich Office Park, Greenwich, Connecticut 06830,
telephone number: (203) 622-3131.
4
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and the financial statements and related notes that are included
elsewhere in this prospectus and in the documents that we incorporate by
reference into this prospectus. In this prospectus, reference to "dollars" and
"$" are United States dollars.
United Rentals
United Rentals is the largest equipment rental company in North America
with 422 branch locations in 37 states, Canada and Mexico. We offer for rent
over 600 different types of equipment on a daily, weekly or monthly basis and
serve customers that include construction industry participants, industrial
companies and homeowners. We also sell used rental equipment, act as a dealer
for many types of new equipment, and sell related merchandise and parts. In the
past nine months, we have served over 900,000 customers.
We have one of the most comprehensive and newest equipment rental fleets in
the industry. The types of rental equipment that we offer include a broad range
of light to heavy construction and industrial equipment, such as backhoes,
aerial lifts, skid-steer loaders, forklifts, compressors, pumps and generators,
as well as a variety of smaller tools and equipment. Our equipment fleet has an
original purchase price of approximately $2.2 billion and a weighted average
age of approximately 26 months (based on original purchase price).
We began operations in October 1997 with the acquisition of six well-
established rental companies and have grown through a combination of internal
growth and the acquisition of 89 additional companies. Our acquisitions include
our merger with U.S. Rentals in September 1998. At the time of the merger, U.S.
Rentals was the second largest equipment rental company in the United States
based on 1997 rental revenues.
Our principal executive offices are located at Four Greenwich Office Park,
Greenwich, Connecticut 06830, and our telephone number is (203) 622-3131.
Competitive Advantages
We believe that we benefit from the following competitive advantages:
Full Range of Rental Equipment. We have one of the largest and most
comprehensive equipment rental fleets in the industry, which enables us to:
. attract customers by providing the benefit of "one-stop" shopping;
. serve a diverse customer base, which reduces our dependence on any
particular customer or group of customers;
. serve large customers that require assurance that substantial
quantities of different types of equipment will be available as
required on a continuing basis; and
. minimize lost sales due to equipment being unavailable.
Operating Efficiencies. We generally group our branches into clusters of 10
to 30 locations that are in the same area. Our management information system
enables each branch to track equipment at any other branch and to access all
available equipment within a cluster. We believe that our cluster strategy
produces significant operating efficiencies by enabling us to:
. market the equipment within a cluster through multiple branches, rather
than a single branch, which increases our equipment utilization rate;
5
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. cross-market the equipment specialties of different branches within
each cluster, which increases revenues without increasing marketing
expenses; and
. reduce costs by centralizing common functions such as payroll, credit
and collection, and certain equipment delivery.
Significant Purchasing Power. We have significant purchasing power because
of our volume purchases. As a result, we can generally buy new equipment and
related merchandise and parts at prices that are significantly lower than
prices paid by smaller companies. We can also buy many other products and
services--such as insurance, telephone and fuel--at attractive rates.
Management Information System. We have a modern management information
system which facilitates rapid and informed decision-making and enables us to
respond quickly to changing market conditions. The system provides management
with a wide range of real time operating and financial data, including reports
on inventory, receivables, customers, vendors, fleet utilization and price and
sales trends. The system also enables branch personnel to search for needed
equipment throughout a geographic region, determine its closest location and
arrange for delivery to a customer's work site. The system includes software
developed by our Wynne Systems subsidiary, which is the leading provider of
proprietary software for use by equipment rental companies in managing and
operating multiple branch locations. We have an in-house staff of 24 management
information specialists that supports our management information system and
extends it to new locations.
Customer Diversity. Our customer base is highly diversified and ranges from
Fortune 100 companies to small contractors and homeowners. We estimate that our
top ten customers accounted for approximately 4% of our pro forma revenues in
the first nine months of 1998.
Geographic Diversity. We have branches in 37 states, Canada and Mexico. We
believe that our geographic diversity should reduce the impact that
fluctuations in regional economic conditions have on our overall financial
performance. Our geographic diversity and large network of branch locations
also give us the ability to serve national accounts and access used equipment
re-sale markets across the country.
Experienced Senior Management. Our senior management combines executives
who have extensive operating experience in the equipment rental industry with
executives who have proven track records in other industries. Our senior
management includes former officers of United Waste Systems, Inc., which was a
publicly-traded solid waste management company that successfully executed a
growth strategy combining a disciplined acquisition program, the integration
and optimization of acquired facilities, and internal growth. Our senior
management also includes former executives of U.S. Rentals who have extensive
experience in the equipment rental industry.
Strong and Motivated Branch Management. Each of our branches has a full-
time branch manager who is supervised by one of our 35 district managers and
eight regional vice presidents. We believe that our branch and district
managers, who average over 20 years of experience in the equipment rental
industry, are among the most knowledgeable and experienced in the industry. We
encourage entrepreneurship at the branch level by giving branch managers a high
degree of autonomy relating to day-to-day operations. For example, each branch
manager is empowered to make decisions--within budgetary guidelines--concerning
staffing, pricing and equipment purchasing. We also promote entrepreneurship at
the branch level, as well as equipment sharing among branches, through our
profit sharing program which directly ties the compensation of branch personnel
to their branch's financial performance and equipment utilization rates. We
balance the autonomy that we grant branch managers with systems through which
senior management closely tracks branch performance. We also share information
across branches so that each branch can
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measure its operating performance relative to other branches and benefit from
the best practices developed throughout our organization.
Professional Acquisition Team. Our 25-person acquisition team works full-
time on identifying and evaluating acquisition candidates and executing our
acquisition program. The core of this group consists of seasoned acquisition
professionals--most of whom were members of the acquisition team at United
Waste Systems, where they completed over 200 acquisitions. The team also
includes former owners of businesses that we acquired, who have extensive
industry experience and contacts with potential acquisition candidates.
Growth Strategy
Our plan for future growth includes the following key elements:
Continue Strong Internal Growth. We are seeking to sustain our strong
internal growth by:
. expanding and modernizing our equipment fleet;
. increasing the cross-marketing of our equipment specialties at different
locations;
. increasing our advertising--which becomes increasingly cost-effective as
we grow because the benefit is spread over a larger number of branches;
. expanding our national accounts program--which dedicates a portion of
our sales force to establishing and expanding relationships with large
customers that have a national or multi-regional presence; and
. increasing our rentals to industrial companies by developing a
comprehensive marketing program specifically aimed at this sector.
Execute Disciplined Acquisition Program. We intend to continue our
disciplined acquisition program. We generally seek to acquire multiple
locations within the regions that we enter, with the goal of creating clusters
of locations that can share various resources, including equipment, marketing
resources, back office functions and certain equipment delivery. We are
seeking to acquire companies of varying sizes, including relatively large
companies to serve as platforms for new regional clusters and smaller
companies to complement existing or anticipated locations. In considering
whether to buy a company, we evaluate a number of factors, including purchase
price, anticipated impact on earnings, the quality of the target's rental
equipment and management, the opportunities to improve operating margins and
increase internal growth at the target, the economic prospects of the region
in which the target is located, the potential for additional acquisitions in
the region, and the competitive landscape in the target's markets.
Open New Rental Locations. Because most of the businesses that we acquired
grew through developing start-up rental locations, many of our managers have
substantial experience in this area. We intend to leverage this experience by
selectively opening new rental locations in attractive markets where there are
no suitable acquisition targets available or where the economics of a start-up
location are more attractive than buying an existing business.
Increase Cost Savings. We work to reduce costs by efficiently integrating
new and existing operations, eliminating duplicative costs, centralizing
common functions, consolidating locations that serve the same areas, and using
our purchasing power to negotiate discounts from suppliers.
7
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Continue to Emphasize Management Systems and Controls. We intend to further
strengthen our management systems and controls, which currently include:
. a 12-person internal audit department that is responsible for ensuring
that we have adequate financial, operating, and management information
controls throughout our organization;
. a team of 6 regional controllers and 17 district controllers that
monitors each branch for compliance with financial and accounting
procedures established at corporate headquarters; and
. a 25-person risk management and safety department that is responsible
for: (1) developing and implementing safety programs and procedures,
(2) developing our customer and employee training programs and (3)
investigating and managing any claims that may be asserted against us.
Industry Background
Industry Size and Growth
We estimate that the U.S. equipment rental industry (including used and new
equipment sales by rental companies) generates annual revenues in excess of $20
billion. The combined equipment rental revenues of the 100 largest equipment
rental companies have increased at an estimated compound annual rate of
approximately 23% from 1992 through 1997 (based upon 1992 revenues and 1997 pro
forma revenues, giving effect to certain acquisitions completed after the
beginning of 1997, reported by the Rental Equipment Register, an industry trade
publication). In addition to reflecting general economic growth, we believe
that the growth in the equipment rental industry reflects the following trends:
Recognition of Advantages of Renting. Equipment users are increasingly
recognizing the many advantages that equipment rental may offer compared
with ownership. They recognize that by renting they can: (1) avoid the
large capital investment required for equipment purchases, (2) reduce
storage and maintenance costs, (3) supplement the equipment that they own
and thereby increase the range and number of jobs that they can work on,
(4) access a broad selection of equipment and select the equipment best
suited for each particular job, (5) obtain equipment as needed and minimize
the costs associated with idle equipment, and (6) access the latest
technology without investing in new equipment. These advantages frequently
allow equipment users to reduce their overall costs by renting, rather than
buying, the equipment they need.
Increase in Rentals by Contractors. There has been a fundamental shift
in the way contractors meet their equipment needs. While contractors have
historically used rental equipment on a temporary basis--to provide for
peak period capacity, meet specific job requirements or replace broken
equipment--many contractors are now also using rental equipment on an
ongoing basis to meet their long-term equipment requirements.
Although growth in the equipment rental industry has to date been largely
driven by the increase in rentals by the construction industry, we believe that
other equipment users may increasingly contribute to future industry growth.
For example, many industrial companies require equipment for operating,
repairing, maintaining and upgrading their facilities, and renting this
equipment will often be more cost-effective than purchasing because typically
this equipment is not used full-time. We believe that the cost and other
advantages of renting, together with the general trend toward the corporate
outsourcing of non-core competencies, may increasingly lead industrial
companies to rent equipment. We also believe that these same considerations may
lead other equipment users--such as municipalities, government agencies and
utilities--to increasingly rent
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equipment. Because the penetration of these markets by the equipment rental
industry is very low in comparison to its penetration of the construction
market, we believe there is significant potential for additional growth in
these markets.
Industry Fragmentation
The equipment rental industry is highly fragmented. It consists of a small
number of multi-location regional or national operators and a large number of
relatively small, independent businesses that serve discrete local markets.
This fragmentation is reflected in the following data:
. in 1997, there were only 10 equipment rental companies that had
equipment rental revenues in excess of $100 million and approximately
100 equipment rental companies that had equipment rental revenues
between $5 million and $100 million (based upon rental revenues for
1997 as reported by the Rental Equipment Register, an industry trade
publication);
. we estimate that there are more than 20,000 companies with annual
equipment rental revenues of less than $5 million; and
. we estimate that the 100 largest equipment rental companies combined
have less than a 30% share of the market.
We believe that the fragmented nature of the industry presents substantial
consolidation and growth opportunities for companies with access to capital and
the ability to implement a disciplined acquisition program. We also believe
that our management team's extensive experience in acquiring and effectively
integrating acquisition targets should enable us to capitalize on these
opportunities.
9
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The Offering
The following information assumes that the underwriters do not exercise the
option they have been granted to purchase additional shares as described under
"Underwriting."
<TABLE>
<S> <C>
Shares offered by United Rentals.. 2,290,000 shares
Shares offered by the selling 5,710,000 shares
stockholder......................
Shares to be outstanding after the 70,736,806 shares(1)
offering.........................
New York Stock Exchange Symbol.... URI
Use of Proceeds by United We will use the net proceeds of this
Rentals.......................... offering (i) to repay approximately $39.0
million of outstanding indebtedness under
our revolving credit facility and (ii) for
future acquisitions, capital expenditures
and general corporate purposes. We may
reborrow amounts that we repay under our
credit facility. We will not receive any of
the proceeds from the sale of shares being
sold by the selling stockholder.
</TABLE>
- --------
(1) Does not include (i) 6,539,329 shares issuable upon the exercise of
outstanding warrants, which provide for a weighted average exercise price
of $10.18 per share, (ii) 13,768,775 shares issuable upon the exercise of
outstanding options, which provide for a weighted average exercise price of
$19.50 per share, (iii) 121,273 shares issuable upon conversion of
outstanding convertible notes, which provide for a weighted average
conversion price of $30.76 per share, (iv) 12,000,000 shares issuable upon
conversion of outstanding preferred shares of United Rentals, which provide
for a conversion price of $25.00 per share, and (v) 6,875,580 shares
issuable upon conversion of outstanding preferred securities of a
subsidiary trust of United Rentals, which provide for a conversion price of
$43.63 per share.
Summary Historical and Unaudited Pro Forma Consolidated Financial Information
General
The table below presents selected historical and pro forma financial
information for our company. You should read this information together with (1)
the information set forth under "Use of Proceeds," "Capitalization," "Selected
Historical and Pro Forma Consolidated Financial Information" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," (2)
the Consolidated Financial Statements and the related notes and Pro Forma
Consolidated Financial Statements and the related notes of our company included
elsewhere in this prospectus or incorporated by reference herein and (3) the
financial statements incorporated by reference herein of certain of the
companies that we acquired.
Accounting For Acquisitions
We commenced operations in October 1997 by acquiring six established
equipment rental companies. Thereafter, we completed 89 additional acquisitions
(through January 25, 1999), including a merger with U.S. Rentals, Inc. which
was completed in September 1998. We accounted for three of these acquisitions
(including the U.S. Rentals merger) as "poolings-of-interests," which means
that for accounting and financial reporting purposes the acquired company is
treated as having been combined with us at all times since the inception of the
acquired company. Accordingly, we have restated our financial statements to
include the accounts of two of the companies acquired in these pooling-of-
interests transactions (but have not restated our financial statements for the
third transaction, which was not material and which has been combined with us
effective July 1, 1998). As a result of this restatement, our financial
statements include historical financial information for periods that precede
the date on which we commenced our own operations. (For additional information
concerning this restatement, see Note 3 to the Consolidated Financial
Statements of United Rentals included elsewhere herein.) We accounted for our
other 92 acquisitions as "purchases," which means that the results of
operations of the acquired company are included in our financial statements
only from the date of acquisition.
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Pro Forma Data
The table below includes the following pro forma data:
. pro forma income statement and other financial data--intended to show
for the periods indicated what our business might have looked like had
each acquisition (other than any pooling-of-interests) completed after
the beginning of the period and any related acquisition financing been
completed on the first day of the period;
. pro forma balance sheet data--intended to show how certain balance sheet
data would have looked at September 30, 1998 had each acquisition
completed after such date and any related acquisition financing been
completed on September 30, 1998; and
. pro forma as adjusted balance sheet data--intended to show how certain
balance sheet data would have looked at September 30, 1998 had the
following transactions been completed on such date: (1) each acquisition
completed after such date and any related acquisition financing, (2) our
issuance of $300 million of 9 1/4% Senior Subordinated Notes and 300,000
shares of Series A Perpetual Convertible Preferred Stock after such date
and our use of the proceeds to repay indebtedness and (3) the sale of
the 2,290,000 shares of common stock offered by United Rentals in this
offering, at an assumed price of $34.31 per share, and the use of a
portion of the offering proceeds to repay outstanding indebtedness under
our credit facility.
We have provided the pro forma data for your information. However, this data
may not be indicative of (1) the actual results that we would have had during
any period if all acquisitions had been completed as of the beginning of the
period or (2) our future results.
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------------------------ --------------------------
Year Nine Months
Nine Months Ended Ended Ended
Year Ended December 31, September 30, December 31, September 30,
---------------------------- ------------------ ------------ -------------
1995 1996 1997 1997 1998 1997 1998
-------- -------- -------- -------- -------- ------------ -------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income statement data:
Total revenues.......... $283,432 $354,478 $489,838 $327,824 $804,262 $1,326,021 $1,144,062
Gross profit............ 89,198 113,033 149,292 100,186 274,050 466,490 399,788
Operating income........ 42,575 48,925 44,743 22,185 79,378 165,713 120,176
Interest expense........ 7,490 11,278 11,847 6,316 39,170 84,983 64,186
Income before provision
for income taxes and
extraordinary items.... 33,781 38,146 34,917 17,225 41,753 89,331 62,705
Net income
(loss)(1)(2)........... 33,297 37,726 3,898 (6,161) (4,813) 53,152 37,309
Pro forma provision for
income taxes before
extraordinary
items(1)(2)............ 13,715 15,487 14,176 21,637 27,162
Pro forma income (loss)
before extraordinary
items(1)(2)............ 20,066 22,659 20,741 (4,412) 14,591
Basic earnings (loss)
per share before
extraordinary items.... $ 1.47 $ 1.67 $ 0.12 $ (0.10) $ 0.26 $ 0.78 $ 0.55
Diluted earnings (loss)
per share before
extraordinary items.... $ 1.47 $ 1.67 $ 0.11 $ (0.10) $ 0.23 $ 0.75 $ 0.50
Basic earnings (loss)
per share(3)........... $ 1.47 $ 1.67 $ 0.08 $ (0.13) $ (0.07) $ 0.78 $ 0.55
Diluted earnings (loss)
per share(3)........... $ 1.47 $ 1.67 $ 0.08 $ (0.13) $ (0.07) $ 0.75 $ 0.50
Other financial data:
EBITDA(4)............... $101,438 $123,606 $160,554 $108,413 $265,257 $ 414,229 $ 361,272
EBITDA margin(5)........ 35.8% 34.9% 32.8% 33.1% 33.0% 31.2% 31.6%
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1998
---------------------------------
Pro Forma
Historical Pro Forma As Adjusted
---------- ---------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Balance sheet data:
Cash and cash equivalents.................... $ 21,795 $ 4,000 $ 40,549
Rental equipment, net........................ 1,191,448 1,233,211 1,233,211
Total assets................................. 2,557,002 2,661,052 2,705,501
Total debt................................... 1,235,508 1,330,096 1,013,118
Company-obligated mandatorily redeemable
convertible preferred securities of a
subsidiary trust............................ 300,000 300,000 300,000
Stockholders' equity......................... 708,038 708,138 1,069,565
</TABLE>
11
<PAGE>
- --------
(1) We recorded an extraordinary item (net of income taxes) of $1.5 million in
1997 and an extraordinary item (net of income taxes) of $21.3 million in
1998. Such charge in 1997 resulted from the prepayment of certain debt by
U.S. Rentals. Such charge in 1998 resulted from the early extinguishment of
certain debt and primarily reflected prepayment penalties on certain debt
of U.S. Rentals.
(2) U.S. Rentals was taxed as a Subchapter S Corporation until its initial
public offering in February 1997, and another company that we acquired was
taxed as a Subchapter S Corporation until being acquired. In general, the
income or loss of a Subchapter S Corporation is passed through to its
owners rather than being subjected to taxes at the entity level. Pro forma
provision for income taxes before extraordinary items and pro forma income
(loss) before extraordinary items reflect a provision for income taxes as
if all such companies were liable for federal and state income taxes as
taxable corporate entities for all periods presented.
(3) Our earnings during 1997 were impacted by $20.3 million of expenses
relating to the termination of certain deferred compensation expenses in
connection with U.S. Rentals' initial public offering, a $7.5 million
charge to recognize deferred tax liabilities of U.S. Rentals and an
extraordinary item (net of income taxes) of $1.5 million. Our earnings
during 1998 were impacted by merger-related expenses of $42.2 million
($29.5 million net of taxes), a $4.8 million charge to recognize deferred
tax liabilities of a company acquired in a pooling-of-interests transaction
and an extraordinary item (net of income taxes) of $21.3 million. Excluding
such amounts, (i) basic earnings per share for the year ended 1997, the
nine months ended September 30, 1997 and 1998, and pro forma basic earnings
per share for the nine months ended September 30, 1998 would have been
$0.70, $0.50, $0.75 and $0.91, respectively, and (ii) diluted earnings per
share for the year ended 1997 and the nine months ended September 30, 1997
and 1998, and pro forma diluted earnings per share for the nine months
ended September 30, 1998 would have been $0.66, $0.49, $0.68 and $0.83,
respectively.
(4) EBITDA is defined as net income (excluding (i) non-operating income and
expense, (ii) a $20.3 million non-recurring charge incurred by U.S. Rentals
in 1997 arising from the termination of deferred compensation agreements
with certain executives and (iii) $42.2 million in merger-related expenses
in 1998 related to the three acquisitions accounted for as poolings-of-
interests, including the merger with U.S. Rentals) plus interest expense,
income taxes and depreciation and amortization. We have presented EBITDA
data to provide you with additional information concerning our ability to
meet our future debt service obligations and capital expenditure and
working capital requirements. However, EBITDA is not a measure of financial
performance under generally accepted accounting principles. Accordingly,
you should not consider EBITDA an alternative to net income or cash flows
as indicators of our operating performance or liquidity.
(5) EBITDA margin is defined as EBITDA as a percentage of revenues.
12
<PAGE>
RISK FACTORS
You should carefully consider the following factors and the other
information in this prospectus before making an investment decision.
Sensitivity to Changes in Construction and Industrial Activities
Our equipment is principally used in connection with construction and
industrial activities. Consequently, a downturn in construction or industrial
activity may lead to a decrease in demand for our equipment, which could
adversely affect our business. We have identified below certain of the factors
which may cause such a downturn, either temporarily or long-term:
. a general slow-down of the economy;
. an increase in interest rates; or
. adverse weather conditions which may temporarily affect a particular
region.
Acquired Companies Not Historically Operated as a Combined Business
The businesses that we acquired have been in existence an average of 29
years and some have been in existence for more than 50 years. However, these
businesses were not historically managed or operated as a single business.
Although we believe that we can successfully manage and operate the acquired
businesses as a single business, we cannot be certain of this.
Limited Operating History
We commenced equipment rental operations in October 1997 with the
acquisition of six well-established rental companies and have grown through a
combination of internal growth and the acquisition of 89 additional companies
(through January 25, 1999), including a merger in September 1998 with U.S.
Rentals. Due to the relatively recent commencement of our operations, we have
only a limited history upon which you can base an assessment of our business
and prospects.
Risks Relating to Growth Strategy
Key elements of our growth strategy are to continue to expand through a
combination of internal growth, a disciplined acquisition program and the
opening of new rental locations. We have identified below some of the risks
relating to our growth strategy:
Availability of Acquisition Targets and Sites for Start-Up Locations. We
may encounter substantial competition in our efforts to acquire additional
rental companies and sites for start-up locations. Such competition could have
the effect of increasing the prices that we will have to pay in order to
acquire such businesses and sites. We cannot guarantee that any additional
businesses or sites that we may wish to acquire will be available to us on
terms that are acceptable to us.
Need to Integrate New Operations. Our ability to realize the expected
benefits from completed and future acquisitions depends, in large part, on our
ability to integrate the new operations with our existing operations in a
timely and effective manner. Accordingly, we devote substantial efforts to the
integration of new operations. We cannot, however, guarantee that these efforts
will always be successful. In addition, under certain circumstances, these
efforts could adversely affect our existing operations.
Debt Covenants. Certain of the agreements governing our outstanding
indebtedness provide that we may not make acquisitions unless certain financial
conditions are satisfied or the consent of
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<PAGE>
the lenders is obtained. Our ability to grow through acquisitions may be
constrained as a result of these provisions.
Certain Risks Related to Start-Up Locations. We expect that start-up
locations may initially have a negative impact on our results of operations and
margins for a number of reasons, including that (1) we will incur significant
start-up expenses in connection with establishing each start-up location and
(2) it will generally take some time following the commencement of operations
for a start-up location to become profitable. Although we believe that start-
ups can generate long-term growth, we cannot guarantee that any start-up
location will become profitable within any specific time period, if at all.
Dependence on Additional Capital to Finance Growth
We will require substantial capital in order to execute our growth
strategy. We will require capital for, among other purposes, completing
acquisitions, establishing new rental locations, and acquiring rental
equipment. If the cash that we generate from our business, together with cash
that we may borrow under our credit facility, is not sufficient to fund our
capital requirements, we will require additional debt and/or equity financing.
We cannot, however, be certain that any additional financing will be available
or, if available, will be available on terms that are satisfactory to us. If we
are unable to obtain sufficient additional capital in the future, our ability
to implement our growth strategy could be limited.
Possible Undiscovered Liabilities of Acquired Companies
Prior to making an acquisition, we seek to assess the liabilities of the
target company that we will become responsible for as a result of the
acquisition. Nevertheless, we may fail to discover certain of such liabilities.
We seek to reduce our risk relating to these possible hidden liabilities by
generally obtaining the agreement of the seller to reimburse us in the event
that we discover any material hidden liabilities. However, this type of
agreement, if obtained, may not fully protect us against hidden liabilities
because (1) the seller's obligation to reimburse us is generally limited in
duration and/or amount and (2) the seller may not have sufficient financial
resources to reimburse us. Furthermore, when we acquire a public company (such
as when we acquired U.S. Rentals) there is no seller from which to obtain this
type of agreement.
Dependence on Management
We are highly dependent upon our senior management team. Consequently, our
business could be adversely affected in the event that we lose the services of
any member of senior management. Furthermore, if we lose the services of
certain members of senior management, it is an event of default under the
agreements governing our credit facility and certain of our other indebtedness,
unless we appoint replacement officers satisfactory to the lenders within 30
days. We do not maintain "key man" life insurance with respect to members of
senior management.
Competition
The equipment rental industry is highly fragmented and competitive. Our
competitors primarily include small, independent businesses with one or two
rental locations; regional competitors which operate in one or more states;
public companies or divisions of public companies; and equipment vendors and
dealers who both sell and rent equipment directly to customers. We may in the
future encounter increased competition from our existing competitors or from
new companies. In addition, certain equipment manufacturers may commence (or
increase their existing efforts relating to) renting and selling equipment
directly to our customers.
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<PAGE>
Quarterly Fluctuations of Operating Results
We expect that our revenues and operating results may fluctuate from
quarter to quarter due to a number of factors, including:
. seasonal rental patterns of our customers--with rental activity
tending to be lower in the winter;
. changes in general economic conditions in our markets, including
changes in construction and industrial activities;
. the timing of acquisitions, new location openings, and related
expenditures;
. the effect of the integration of acquired businesses and start-up
locations;
. the timing of expenditures for new equipment and the disposition of
used equipment; and
. price changes in response to competitive factors.
Liability and Insurance
We are exposed to various possible claims relating to our business. These
include claims relating to (1) personal injury or death caused by equipment
rented or sold by us, (2) motor vehicle accidents involving our delivery and
service personnel and (3) employment related claims. We carry a broad range of
insurance for the protection of our assets and operations. However, such
insurance may not fully protect us for a number of reasons, including:
. our coverage is subject to a deductible of $1 million and limited to a
maximum of $97 million per occurrence;
. we do not maintain coverage for environmental liability, since we
believe that the cost for such coverage is high relative to the
benefit that it provides; and
. certain types of claims, such as claims for punitive damages or for
damages arising from intentional misconduct, which are often alleged
in third party lawsuits, might not be covered by our insurance.
We cannot be certain that insurance will continue to be available to us on
economically reasonable terms, if at all.
Environmental and Safety Regulations
There are numerous federal, state and local laws and regulations governing
environmental protection and occupational health and safety matters. These
include laws and regulations that govern 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. Under these laws, an owner or lessee of real estate may
be liable for, among other things, (1) the costs of removal or remediation of
hazardous or toxic substances located on, in, or emanating from, the real
estate, as well as related costs of investigation and property damage and
substantial penalties, and (2) environmental contamination at facilities where
its waste is or has been disposed. These laws often impose liability whether or
not the owner or lessee knew of the presence of the hazardous or toxic
substances and whether or not the owner or lessee was responsible for these
substances. Our activities that are or may be affected by these laws include
our use of hazardous materials to clean and maintain equipment and our disposal
of solid and hazardous waste and wastewater from equipment washing. We also
dispense petroleum products from underground and above-ground storage tanks
located at certain rental locations, and at times we must remove or upgrade
tanks to comply with applicable laws. Furthermore, we have acquired or lease
certain locations which have or may have been contaminated by leakage from
underground tanks or other
15
<PAGE>
sources and are in the process of assessing the nature of the required
remediation. Based on the conditions currently known to us, we believe that any
unreserved environmental remediation and compliance costs required with respect
to those conditions will not have a material adverse effect on our business.
However, we cannot be certain that we will not identify adverse environmental
conditions that are not currently known to us, that all potential releases from
underground storage tanks removed in the past have been identified, or that
environmental and safety requirements will not become more stringent or be
interpreted and applied more stringently in the future. If we are required to
incur environmental compliance or remediation costs that are not currently
anticipated by us, our business could be adversely affected depending on the
magnitude of the cost.
Concentrated Control
Following the offering described in this prospectus, the executive officers
and directors of our company will continue to own in the aggregate
approximately 46.8% of our common stock (49.7% on a pro forma basis giving
effect to the exercise of outstanding options and warrants). Such share
ownership may effectively give these persons the power to elect all of the
directors of our company (other than the two directors that are elected
directly by the holders of our outstanding preferred stock as described under
"Management--Right of Holders of Preferred Stock to Elect Directors").
Risks Related to International Operations
Our operations outside the United States are subject to risks normally
associated with international operations. These include the need to convert
currencies, which could result in a gain or loss depending on fluctuations in
exchange rates, and the need to comply with foreign laws.
Year 2000 Issues
Our software vendors have informed us that our recently-installed
management information system is year 2000 compliant. We have, therefore, not
developed any contingency plans relating to year 2000 issues and have not
budgeted any funds for year 2000 issues. Although we believe that our system is
year 2000 compliant, unanticipated year 2000 problems may arise which,
depending on the nature and magnitude of the problem, could adversely affect
our business. Furthermore, year 2000 problems involving third parties may have
a negative impact on our customers or suppliers, the general economy or on the
ability of businesses generally to receive essential services (such as
telecommunications, banking services, etc.). Any such problem could adversely
affect our business. We are unable at this time to assess the possible impact
on our business of year 2000 problems involving any third party.
Absence of Dividends
We have never paid any dividends on our common stock and have no plans to
pay any such dividends in the foreseeable future. Certain of the agreements
governing our outstanding indebtedness prohibit us from paying dividends on our
common stock or restrict our ability to pay such dividends. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources--Description of Credit Facility and Certain
Indebtedness."
Restrictive Covenants
The agreements governing our existing long-term indebtedness contain, and
future agreements governing our long-term indebtedness may also contain,
certain restrictive financial and operating covenants which affect, and in many
respects significantly limit or prohibit, among other things, our ability to
incur indebtedness, make prepayments of certain indebtedness, make investments,
create liens, make acquisitions, sell assets and engage in mergers and
consolidations. These covenants may significantly limit our operating and
financial flexibility.
16
<PAGE>
Shares Eligible For Future Sale
If our stockholders sell substantial amounts of our common stock (including
shares issued upon exercise of warrants, options or convertible securities),
the market price of our common stock could fall. Subject to certain lock-up
agreements to be entered into by the selling stockholder and by our officers
and directors in connection with the offering (as described under
"Underwriting"), substantially all of the outstanding shares of our common
stock may be sold in the public market.
Anti-takeover Provisions
Certain provisions of our Certificate of Incorporation and By-laws, as well
as applicable Delaware law, could make it more difficult for a third party to
acquire our company. These provisions provide, among other things, that:
. the directors of our company (other than directors elected by the
holders of our outstanding preferred stock) are divided into three
classes, with directors of each class serving for a staggered three-
year period;
. directors may be removed only for cause and only upon the affirmative
vote of at least 66 2/3% of the voting power of all the then
outstanding shares of stock entitled to vote;
. stockholders may not act by written consent;
. stockholder nominations and proposals may only be made if specified
advance notice requirements are complied with;
. stockholders are precluded from calling a special meeting of
stockholders; and
. the Board of Directors has the authority to issue shares of preferred
stock in one or more series and to fix the powers, preferences and
rights of any such series without stockholder approval.
See "Certain Charter and By-law Provisions."
CORPORATE INFORMATION
United Rentals, Inc. ("Holdings") is principally a holding company and
principally conducts its operations through its wholly owned subsidiary, United
Rentals (North America), Inc. ("URI"), and subsidiaries of URI. URI was
incorporated in August 1997, initially capitalized in September 1997 and
commenced equipment rental operations in October 1997. Holdings was
incorporated in July 1998 and became the parent company of URI on August 5,
1998, in connection with a reorganization of URI's corporate structure that was
effected in order to facilitate certain financings. As part of such
reorganization, the outstanding common stock of URI was converted, on a share
for share basis, into common stock of Holdings and the common stock of Holdings
commenced trading on the New York Stock Exchange instead of the common stock of
URI. Prior to such reorganization, the name of United Rentals (North America),
Inc. was United Rentals, Inc. Unless otherwise indicated or the context
otherwise clearly requires, (i) the terms "United Rentals" and the "Company"
refer collectively to URI and its subsidiaries, with respect to periods prior
to such reorganization, and to Holdings and its subsidiaries, with respect to
periods thereafter, and (ii) the term "Common Stock" refers to the common stock
of URI, with respect to periods prior to such reorganization, and to the common
stock of Holdings, with respect to periods thereafter.
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,290,000 shares of
common stock being offered by the Company are estimated to be $74.4 million
($114.0 million, if the underwriters' over-allotment option is exercised in
full), based on an assumed public offering price of $34.31 per share, after
deducting the estimated underwriting discount and offering expenses payable by
the Company. The Company expects to use the net proceeds of this offering to
repay approximately $39.0 million of outstanding indebtedness under our
revolving credit facility (the "Credit Facility") and for future acquisitions,
capital expenditures and general corporate purposes. The repayment of
outstanding indebtedness under the Credit Facility from the proceeds of the
offering will give the Company additional flexibility to reborrow funds under
the Credit Facility for future acquisitions, capital expenditures and general
corporate purposes. The Company will not receive any of the proceeds from the
sale of shares by the selling stockholder.
The Credit Facility enables URI to borrow up to $762.5 million on a
revolving basis and permits a Canadian subsidiary of URI (the "Canadian
Subsidiary") to directly borrow up to $40 million under the Credit Facility
(provided that the aggregate borrowings of URI and the Canadian Subsidiary do
not exceed $762.5 million). Up to $25 million of the Credit Facility is
available in the form of letters of credit. The agreement governing the Credit
Facility requires that the aggregate commitment shall be reduced on the last
day of each calendar quarter, beginning September 30, 2001 and continuing
through June 30, 2003, by an amount equal to $19.1 million. The Credit Facility
terminates on September 26, 2003, at which time all outstanding indebtedness is
due.
Borrowings by URI under the Credit Facility accrue interest at URI's
option, at either (a) the Base Rate (which is equal to the greater of (i) the
Federal Funds Rate plus 0.5% or (ii) Bank of America's reference rate) or (b)
the Eurodollar Rate (which for borrowings by URI is equal to Bank of America's
reserve adjusted eurodollar rate) plus a margin ranging from 0.825% to 1.500%
per annum. Borrowings by the Canadian Subsidiary under the Credit Facility
accrue interest, at such subsidiary's option, at either (x) the Prime Rate
(which is equal to Bank of America Canada's prime rate), (y) the BA Rate (which
is equal to Bank of America Canada's BA Rate) plus a margin ranging from 0.825%
to 1.500% per annum or (z) the Eurodollar Rate (which for borrowing by the
Canadian Subsidiary is equal to Bank of America Canada's reserve adjusted
Eurodollar Rate) plus a margin ranging from 0.825% to 1.500% per annum. The
Company is also required to pay the banks an annual facility fee equal to
0.375% of the banks' $762.5 million aggregate lending commitment under the
Credit Facility (which fee may be reduced to 0.300% for periods during which
the Company maintains a specified funded debt to cash flow ratio). As of
January 25, 1999, the amount of indebtedness outstanding under the Credit
Facility was $39.0 million (not including undrawn outstanding letters of credit
in the amount of $3.1 million) and the weighted average interest rate on such
indebtedness was 6.0%. The proceeds from the outstanding indebtedness under the
Credit Facility have been used by the Company to fund acquisitions. See
"Business--Acquisitions." For additional information regarding the Credit
Facility, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
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<PAGE>
PRICE RANGE OF COMMON STOCK
The common stock commenced trading on the NYSE on December 18, 1997 under
the symbol "URI." The table below sets forth, for the periods indicated, the
high and low sales prices for the common stock, as reported on the NYSE
Composite Tape.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
1997:
Fourth Quarter (from December 18, 1997)......................... $19.31 $14.38
1998:
First Quarter................................................... 27.38 17.25
Second Quarter.................................................. 42.00 24.13
Third Quarter................................................... 48.00 18.12
Fourth Quarter.................................................. 33.75 10.56
1999:
First Quarter (through February 3, 1999)........................ 35.69 29.13
</TABLE>
On February 3, 1999, the last reported sale price of the common stock as
reported on the NYSE Composite Tape was $34.31 per share. As of February 1,
1999, there were approximately 280 holders of record of the common stock. The
Company believes that the number of beneficial owners is substantially greater
than the number of record holders, because a large portion of the common stock
is held of record in broker "street names."
DIVIDEND POLICY
The Company intends to retain all earnings for the foreseeable future for
use in the operation and expansion of its business and, accordingly, the
Company currently has no plans to pay dividends on its common stock. The
payment of any future dividends will be determined by the Board of Directors in
light of conditions then existing, including the Company's earnings, financial
condition and capital requirements, restrictions in financing agreements,
business conditions and other factors. Under the terms of certain agreements
governing the Company's outstanding indebtedness, the Company is prohibited or
restricted from paying dividends on its common stock. In addition, under
Delaware law, the Company is prohibited from paying any dividends unless it has
capital surplus or net profits available for this purpose. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
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<PAGE>
CAPITALIZATION
The table below sets forth the capitalization of the Company as of
September 30, 1998, on an historical and on a pro forma basis. This table
should be read in conjunction with the information set
forth under "Use of Proceeds," "Selected Historical and Pro Forma Consolidated
Financial Information" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and related notes and the Pro Forma Consolidated Financial Statements and
related notes of the Company included elsewhere in this prospectus.
The following unaudited data as of September 30, 1998 under the column
heading "Pro Forma" gives effect to each acquisition completed by the Company
subsequent to such date and any related acquisition financing, as if all such
transactions had occurred on such date. The following unaudited data under the
column heading "Pro Forma As Adjusted" gives effect to the foregoing and to (1)
the Company's issuance of $300 million of 9 1/4% Senior Subordinated Notes and
300,000 shares of Series A Perpetual Convertible Preferred Stock after such
date and the use of the proceeds therefrom to repay indebtedness and (2) the
sale of the 2,290,000 shares of common stock offered by the Company as
described in this prospectus, at an assumed public offering price of $34.31 per
share, and the application of a portion of the proceeds therefrom to repay
indebtedness.
<TABLE>
<CAPTION>
As of September 30, 1998
-----------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
---------- ---------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents............ $ 21,795 $ 4,000 $ 40,549
========== ========== ==========
Debt (including current portion):
Credit Facility..................... $ 535,000 $ 616,978 $
Term Loan .......................... 250,000 250,000 250,000
9 1/2% Notes........................ 200,000 200,000 200,000
8.80% Notes......................... 200,070 200,070 200,070
9 1/4% Notes........................ 300,000
Other Debt.......................... 50,438 63,048 63,048
---------- ---------- ----------
Total debt........................ 1,235,508 1,330,096 1,013,118
Company-obligated mandatorily
redeemable convertible preferred
securities of a subsidiary trust.... 300,000 300,000 300,000
Stockholders' equity:
Preferred stock, $.01 par value,
5,000,000 shares authorized; no
shares issued and outstanding
actual and pro forma; 300,000
shares of Series A Perpetual
Convertible Preferred Stock
(liquidation preference--$300,000)
issued and outstanding pro forma
as adjusted........................ 3
Common stock, $.01 par value,
500,000,000 shares authorized;
68,406,401 shares issued and
outstanding actual; 68,421,660
shares issued and outstanding pro
forma; and 70,711,660 shares
issued and outstanding pro forma
as adjusted(1)(2).................. 684 684 707
Additional paid-in capital.......... 689,102 689,202 1,050,603
Retained earnings................... 18,252 18,252 18,252
---------- ---------- ----------
Total stockholders' equity........ 708,038 708,138 1,069,565
---------- ---------- ----------
Total capitalization................. $2,243,546 $2,338,234 $2,382,683
========== ========== ==========
</TABLE>
- --------
(1) The Company issued an aggregate of 40,405 shares of common stock subsequent
to September 30, 1998. Of these shares, 15,259 shares were issued in
connection with acquisitions and are reflected in shares outstanding pro
forma and pro forma as adjusted. The remaining 25,146 shares are not
reflected.
(2) Does not include (i) 6,539,329 shares issuable upon the exercise of
outstanding warrants, which provide for a weighted average exercise price
of $10.18 per share, (ii) 13,768,775 shares issuable upon the exercise of
outstanding options, which provide for a weighted average exercise price of
$19.50 per share, (iii) 121,273 shares issuable upon conversion of
outstanding convertible notes, which provide for a weighted average
conversion price of $30.76 per share, (iv) 12,000,000 shares issuable upon
conversion of outstanding preferred shares of United Rentals, which provide
for a conversion price of $25.00 per share, and (v) 6,875,580 shares
issuable upon conversion of outstanding preferred securities of a
subsidiary trust of United Rentals, which provide for a conversion price of
$43.63 per share.
20
<PAGE>
SELECTED HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The tables below present selected historical and pro forma financial
information for the Company. This information should be read together with (1)
the information set forth under "Use of Proceeds," "Capitalization," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," (2) the Consolidated Financial Statements and the related notes
thereto and Pro Forma Consolidated Financial Statements and the related notes
thereto of the Company included elsewhere in this prospectus and (3) the
financial statements incorporated by reference in this prospectus of certain of
the companies that we acquired.
The balance sheet data presented below as of December 31, 1996 and 1997 and
the income statement data presented below for each of the years in the three-
year period ended December 31, 1997 are derived from the audited Consolidated
Financial Statements of the Company. Such financial statements are included
elsewhere in this prospectus. The balance sheet data presented below as of
December 31, 1995 and as of September 30, 1998 and the income statement data
presented below for the nine-month periods ended September 30, 1997 and 1998
are derived from the unaudited consolidated financial statements of the Company
which include, in the opinion of management of the Company, all adjustments
(consisting of normal recurring accruals) necessary to present fairly the
results of operations and financial position of the Company for the periods and
the dates presented.
The Company commenced operations in October 1997 by acquiring six
established equipment rental companies. The Company completed 89 additional
acquisitions (through January 25, 1999), including the merger with U.S. Rentals
which was completed in September 1998. Three of these acquisitions (including
the U.S. Rentals merger) were accounted for as "poolings-of-interests," which
means that for accounting and financial reporting purposes the acquired company
is treated as having been combined with the Company at all times since the
inception of the acquired company. Accordingly, the Company's financial
statements have been restated to include the accounts of two of the companies
acquired in these pooling-of-interests transactions (but was not restated for
one that was not material, which has been combined with the Company effective
July 1, 1998). As a result of this restatement, the Company's financial
statements include historical financial information for periods that precede
the date on which the Company commenced its own operations. See Note 3 to the
Consolidated Financial Statements of the Company included elsewhere herein. The
other 92 acquisitions completed by the Company were accounted for as
"purchases," which means that the results of operations of the acquired company
are included in the Company's financial statements only from the date of
acquisition.
The following unaudited income statement and other financial data under the
column heading "Pro Forma" with respect to each period presented gives effect
to each acquisition completed by the Company after the beginning of the period
and the financing thereof, as if all such transactions had occurred at the
beginning of the period. The following unaudited balance sheet data as of
September 30, 1998 under the column heading "Pro Forma" gives effect to each
acquisition completed by the Company subsequent to such date and the financing
of each such acquisition, as if all such transactions had occurred on such
date. The following unaudited balance sheet data as of September 30, 1998 under
the column heading "Pro Forma As Adjusted" gives effect to the foregoing and to
(1) the Company's issuance of $300 million of 9 1/4% Senior Subordinated Notes
and 300,000 shares of Series A Perpetual Convertible Preferred Stock after such
date and the use of the proceeds therefrom to repay indebtedness and (2) the
sale of the 2,290,000 shares of common stock offered by the Company as
described in this prospectus, at an assumed public offering price of $34.31 per
share, and the application of a portion of the net proceeds therefrom to repay
outstanding indebtedness under the Credit Facility.
21
<PAGE>
The pro forma data set forth below is provided for informational purposes.
However, this data may not be indicative of the actual results that the Company
would have had during any period presented, had any or all of the acquisitions
been completed as of the beginning of that period, or of any future results.
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------------------------ --------------------------
Nine Nine
Months Ended Year Ended Months Ended
Year Ended December 31, September 30, December 31, September 30,
---------------------------- ------------------ ------------ -------------
1995 1996 1997 1997 1998 1997 1998
-------- -------- -------- -------- -------- ------------ -------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income statement data:
Total revenues.......... $283,432 $354,478 $489,838 $327,824 $804,262 $1,326,021 $1,144,062
Total cost of
operations............. 194,234 241,445 340,546 227,638 530,212 859,531 744,274
-------- -------- -------- -------- -------- ---------- ----------
Gross profit............ 89,198 113,033 149,292 100,186 274,050 466,490 399,788
Selling, general and
administrative
expenses............... 39,707 54,721 70,835 48,488 128,763 238,406 201,847
Merger-related
expenses............... 42,216 42,216
Non-rental depreciation
and amortization....... 6,916 9,387 13,424 9,223 23,693 42,081 35,549
Termination cost of
deferred compensation
agreements............. 20,290 20,290 20,290
-------- -------- -------- -------- -------- ---------- ----------
Operating income........ 42,575 48,925 44,743 22,185 79,378 165,713 120,176
Interest expense........ 7,490 11,278 11,847 6,316 39,170 84,983 64,186
Preferred dividends of a
subsidiary trust....... 2,979 2,979
Other (income) expense.. 1,304 (499) (2,021) (1,356) (4,524) (8,601) (9,694)
-------- -------- -------- -------- -------- ---------- ----------
Income before provision
for income taxes and
extraordinary items ... 33,781 38,146 34,917 17,225 41,753 89,331 62,705
Provision for income
taxes.................. 484 420 29,508 21,875 25,229 36,179 25,396
-------- -------- -------- -------- -------- ---------- ----------
Income (loss) before
extraordinary items.... 33,297 37,726 5,409 (4,650) 16,524 53,152 37,309
Extraordinary items, net
(1).................... 1,511 1,511 21,337
-------- -------- -------- -------- -------- ---------- ----------
Net income
(loss)(1)(2)........... $ 33,297 $ 37,726 $ 3,898 $ (6,161) $ (4,813) $ 53,152 $ 37,309
======== ======== ======== ======== ======== ========== ==========
Pro forma provision for
income taxes before
extraordinary items
(1)(2)................. $ 13,715 $ 15,487 $ 14,176 $ 21,637 $ 27,162
Pro forma income (loss)
before extraordinary
items (1)(2)........... 20,066 22,659 20,741 (4,412) 14,591
Basic earnings (loss)
per share before
extraordinary items ... $ 1.47 $ 1.67 $ 0.12 $ (0.10) $ 0.26 $ 0.78 $ 0.55
Diluted earnings (loss)
per share before
extraordinary items.... $ 1.47 $ 1.67 $ 0.11 $ (0.10) $ 0.23 $ 0.75 $ 0.50
Basic earnings (loss)
per share(3)........... $ 1.47 $ 1.67 $ 0.08 $ (0.13) $ (0.07) $ 0.78 $ 0.55
Diluted earnings (loss)
per share(3)........... $ 1.47 $ 1.67 $ 0.08 $ (0.13) $ (0.07) $ 0.75 $ 0.50
Other financial data:
EBITDA (4).............. $101,438 $123,606 $160,554 $108,413 $265,257 $ 414,229 $ 361,272
EBITDA margin (5)....... 35.8% 34.9% 32.8% 33.1% 33.0% 31.2% 31.6%
</TABLE>
<TABLE>
<CAPTION>
Historical
--------------------------
Pro Forma as
December 31, Historical Pro Forma Adjusted
-------------------------- ---------- ---------- -------------
1995 1996 1997 September 30, 1998
-------- -------- -------- -----------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance sheet data:
Cash and cash equivalents............................... $ 3,728 $ 2,906 $ 72,411 $ 21,795 $ 4,000 $ 40,549
Rental equipment, net................................... 182,082 235,055 461,026 1,191,448 1,233,211 1,233,211
Total assets............................................ 297,994 381,228 826,890 2,557,002 2,661,052 2,705,501
Total debt.............................................. 131,771 214,337 264,573 1,235,508 1,330,096 1,013,118
Company-obligated mandatorily redeemable
convertible preferred securities of a subsidiary trust.. 300,000 300,000 300,000
Stockholders' equity.................................... 104,329 105,420 446,388 708,038 708,138 1,069,565
</TABLE>
- -------
(1) We recorded an extraordinary item (net of income taxes) of $1.5 million in
1997 and an extraordinary item (net of income taxes) of $21.3 million in
1998. Such charge in 1997 resulted from the prepayment of certain debt by
U.S. Rentals. Such charge in 1998 resulted from the early extinguishment of
certain debt and primarily reflected prepayment penalties on certain debt
of U.S. Rentals.
(2) U.S. Rentals was taxed as a Subchapter S Corporation until its initial
public offering in February 1997, and another company that we acquired was
taxed as a Subchapter S Corporation until being acquired. In general, the
income or loss of a Subchapter S Corporation is passed through to its
owners rather than being subjected to taxes at the entity level. Pro forma
provision for income taxes before extraordinary items and pro forma income
(loss) before extraordinary items reflect a provision for income taxes as
if all such companies were liable for federal and state income taxes as
taxable corporate entities for all periods presented.
22
<PAGE>
(3) Our earnings during 1997 were impacted by $20.3 million of expenses
relating to the termination of certain deferred compensation expenses in
connection with U.S. Rentals' initial public offering, a $7.5 million
charge to recognize deferred tax liabilities of U.S. Rentals and an
extraordinary item (net of income taxes) of $1.5 million. Our earnings
during 1998 were impacted by merger-related expenses of $42.2 million
($29.5 million net of taxes), a $4.8 million charge to recognize deferred
tax liabilities of a company acquired in a pooling-of-interests transaction
and an extraordinary item (net of income taxes) of $21.3 million. Excluding
such amounts, (i) basic earnings per share for the year ended 1997, the
nine months ended September 30, 1997 and 1998, and pro forma basic earnings
per share for the nine months ended September 30, 1998 would have been
$0.70, $0.50, $0.75 and $0.91, respectively, and (ii) diluted earnings per
share for the year ended 1997, and the nine months ended September 30, 1997
and 1998, and pro forma diluted earnings per share for the nine months
ended September 30, 1998 would have been $0.66, $0.49, $0.68 and $0.83,
respectively.
(4) EBITDA is defined as net income (excluding (i) non-operating income and
expense, (ii) a $20.3 million non-recurring charge incurred by U.S. Rentals
in 1997 arising from the termination of deferred compensation agreements
with certain executives and (iii) $42.2 million in merger-related expenses
in 1998 related to the three acquisitions accounted for as pooling-of-
interests, including the merger with U.S. Rentals) plus interest expense,
income taxes and depreciation and amortization. We have presented EBITDA
data to provide you with additional information concerning our ability to
meet our future debt service obligations and capital expenditure and
working capital requirements. However, EBITDA is not a measure of financial
performance under generally accepted accounting principles. Accordingly,
you should not consider EBITDA an alternative to net income or cash flows
as indicators of our operating performance or liquidity.
(5) EBITDA margin is defined as EBITDA as a percentage of revenues.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes thereto of the Company
included elsewhere in this prospectus.
Introduction
The Company commenced equipment rental operations in October 1997 by
acquiring six established equipment rental companies. The Company completed 89
additional acquisitions (through January 25, 1999), including the merger with
U.S. Rentals (the "U.S. Rentals Merger") which was completed in September 1998.
Three of the acquisitions completed by the Company (including the U.S.
Rentals Merger) were accounted for as "poolings-of-interests," and the
Company's financial statements have been restated to include the accounts of
two of the companies acquired in such transactions (but were not restated for
one that was not material, which has been combined with the Company effective
July 1, 1998). See Note 3 to the Consolidated Financial Statements of the
Company included elsewhere in this prospectus. As a result of such restatement,
the Company's financial statements include historical financial information of
these two acquired companies for periods that precede the date on which the
Company commenced its own operations.
The other 92 acquisitions completed by the Company were accounted for as
"purchases". The results of operations of the businesses acquired in these
acquisitions are included in the Company's financial statements only from their
respective dates of acquisition. In view of the fact that the Company's
operating results for 1997 and 1998 were impacted by acquisitions that were
accounted for as purchases, the Company believes that the results of its
operations for such periods are not directly comparable.
General
The Company primarily derives revenues from the following sources: (i)
equipment rental (including additional fees that may be charged for equipment
delivery, fuel, repair of rental equipment, and damage waivers), (ii) the sale
of rental equipment, (iii) the sale of new equipment, and (iv) the sale of
related merchandise and parts.
Cost of operations consists primarily of depreciation costs associated with
rental equipment, the cost of repairing and maintaining rental equipment, the
cost of rental and new equipment sold, personnel costs, occupancy costs and
supplies.
The Company records rental equipment expenditures at cost and depreciates
equipment using the straight-line method over the estimated useful life (which
ranges from 2 to 10 years), after giving effect to an estimated salvage value
of 0% to 10% of cost.
Selling, general and administrative expenses include sales commissions,
advertising and marketing expenses, management salaries, and clerical and
administrative overhead.
Non-rental depreciation and amortization includes (i) depreciation expense
associated with equipment that is not offered for rent (such as vehicles,
computers and office equipment) and amortization expense associated with
leasehold improvements and (ii) the amortization of intangible assets. The
Company's intangible assets include goodwill, which represents the excess of
the purchase price of acquired companies over the estimated fair market value
of the net assets acquired.
24
<PAGE>
Results of Operations
Nine months ended September 30, 1998 and 1997
Revenues. Total revenues for the first nine months of 1998 were $804.3
million, representing an increase of 145.3% over total revenues for the first
nine months of 1997 of $327.8 million. The Company's revenues in the first nine
months of 1998 and 1997 were attributable to: (i) equipment rental ($592.5
million, or 73.7% of revenues, in 1998 compared to $263.2 million, or 80.3% of
revenues, in 1997), (ii) sales of rental equipment ($73.7 million, or 9.2% of
revenues, in 1998 compared to $27.0 million, or 8.2% of revenues, in 1997) and
(iii) sales of new equipment, merchandise and other revenues ($138.1 million,
or 17.2% of revenues, in 1998 compared to $37.6 million, or 11.5% of revenues,
in 1997).
The 145.3% increase in total revenues in the first nine months of 1998
reflected (i) increased revenues at locations open more than one year (which
accounted for approximately 19.1 percentage points) and (ii) new rental
locations acquired through acquisitions and the opening of start-up locations
(which accounted for approximately 126.2 percentage points). The increase in
revenues at locations open more than one year primarily reflected an increase
in the volume of rental transactions.
Gross Profit. Gross profit increased to $274.1 million during the first
nine months of 1998 from $100.2 million during the first nine months of 1997.
This increase in gross profit was primarily attributable to the increase in
revenues described above. The Company's gross profit margin by source of
revenue in the first nine months of 1998 and 1997 was: (i) equipment rental
(35.3% in 1998 and 29.9% 1997), (ii) sales of rental equipment (46.0% in 1998
and 51.5% in 1997) and (iii) sales of new equipment, merchandise and other
revenues (22.6% in 1998 and 20.1% in 1997).
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") were $128.8 million, or 16.0% of total
revenues, during the first nine months of 1998 and $48.5 million, or 14.8% of
total revenues, during the first nine months of 1997. The increase in SG&A as a
percentage of revenues in 1998 primarily reflected the additional expenses for
senior management and corporate overhead that the Company began incurring in
the third quarter of 1997 as it built the management team and infrastructure
required to support its growth strategy.
Merger-related Expenses. The Company incurred merger-related expenses in
the first nine months of 1998 of $42.2 million ($29.5 million after-tax) in
connection with three acquisitions completed by the Company in 1998 that were
accounted for as poolings-of-interests. These expenses consisted of: (i) $18.5
million for investment banking, legal, accounting services and other merger
costs, (ii) $14.5 million of expenses relating to the closing of duplicate
facilities, (iii) $6.3 million for employee severance and (iv) $2.9 million in
other expenses. Certain additional merger-related expenses are transitional in
nature and, in accordance with generally accepted accounting principles, are
not presently accruable and will be expensed in future quarters.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $23.7 million, or 2.9% of total revenues, during the first
nine months of 1998 and $9.2 million, or 2.8% of total revenues, during the
first nine months of 1997. The increase in the dollar amount of non-rental
depreciation and amortization in 1998 primarily reflected the amortization of
goodwill attributable to the acquisitions completed at the end of 1997 and in
1998.
Termination Cost of Deferred Compensation Agreements. The Company's results
for the first nine months of 1997 were impacted by $20.3 million of expenses
for "termination costs of deferred compensation agreements." These expenses
reflect one-time expenses that were incurred by U.S. Rentals in connection with
the termination of certain deferred incentive compensation agreements in
connection with U.S. Rentals' initial public offering in February 1997.
25
<PAGE>
Interest Expense. Interest expense increased to $39.2 million during the
first nine months of 1998 from $6.3 million during the first nine months of
1997. This increase primarily reflected the fact that the Company's
indebtedness increased in the fourth quarter of 1997 and in 1998, primarily to
fund acquisitions.
Preferred Dividends of a Subsidiary Trust. During the first nine months of
1998, preferred dividends payable by a subsidiary trust of United Rentals were
$3.0 million. These dividends relate to the preferred securities issued in
August 1998 by such subsidiary trust. See "--Certain Information Concerning
Preferred Securities."
Other (Income) Expense. Other income was $4.5 million during the first nine
months of 1998 compared with $1.4 million during the first nine months of 1997.
The increase in other income in 1998 primarily reflected increased interest
income in 1998 as a result of higher cash balances resulting from the financing
transactions completed in the fourth quarter of 1997 and in 1998.
Income Taxes. Income taxes increased to $25.2 million, or an effective rate
of 60.4%, during the first nine months of 1998 from $21.9 million, or an
effective rate of 127.0% during the first nine months of 1997. During 1998, the
Company's high effective tax rate reflected (i) the non-deductibility of
certain merger related expenses and (ii) a $4.8 million charge to recognize
deferred tax liabilities of an acquired business, which was a Subchapter S
Corporation prior to being acquired by the Company. During 1997, the Company's
high effective tax rate reflected (i) a $7.5 million charge to recognize
deferred tax liabilities of U.S. Rentals, which was a Subchapter S Corporation
prior to its initial public offering, and (ii) the non-deductibility for income
tax purposes of certain losses that were incurred by U.S. Rentals prior to a
recapitalization effected in connection with its initial public offering.
Extraordinary Items. The Company recorded an extraordinary charge of $35.6
million ($21.3 million net of taxes) in the first nine months of 1998 and an
extraordinary charge of $1.5 million in the first nine months of 1997. Such
charge in 1998 was incurred in connection with the early extinguishment of
certain debt and primarily reflected prepayment penalties on certain debt of
U.S. Rentals. Such charges in 1997 were incurred by U.S. Rentals in connection
with the prepayment of certain debt.
Years Ended December 31, 1997 and 1996
Revenues. Total revenues for 1997 were $489.8 million, representing an
increase of 38.2% over total revenues in 1996 of $354.5 million. The Company's
revenues in 1997 and 1996 were attributable to: (i) equipment rental ($388.2
million, or 79.2% of revenues in 1997, compared to $295.3 million, or 83.3% of
revenues, in 1996), (ii) sales of rental equipment ($41.4 million, or 8.5% of
revenues, in 1997 compared to $25.5 million, or 7.2% of revenues, in 1996) and
(iii) sales of new equipment, merchandise and other revenues ($60.3 million, or
12.3% of revenues, in 1997 compared to $33.7 million, or 9.5% of revenues, in
1996).
The 38.2% increase in total revenues in 1997 reflected (i) increased
revenues at locations open more than one year (which accounted for
approximately 24.8 percentage points) and (ii) new rental locations acquired
through acquisitions and the opening of start-up locations (which accounted for
approximately 13.4 percentage points). The increase in such revenues at
locations open more than one year primarily reflected (a) an increase in
customer demand for rental equipment and for new and used equipment offered for
sale, (b) expansion of the product lines offered by the Company for sale, (c)
an increase in the sale of related merchandise and parts which was driven by
the increase in equipment rental and sales transactions and (d) an increase in
sales efforts relating to used equipment.
Gross Profit. Gross profit increased to $149.3 million in 1997 from $113.0
million in 1996. This increase in gross profit was primarily attributable to
the increase in revenues described above.
26
<PAGE>
The Company's gross profit margin by source of revenue was: (i) equipment
rental (30.0% in 1997 and 31.2% in 1996), (ii) sales of rental equipment (50.6%
in 1997 and 58.6% in 1996) and (iii) sales of new equipment, merchandise and
other revenues (19.6% in 1997 and 18.1% in 1996). The decrease in the gross
profit margin from rental revenues in 1997 primarily reflected the fact that
the Company in 1997 incurred expenses in connection with expanding its rental
fleet and opening new rental locations. The increase in the gross profit margin
from sales of new equipment, merchandise and other revenues in 1997 primarily
reflected a shift in sales mix to higher margin items.
Selling, General and Administrative Expenses. SG&A increased to $70.8
million in 1997 from $54.7 million in 1996, but as a percentage of revenues
decreased to 14.5% in 1997 from 15.4% in 1996. This decrease in SG&A as a
percentage of revenues in 1997 primarily reflected (i) increased operating
efficiencies and (ii) certain economies of scale related to the increase in
revenue described above.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $13.4 million, or 2.7% of total revenues in 1997, and $9.4
million, or 2.6% of total revenues, in 1996. The increase in the dollar amount
of non-rental depreciation and amortization in 1997 primarily reflected
increases in (i) depreciation expense attributable to equipment not offered for
rent, (ii) depreciation expense associated with rental facility locations and
(iii) amortization expense relating to leaseholds.
Termination Cost of Deferred Compensation Agreements. The Company's results
for 1997 were impacted by $20.3 million of expenses for "termination costs of
deferred compensation agreements." These expenses reflect one-time expenses
that were incurred by U.S. Rentals in connection with the termination of
certain deferred incentive compensation agreements in connection with its
initial public offering.
Interest Expense. Interest expense increased to $11.8 million in 1997 from
$11.3 million in 1996. This increase was primarily the result of an increase in
related party interest expense, offset by a decrease in interest as a result of
lower average debt outstanding during 1997 due to repayment of certain debt
with proceeds from U.S. Rentals' initial public offering.
Other (Income) Expense. Other income was $2.0 million in 1997 compared with
$0.5 million in 1996. The increase in other income in 1997 primarily reflected
increased interest income in 1997 as a result of higher cash balances resulting
from the financing transactions completed during 1997.
Income Taxes. Income taxes were $29.5 million, or an effective rate of
84.5%, in 1997 and $0.4 million, or an effective rate of 1.1%, in 1996. The
Company's low effective tax rate in 1996 reflected the fact that (i) U.S.
Rentals was taxed as a Subchapter S Corporation for federal and state purposes
until its initial public offering in February 1997 and (ii) Rental Tools
(another company that United Rentals acquired in a transaction that was
accounted for as a pooling-of-interests) was taxed as a Subchapter S
Corporation for federal and state purposes until it was acquired by the Company
in 1998. The Company's high effective tax rate in 1997 primarily reflected (i)
a $7.5 million charge to recognize deferred tax liabilities of U.S. Rentals and
(ii) the non-deductibility for income tax purposes of certain losses that were
incurred by U.S. Rentals prior to a recapitalization effected in connection
with its initial public offering.
Extraordinary Item. The Company recorded an extraordinary charge of $1.5
million during 1997. This charge was incurred by U.S. Rentals in connection
with the prepayment of certain debt.
Years Ended December 31, 1996 and 1995
Revenues. Total revenues for 1996 were $354.5 million, representing an
increase of 25.1% over total revenues in 1995 of $283.4 million. The Company's
revenues in 1996 and 1995 were
27
<PAGE>
attributable to: (i) equipment rental ($295.3 million, or 83.3% of revenues, in
1996 compared to $252.3 million, or 89.0% of revenues, in 1995), (ii) sales of
rental equipment ($25.5 million, or 7.2% of revenues, in 1996 compared to $11.2
million, or 3.9% of revenues, in 1995) and (iii) sales of new equipment,
merchandise and other revenues ($33.7 million, or 9.5% of revenues, in 1996
compared to $20.0 million, or 7.1% of revenues, in 1995).
The 25.1% increase in total revenues in 1996 reflected (i) an increase in
revenues at locations open more than one year (which accounted for
approximately 17.1 percentage points) and (ii) new rental locations acquired
through acquisitions and the opening of start-up locations (which accounted for
approximately 8.0 percentage points). The increase in such revenues at
locations open more than one year primarily reflected (a) an increase in
customer demand for rental equipment and for new and used equipment offered for
sale, (b) an increase in the sale of related merchandise and parts which was
driven by the increase in equipment rental and sales transactions and (c) an
increase in sales efforts.
Gross Profit. Gross profit increased to $113.0 million in 1996 from $89.2
million in 1995. This increase in gross profit was primarily attributable to
the increase in revenues described above. The Company's gross profit margin by
source of revenue was: (i) equipment rental (31.2% in 1996 and 30.2% in 1995),
(ii) sales of rental equipment (58.6% in 1996 and 53.5% in 1995) and (iii)
sales of new equipment, merchandise and other revenues (18.1% in 1996 and 35.5%
in 1995). The increase in the gross profit margin from rental revenues in 1996
was primarily attributable to greater equipment utilization. The decrease in
the gross profit margin from the sale of new equipment, merchandise and other
revenues in 1996 primarily reflected a shift in sales mix toward lower margin
items.
Selling, General and Administrative Expenses. SG&A increased to $54.7
million, or 15.4% of revenues, in 1996 from $39.7 million, or 14.0% of
revenues, in 1995. SG&A includes $1.5 million and $0.6 million in 1996 and
1995, respectively, of non-recurring compensation expense related to deferred
incentive compensation agreements that were terminated in connection with U.S.
Rentals' initial public offering. The increase in SG&A as a percentage of
revenues in 1996 primarily reflected (i) higher costs in 1996 relating to
advertising, bad debt and insurance and (ii) the fact that the non-recurring
compensation expense described above was higher in 1996 than in 1995.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $9.4 million, or 2.6% of total revenues, in 1996 and $6.9
million, or 2.4% of total revenues, in 1995. The increase in the dollar amount
of non-rental depreciation and amortization in 1996 primarily reflected
increases in (i) depreciation expense attributable to equipment not offered for
rent, (ii) depreciation expense associated with rental facility locations and
(iii) amortization expense relating to leaseholds.
Interest Expense. Interest expense increased to $11.3 million in 1996 from
$7.5 million in 1995. This increase was primarily the result of higher average
debt outstanding during 1996 as a result of an increase in the purchase of
rental equipment.
Other (Income) Expense. Other income was $0.5 million in 1996 compared with
other expense of $1.3 million in 1995. The expense in 1995 primarily reflected
the write-off of $1.3 million on a non-operating investment.
Income Taxes. Income taxes were $0.4 million, or an effective rate of 1.1%,
in 1996 and $0.5 million, or an effective rate of 1.4%, in 1995. The Company's
low effective tax rate in 1996 and 1995 reflected the fact that (i) U.S.
Rentals was taxed as a Subchapter S Corporation for federal and state purposes
until its initial public offering in February 1997 and (ii) Rental Tools was
taxed as a Subchapter S Corporation for federal and state purposes until it was
acquired by the Company in 1998. The acquisitions of U.S. Rentals and Rental
Tools were accounted for as "poolings-of-interests."
28
<PAGE>
Liquidity and Capital Resources
General
Since commencing operations in October 1997, the Company has funded its
cash requirements from a combination of cash generated from operations, the
sale of rental equipment, borrowings under a revolving credit facility and the
proceeds of other financing transactions. These other financing transactions
included (i) the sale of common stock and warrants in private placements for
aggregate consideration of $54.7 million, (ii) the sale of common stock in two
public offerings for aggregate consideration of $307.0 million (after deducting
underwriting discounts and offering expenses), (iii) the sale of $200 million
aggregate principal amount of 9 1/2% senior subordinated notes (the "9 1/2%
Notes") in May 1998 for aggregate consideration of $193.0 million (after
deducting the initial purchasers' discount and offering expenses), (iv) a $250
million term loan (the "Term Loan") obtained in July 1998, (v) the issuance by
a subsidiary trust of Holdings of preferred securities (the "Trust Preferred
Securities") in August 1998 which resulted in the Company receiving net
proceeds of $290.0 million, (vi) the sale of $205 million aggregate principal
amount of 8.80% senior subordinated notes (the "8.80% Notes") in August 1998
for aggregate consideration of $196.0 million (after deducting the initial
purchaser's discount and offering expenses), (vii) the sale of $300 million
aggregate principal amount of 9 1/4% Senior Subordinated Notes ("9 1/4% Notes")
in December 1998 for aggregate consideration of $292.1 million (after deducting
the initial purchaser's discount and estimated offering expenses) and (viii)
the sale of 300,000 shares of Series A Perpetual Convertible Preferred Stock in
January 1999 for aggregate consideration of $287.0 million (after deducting
issuance fees and expenses). For additional information concerning certain of
the financings described above, see "--Certain Information Concerning the
Credit Facility and Other Indebtedness" and "--Certain Information Concerning
Preferred Securities."
During the first nine months of 1998, the Company (i) generated cash from
operations of approximately $208.1 million, (ii) generated cash from the sale
of rental equipment of approximately $73.7 million and (iii) had net cash from
financing activities of approximately $1,000.8 million. The Company used cash
during this period principally to (i) pay consideration for acquisitions
(approximately $833.3 million), (ii) repay indebtedness in connection with the
U.S. Rentals Merger and the acquisition of Rental Tools (approximately $450.3
million), (iii) purchase rental equipment (approximately $426.7 million) and
(iv) purchase other property and equipment (approximately $66.1 million). These
cash expenditures were the principal reason for the decrease in cash at
September 30, 1998 compared with December 31, 1997.
During 1997, the Company (i) generated cash from operations of
approximately $93.1 million, (ii) generated cash from the sale of rental
equipment of approximately $41.4 million and (iii) had net cash from financing
activities of approximately $372.7 million. The Company used cash during this
period principally to (i) pay consideration for acquisitions (approximately
$115.5 million), (ii) purchase rental equipment (approximately $268.5 million)
and (iii) purchase other property and equipment (approximately $53.7 million).
In September 1998, URI obtained a new $762.5 million revolving credit
facility (the "Credit Facility") from a group of financial institutions. This
facility replaced the credit facility that had previously been used by URI. For
additional information concerning the Credit Facility, see "--Certain
Information Concerning the Credit Facility and Other Indebtedness."
The Company expects that, following the offering described in this
prospectus, its principal existing sources of cash will be cash generated from
operations and borrowings available under the Credit Facility.
Certain Balance Sheet Changes
The acquisitions and the equipment purchases made by the Company in 1998
(and the financing of such acquisitions and purchases) were the principal
reasons for the increase in the
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following items at September 30, 1998 compared with December 31, 1997: accounts
receivable, inventory, rental equipment, property and equipment, intangible
assets, accounts payable, debt, and accrued expenses and other liabilities.
The increase in prepaid expenses and other assets at September 30, 1998
compared with December 31, 1997 primarily reflects (i) an increase in prepaid
expenses relating to the Company's operations, (ii) deferred tax assets
recorded in connection with acquisitions and (iii) certain direct costs
relating to potential acquisitions that were capitalized.
The increase in stockholders' equity at September 30, 1998 compared with
December 31, 1997, primarily reflects (i) the sale of 8,625,000 shares of
common stock in a public offering in March 1998 for aggregate consideration of
$207.4 million (after deducting underwriting discounts and offering expenses),
(ii) the issuance of an aggregate of 3,626,897 shares of common stock during
the nine months ended September 30, 1998 as consideration for acquisitions and
(iii) the issuance of the Trust Preferred Securities in August 1998 as
described under "--Certain Information Concerning Preferred Securities."
Cash Requirements Related to Operations
The Company expects that its principal needs for cash relating to its
existing operations over the next 12 months will be to fund (i) operating
activities and working capital, (ii) the purchase of rental equipment and
inventory of items offered for sale and (iii) debt service. The Company plans
to fund such cash requirements relating to its existing operations with cash
generated from operations supplemented, if required, by borrowings available
under the Credit Facility.
The Company estimates that equipment expenditures over the next 12 months
will be approximately $450.0 million for the existing operations of the
Company. These expenditures are comprised of approximately $240.0 million of
expenditures in order to maintain the average age of the Company's rental fleet
and $210.0 million of discretionary expenditures to increase the size of the
Company's rental fleet. The Company expects that it will fund such expenditures
from a combination of approximately $185.0 million of proceeds expected to be
generated from the sale of used equipment, cash generated from operations and,
if required, borrowings available under the Credit Facility. In addition, the
Company expects that it will be required to make equipment expenditures in
connection with new acquisitions. The Company cannot quantify at this time the
amount of equipment expenditures that will be required in connection with new
acquisitions.
Principal elements of the Company's strategy include continued expansion
through a disciplined acquisition program and the opening of new rental
locations. The Company expects to pay for future acquisitions using cash,
capital stock, notes and/or assumption of indebtedness. To the extent that cash
generated internally and cash available under the Company's borrowing
facilities ($720.4 million available as of January 25, 1999) are not sufficient
to fund such future acquisitions, the Company will require additional financing
and, consequently, the Company's indebtedness may increase as the Company
implements its growth strategy. There can be no assurance, however, that any
additional financing will be available or, if available, will be on terms
satisfactory to the Company.
The Company has almost completed the process of extending its management
information system to the locations acquired through the U.S. Rentals Merger
and other recent acquisitions. The Company estimates that the cost of
completing this work will be approximately $1.8 million.
Based upon the terms of the Company's currently outstanding indebtedness,
the Company is scheduled to repay approximately $9.0 million during 1999. In
addition, the Company may be required at any time to repay a $21.5 million
demand note that the Company assumed in connection with the U.S. Rentals
Merger.
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Year 2000 Compliance
The Company has been informed by its software vendors that the Company's
new management information system is year 2000 compliant. The Company has,
therefore, not developed any contingency plans relating to year 2000 issues and
has not budgeted any funds for year 2000 issues. Although the Company believes
that its system is year 2000 compliant, there can be no assurance that
unanticipated year 2000 problems will not arise which, depending on the nature
and magnitude of the problem, could have a material adverse effect on the
Company's business and financial condition. Furthermore, year 2000 problems
involving third parties may have a negative impact on the Company's customers
or suppliers, the general economy or on the ability of businesses generally to
receive essential services (such as telecommunications, banking services,
etc.). Any such problem could have a material adverse effect on the Company's
business and financial condition. The Company is unable at this time to assess
the possible impact on its business of year 2000 problems involving any third
party.
Certain Information Concerning the Credit Facility and Other Indebtedness
Credit Facility. In September 1998, URI obtained a new $762.5 million
revolving Credit Facility from a group of financial institutions. This facility
replaced the credit facility that had previously been used by URI. Set forth
below is certain information concerning the terms of the Credit Facility.
The Credit Facility enables URI to borrow up to $762.5 million on a
revolving basis and permits a Canadian subsidiary of URI (the "Canadian
Subsidiary") to directly borrow up to $40.0 million under the Credit Facility
(provided that the aggregate borrowings of URI and the Canadian Subsidiary do
not exceed $762.5 million). Up to $25.0 million of the Credit Facility is
available in the form of letters of credit. The agreement governing the Credit
Facility requires that the aggregate commitment shall be reduced on the last
day of each calendar quarter, beginning September 30, 2001 and continuing
through June 30, 2003, by an amount equal to $19.1 million. The Credit Facility
terminates on September 26, 2003, at which time all outstanding indebtedness is
due. As of January 25, 1999, the amount of indebtedness outstanding under the
Credit Facility was $39.0 million (not including undrawn outstanding letters of
credit in the amount of $3.1 million).
Borrowings by URI under the Credit Facility accrue interest at URI's
option, at either (a) the Base Rate (which is equal to the greater of (i) the
Federal Funds Rate plus 0.5% or (ii) Bank of America's reference rate) or (b)
the Eurodollar Rate (which for borrowings by URI is equal to Bank of America's
reserve adjusted eurodollar rate) plus a margin ranging from 0.825% to 1.500%
per annum. Borrowings by the Canadian Subsidiary under the Credit Facility
accrue interest, at such subsidiary's option, at either (x) the Prime Rate
(which is equal to Bank of America Canada's prime rate), (y) the BA Rate (which
is equal to Bank of America Canada's BA Rate) plus a margin ranging from 0.825%
to 1.500% per annum or (z) the Eurodollar Rate (which for borrowing by the
Canadian Subsidiary is equal to Bank of America Canada's reserve adjusted
Eurodollar Rate) plus a margin ranging from 0.825% to 1.500% per annum. If at
any time an event of default (as defined in the agreement governing the Credit
Facility) exists, the interest rate applicable to each loan will increase by 2%
per annum. The Company is also required to pay the banks an annual facility fee
equal to 0.375% of the banks' $762.5 million aggregate lending commitment under
the Credit Facility (which fee may be reduced to 0.300% for periods during
which the Company maintains a specified funded debt to cash flow ratio).
The obligations of URI under the Credit Facility are (i) secured by
substantially all of its assets, the stock of its United States subsidiaries
and a portion of the stock of URI's Canadian subsidiaries and (ii) guaranteed
by Holdings and secured by the stock of URI. The obligations of the Canadian
Subsidiary under the Credit Facility are guaranteed by URI and secured by
substantially all of the assets of the Canadian Subsidiary and the stock of the
subsidiaries of the Canadian Subsidiary.
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The Credit Facility contains certain covenants that require the Company to,
among other things, satisfy certain financial tests relating to: (a) maximum
leverage, (b) the ratio of senior debt to cash flow, (c) minimum interest
coverage ratio, (d) the ratio of funded debt to cash flow, and (e) the ratio of
senior debt to tangible assets. The agreements governing the Credit Facility
also contain various other covenants that restrict the Company's ability to,
among other things, (i) incur additional indebtedness, (ii) permit liens to
attach to its assets, (iii) pay dividends or make other restricted payments on
its common stock and certain other securities and (iv) make acquisitions unless
certain financial conditions are satisfied. In addition, the agreement
governing the Credit Facility (a) requires the Company to maintain certain
financial ratios and (b) provides that failure by any two of Messrs. Jacobs,
Milne, Nolan and Miner to continue to hold executive positions with the Company
for a period of 30 consecutive days constitutes an event of default unless
replacement officers satisfactory to the lenders are appointed.
Term Loan. In July 1998, URI obtained a $250 million term loan from a group
of financial institutions. The term loan matures on June 30, 2005. Prior to
maturity, quarterly installments of principal in the amount of $625,000 are due
on the last day of each calendar quarter, commencing September 30, 1999. The
amount due at maturity is $235,625,000. The term loan accrues interest, at the
Company's option, at either (a) the Base Rate (as defined above with respect to
the Credit Facility) plus a margin ranging from 0% to 0.5% per annum, or (b)
the Eurodollar Rate (as defined above with respect to the Credit Facility for
borrowings by the Company) plus a margin ranging from 1.875% to 2.375% per
annum. The Term Loan is secured pari passu with the Credit Facility. The
agreement governing the Term Loan contains restrictive covenants substantially
similar to those provided under the Credit Facility.
9 1/2% Senior Subordinated Notes. In May 1998, URI issued $200 million
aggregate principal amount of 9 1/2% Notes which are due June 1, 2008. The 9
1/2% Notes are unsecured. URI may, at its option, redeem the 9 1/2% Notes on or
after June 1, 2003 at specified redemption prices which range from 104.75% in
2003 to 100.00% in 2006 and thereafter. In addition, on or prior to June 1,
2001, URI may, at its option, use the proceeds of a public equity offering to
redeem up to 35% of the outstanding 9 1/2% Notes, at a redemption price of
109.5%. The indenture governing the 9 1/2% Notes contains certain restrictive
covenants, including (i) limitations on additional indebtedness, (ii)
limitations on restricted payments, (iii) limitations on liens, (iv)
limitations on dividends and other payment restrictions, (v) limitations on
preferred stock of certain subsidiaries, (vi) limitations on transactions with
affiliates, (vii) limitations on the disposition of proceeds of asset sales and
(viii) limitations on the ability of the Company to consolidate, merge or sell
all or substantially all of its assets.
8.80% Senior Subordinated Notes. In August 1998, URI issued $205 million
aggregate principal amount of 8.80% Notes which are due August 15, 2008. The
8.80% Notes are unsecured. URI may, at its option, redeem the 8.80% Notes on or
after August 15, 2003 at specified redemption prices which range from 104.40%
in 2003 to 100.00% in 2006 and thereafter. In addition, on or prior to August
15, 2001, URI may, at its option, use the proceeds of a public equity offering
to redeem up to 35% of the outstanding 8.80% Notes, at a redemption price of
108.8%. The indenture governing the 8.80% Notes contains restrictions
substantially similar to those applicable to the 9 1/2% Notes.
9 1/4% Senior Subordinated Notes. In December 1998, URI issued $300 million
aggregate principal amount of 9 1/4% Notes which are due January 15, 2009. The
9 1/4% Notes are unsecured. URI may, at its option, redeem the 9 1/4% Notes on
or after January 15, 2004 at specified redemption prices which range from
104.625% in 2004 to 100.00% in 2007 and thereafter. In addition, on or prior to
January 15, 2002, URI may, at its option, use the proceeds of a public equity
offering to redeem up to 35% of the outstanding 9 1/4% Notes, at a redemption
price of 109.25%. The indenture governing the 9 1/4% Notes contains
restrictions substantially similar to those applicable to the 9 1/2% Notes.
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Certain Information Concerning Preferred Securities
Trust Preferred Securities
In August 1998, a subsidiary trust (the "Trust") of Holdings sold $300
million of 6 1/2% Convertible Quarterly Income Preferred Securities (the "Trust
Preferred Securities"). The net proceeds from the sale of the Trust Preferred
Securities were approximately $290 million. The Trust used such proceeds to
purchase convertible subordinated debentures from Holdings which resulted in
Holdings receiving all of the proceeds from the sale of the Trust Preferred
Securities. Holdings in turn contributed the net proceeds from the sale of the
Trust Preferred Securities to its wholly owned subsidiary URI. The Trust
Preferred Securities are convertible into common stock of Holdings at a
conversion price equivalent to $43.63 per share.
Series A Perpetual Convertible Preferred Stock
In January 1999, Holdings sold 300,000 shares of its Series A Perpetual
Convertible Preferred Stock ("Series A Preferred") to Apollo Investment Fund
IV, L.P. and Apollo Overseas Partners IV, L.P. The net proceeds from the sale
of the Series A Preferred were approximately $287.0 million. Holdings
contributed such net proceeds to URI. For additional information concerning the
Series A Preferred, see "Description of Capital Stock."
Fluctuations in Operating Results
The Company expects that its revenues and operating results may fluctuate
from quarter to quarter due to a number of factors, including: seasonal rental
patterns of the Company's customers (with rental activity tending to be lower
in the winter); changes in general economic conditions in the Company's
markets; the timing of acquisitions and the opening of start-up locations and
related costs; the effect of the integration of acquired businesses and start-
up locations; the timing of expenditures for new equipment and the disposition
of used equipment; and price changes in response to competitive factors.
The Company is continually involved in the investigation and evaluation of
potential acquisitions. In accordance with generally accepted accounting
principles, the Company capitalizes certain direct out-of-pocket expenditures
(such as legal and accounting fees) relating to potential or pending
acquisitions. Indirect acquisition costs, such as executive salaries, general
corporate overhead, public affairs and other corporate services, are expensed
as incurred. The Company's policy is to charge against earnings any capitalized
expenditures relating to any potential or pending acquisition that the Company
determines will not be consummated. There can be no assurance that the Company
in future periods will not be required to incur a charge against earnings in
accordance with such policy, which charge, depending upon the magnitude
thereof, could adversely affect the Company's results of operations.
The Company will be required to incur significant start-up expenses in
connection with establishing each start-up location. Such expenses may include,
among others, pre-opening expenses related to setting up the facility, and
expenses in connection with training employees, installing information systems
and marketing. The Company expects that, in general, start-up locations will
initially operate at a loss or at less than normalized profit levels.
Consequently, the opening of a start-up location may negatively impact the
Company's margins until the location achieves normalized profitability.
There may be a lag between the time that the Company purchases new
equipment and begins to incur the related depreciation and interest expenses
and the time that the equipment begins to generate revenues at normalized
rates. As a result, the purchase of new equipment, particularly equipment
purchased in connection with expanding and diversifying the Company's rental
equipment, may periodically reduce margins.
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General Economic Conditions and Inflation
The Company's operating results may be adversely affected by (i) changes in
general economic conditions, including changes in construction and industrial
activity, or increases in interest rates, or (ii) adverse weather conditions
that may temporarily decrease construction and industrial activity in a
particular geographic area. Although the Company cannot accurately anticipate
the effect of inflation on its operations, the Company believes that inflation
has not had, and is not likely in the foreseeable future to have, a material
impact on its results of operations.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in primary financial
statements. The Company adopted SFAS No. 130 during the period ended March 31,
1998. The adoption of SFAS No.130 did not have a material effect on the
consolidated financial position, results of operations or cash flows of the
Company. SFAS No. 131 establishes a new method by which companies will report
operating segment information. This method is based on the manner in which
management organizes the segments within a company for making operating
decisions and assessing performance. The Company continues to evaluate the
provisions of SFAS No. 131 and, upon adoption, the Company may report operating
segments. The Company is required to adopt SFAS No. 131 for its financial
statements for the year ended December 31, 1998.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Post Retirement
Benefits." SFAS No. 132 revises employers' disclosures about pension and other
post retirement benefit plans but does not change the measurement or
recognition of those plans. The Company is required to adopt SFAS No. 132 for
its financial statements for the year ended December 31, 1998. The adoption of
SFAS No. 132 is expected to have no effect on the Company's disclosure of
employee benefit matters.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes a new model for accounting for derivatives and hedging activities.
The Company will adopt SFAS No. 133 beginning January 1, 2000. The adoption of
SFAS No. 133 is not expected to have a material effect on the Company's
consolidated financial position or results of operations.
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All pro forma financial and operating data contained under the caption
"Business" with respect to any period gives effect to all acquisitions
completed by the Company after the beginning of the period and the financing of
such acquisitions, as if all such transactions had occurred at the beginning of
the period.
BUSINESS
General
United Rentals is the largest equipment rental company in North America
with 422 branch locations in 37 states, Canada and Mexico. We offer for rent
over 600 different types of equipment on a daily, weekly or monthly basis and
serve customers that include construction industry participants, industrial
companies and homeowners. We also sell used rental equipment, act as a dealer
for many types of new equipment, and sell related merchandise and parts. In the
past nine months, we have served over 900,000 customers.
We have one of the most comprehensive and newest equipment rental fleets in
the industry. The types of rental equipment that we offer include a broad range
of light to heavy construction and industrial equipment, such as backhoes,
aerial lifts, skid-steer loaders, forklifts, compressors, pumps and generators,
as well as a variety of smaller tools and equipment. Our equipment fleet has an
original purchase price of approximately $2.2 billion and a weighted average
age of approximately 26 months (based on original purchase price).
We began operations in October 1997 with the acquisition of six well-
established rental companies and have grown through a combination of internal
growth and the acquisition of 89 additional companies. Our completed
acquisitions include our merger with U.S. Rentals in September 1998. At the
time of the merger, U.S. Rentals was the second largest equipment rental
company in the United States based on 1997 rental revenues.
Competitive Advantages
We believe that we benefit from the following competitive advantages:
Full Range of Rental Equipment. We have one of the largest and most
comprehensive equipment rental fleets in the industry, enabling us to:
. attract customers by providing the benefit of "one-stop" shopping;
. serve a diverse customer base, which reduces our dependence on any
particular customer or group of customers;
. serve large customers that require assurance that substantial
quantities of different types of equipment will be available as
required on a continuing basis; and
. minimize lost sales due to equipment being unavailable.
Operating Efficiencies. We generally group our branches into clusters of 10
to 30 locations that are in the same area. Our management information system
enables each branch to track equipment at any other branch and to access all
available equipment within a cluster. We believe that our cluster strategy
produces significant operating efficiencies by enabling us to:
. market the equipment within a cluster through multiple branches,
rather than a single branch, which increases our equipment utilization
rate;
. cross-market the equipment specialities of different branches within
each cluster, which increases revenues without increasing marketing
expenses; and
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. reduce costs by centralizing common functions such as payroll, credit
and collection, and certain equipment delivery.
Significant Purchasing Power. We have significant purchasing power because
of our volume purchases. As a result, we can generally buy new equipment and
related merchandise and parts at prices that are significantly lower than
prices paid by smaller companies. We can also buy many other products and
services--such as insurance, telephone and fuel--at attractive rates.
Management Information System. We have a modern management information
system which facilitates rapid and informed decision-making and enables us to
respond quickly to changing market conditions. The system provides management
with a wide range of real time operating and financial data, including reports
on inventory, receivables, customers, vendors, fleet utilization and price and
sales trends. The system also enables branch personnel to search for needed
equipment throughout a geographic region, determine its closest location and
arrange for delivery to a customer's work site. The system includes software
developed by our Wynne Systems subsidiary, which is the leading provider of
proprietary software for use by equipment rental companies in managing and
operating multiple branch locations. We have an in-house staff of 24 management
information specialists that supports our system and extends it to new
locations.
Customer Diversity. Our customer base is highly diversified and ranges from
Fortune 100 companies to small contractors and homeowners. We estimate that our
top ten customers accounted for approximately 4% of our pro forma revenues in
the first nine months of 1998.
Geographic Diversity. We have branches in 37 states, Canada and Mexico. We
believe that our geographic diversity should reduce the impact that
fluctuations in regional economic conditions have on our overall financial
performance. Our geographic diversity and large network of branch locations
also give us the ability to serve national accounts and access used equipment
re-sale markets across the country.
Experienced Senior Management. Our senior management combines executives
who have extensive operating experience in the equipment rental industry with
executives who have proven track records in other industries. Our senior
management includes former officers of United Waste Systems, Inc., which was a
publicly-traded solid waste management company that successfully executed a
growth strategy combining a disciplined acquisition program, the integration
and optimization of acquired facilities, and internal growth. Our senior
management also includes former executives of U.S. Rentals who have extensive
experience in the equipment rental industry.
Strong and Motivated Branch Management. Each of our branches has a full-
time branch manager who is supervised by one of our 35 district managers and
eight regional vice presidents. We believe that our branch and district
managers, who average over 20 years of experience in the equipment rental
industry, are among the most knowledgeable and experienced in the industry. We
encourage entrepreneurship at the branch level by giving branch managers a high
degree of autonomy relating to day-to-day operations. For example, each branch
manager is empowered to make decisions--within budgetary guidelines--concerning
staffing, pricing and equipment purchasing. We also promote entrepreneurship at
the branch level, as well as equipment sharing among branches, through our
profit sharing program which directly ties the compensation of branch personnel
to their branch's financial performance and equipment utilization rates. We
balance the autonomy that we grant branch managers with systems through which
senior management closely tracks branch performance. We also share information
across branches so that each branch can measure its operating performance
relative to other branches and benefit from the best practices developed
throughout our organization.
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Professional Acquisition Team. Our 25-person acquisition team works full-
time on identifying and evaluating acquisition candidates and executing our
acquisition program. The core of this group consists of seasoned acquisition
professionals--most of whom were members of the acquisition team at United
Waste Systems, where they completed over 200 acquisitions. The team also
includes former owners of businesses that we acquired, who have extensive
industry experience and contacts with potential acquisition candidates.
Growth Strategy
Our plan for future growth includes the following key elements.
Continue Strong Internal Growth. We are seeking to sustain our strong
internal growth by:
. expanding and modernizing our equipment fleet;
. increasing the cross-marketing of our equipment specialties at
different locations;
. increasing our advertising--which becomes increasingly cost-effective
as we grow because the benefit is spread over a larger number of
branches;
. expanding our national accounts program--which dedicates a portion of
our sales force to establishing and expanding our relationships with
large customers that have a national or multi-regional presence; and
. increasing our rentals to industrial companies by developing a
comprehensive marketing program specifically aimed at this sector.
Execute Disciplined Acquisition Program. We intend to continue our
disciplined acquisition program. We generally seek to acquire multiple
locations within the regions that we enter, with the goal of creating clusters
of locations that can share various resources, including equipment, marketing
resources, back office functions, and certain equipment delivery. We are
seeking to acquire companies of varying sizes, including relatively large
companies to serve as platforms for new regional clusters and smaller
companies to complement existing or anticipated locations. In considering
whether to buy a company, we evaluate a number of factors, including purchase
price, anticipated impact on earnings, the quality of the target's rental
equipment and management, the opportunities to improve operating margins and
increase internal growth at the target, the economic prospects of the region
in which the target is located, the potential for additional acquisitions in
the region, and the competitive landscape in the target's markets.
Open New Rental Locations. Because most of the businesses that we acquired
grew through developing start-up rental locations, many of our managers have
substantial experience in this area. We intend to leverage this experience by
selectively opening new rental locations in attractive markets where there are
no suitable acquisition targets available or where the economics of a start-up
location are more attractive than buying an existing business.
Increase Cost Savings. We work to reduce costs by efficiently integrating
new and existing operations, eliminating duplicative costs, centralizing
common functions, consolidating locations that serve the same areas, and using
our purchasing power to negotiate discounts from suppliers.
Continue to Emphasize Management Systems and Controls. We intend to further
strengthen our management systems and controls, which currently include:
. a 12-person internal audit department that is responsible for ensuring
that we have adequate financial, operating, and management information
controls throughout our organization;
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. a team of 6 regional controllers and 17 district controllers that
monitors each branch for compliance with financial and accounting
procedures established at corporate headquarters; and
. a 25-person risk management and safety department that is responsible
for: (1) developing and implementing safety programs and procedures,
(2) developing our customer and employee training programs and (3)
investigating and managing any claims that may be asserted against us.
Industry Background
Industry Size and Growth
We estimate that the U.S. equipment rental industry (including used and new
equipment sales by rental companies) generates annual revenues in excess of $20
billion. The combined equipment rental revenues of the 100 largest equipment
rental companies have increased at an estimated compound annual rate of
approximately 23% from 1992 through 1997 (based upon 1992 revenues and 1997 pro
forma revenues, giving effect to certain acquisitions completed after the
beginning of 1997, reported by the Rental Equipment Register, an industry trade
publication). In addition to reflecting general economic growth, we believe
that the growth in the equipment rental industry reflects the following trends:
Recognition of Advantages of Renting. Equipment users are increasingly
recognizing the many advantages that equipment rental may offer compared
with ownership. They recognize that by renting they can: (1) avoid the
large capital investment required for equipment purchases, (2) reduce
storage and maintenance costs, (3) supplement the equipment that they own
and thereby increase the range and number of jobs that they can work on,
(4) access a broad selection of equipment and select the equipment best
suited for each particular job, (5) obtain equipment as needed and
minimize the costs associated with idle equipment, and (6) access the
latest technology without investing in new equipment. These advantages
frequently allow equipment users to reduce their overall costs by renting,
rather than buying, the equipment they need.
Increase in Rentals by Contractors. There has been a fundamental shift
in the way contractors meet their equipment needs. While contractors have
historically used rental equipment on a temporary basis--to provide for
peak period capacity, meet specific job requirements or replace broken
equipment--many contractors are now also using rental equipment on an
ongoing basis to meet their long-term equipment requirements.
Although growth in the equipment rental industry has to date been largely
driven by the increase in rentals by the construction industry, we believe that
other equipment users may increasingly contribute to future industry growth.
For example, many industrial companies require equipment for operating,
repairing, maintaining and upgrading their facilities, and renting this
equipment is often more cost-effective than purchasing because typically this
equipment is not used full-time. We believe that the cost and other advantages
of renting, together with the general trend toward the corporate outsourcing of
non-core competencies, may increasingly lead industrial companies to rent
equipment. We also believe that these same considerations may lead others
equipment users--such as municipalities, government agencies and utilities--to
increasingly rent equipment. Because the penetration of these markets by the
equipment rental industry is very low in comparison to its penetration of the
construction market, we believe there is significant potential for additional
growth in these markets.
Industry Fragmentation
The equipment rental industry is highly fragmented. It consists of a small
number of multi-location regional or national operators and a large number of
relatively small, independent businesses that serve discrete local markets.
This fragmentation is reflected in the following data:
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. in 1997, there were only 10 equipment rental companies that had
equipment rental revenues in excess of $100 million and approximately
100 equipment rental companies that had equipment rental revenues
between $5 million and $100 million (based upon rental revenues for
1997 as reported by the Rental Equipment Register, an industry trade
publication);
. we estimate that there are more than 20,000 companies with annual
equipment rental revenues of less than $5 million; and
. we estimate that the 100 largest equipment rental companies combined
have less than a 30% share of the market.
We believe that the fragmented nature of the industry presents substantial
consolidation and growth opportunities for companies with access to capital and
the ability to implement a disciplined acquisition program. We also believe
that our management team's extensive experience in acquiring and effectively
integrating acquisition targets should enable us to capitalize on these
opportunities.
Acquisitions
We have completed 95 acquisitions to date, including a merger with U.S.
Rentals that was completed in September 1998. At the time of the merger, U.S.
Rentals was the second largest equipment rental company in the United States
based on 1997 rental revenues.
We believe that there will continue to be a large number of attractive
acquisition opportunities in the equipment rental industry due to the highly
fragmented nature of the industry, the capital constraints facing many small
and mid-sized equipment rental companies looking to expand and modernize, and
the desire of many long-time owners for liquidity. We have an experienced
acquisition team of 25 professionals dedicated to identifying and evaluating
acquisition candidates and executing our acquisition program. The team includes
seasoned acquisition professionals with extensive acquisition, operating and
financial experience. The team also includes former owners of businesses that
we acquired, who have extensive equipment rental industry experience and
contacts with potential acquisition candidates.
Start-up Locations
Because most of the businesses that we acquired grew through developing
start-up rental locations, many of our managers have substantial experience in
this area. We intend to leverage this experience by selectively opening new
rental locations in attractive markets where there are no suitable acquisition
targets available or where the economics of a start-up location are more
favorable than buying an existing business.
Products and Services
We offer for rent a wide variety of equipment to customers that include
construction industry participants, industrial companies, homeowners and
others. We also sell used equipment, act as a dealer for many types of new
equipment, and sell related merchandise and parts. In addition, our Wynne
Systems subsidiary develops and markets software for use by equipment rental
companies in managing and operating multiple branch locations.
Equipment Rental
We offer for rent a broad range of light to heavy construction and
industrial equipment and general tools and equipment. Customers may rent
equipment by the hour, day, week or month. The following are examples of the
types of equipment that we offer for rent:
39
<PAGE>
Construction and Industrial: aerial lifts (such as boom and scissor
lifts), air compressors, backhoes, ditching equipment, earth moving
equipment, forklifts, generators, pumps and skid-steer loaders.
General Tools and Equipment: garden and landscaping equipment, hand
tools, high-pressure washers, paint sprayers, power tools and roto-
tillers.
We believe that our rental fleet is one of the newest, most comprehensive
and well maintained in the industry. As of January 25, 1999, our rental fleet
had an original purchase price of approximately $2.2 billion and a weighted
average age (based on original purchase price) of approximately 26 months. We
estimate that (based on original purchase price) construction and industrial
equipment represents approximately 95% of our rental equipment and that general
tools and equipment represents approximately 5%. We also estimate that each of
the following categories represents more than 12% of our rental equipment: (i)
aerial lift equipment (represents approximately 23%), (ii) earth moving
equipment (represents approximately 18%) and (iii) forklifts (represents
approximately 13%). We vary our equipment mix from branch to branch in response
to local market conditions and customer requirements. Most of our branches
offer a general mix of equipment, while some specialize in specific equipment
categories such as aerial lift equipment.
We seek to maintain the quality of our fleet by regularly investing in new
equipment and selling used equipment. We also devote substantial efforts to
preventive maintenance and believe that we have one of the most advanced
preventive maintenance programs in the equipment rental industry. This program
increases the reliability, extends the life, and enhances the resale value of
our equipment.
Used Equipment Sales
We routinely sell used rental equipment and are generally able to achieve
favorable prices due to our preventive maintenance program, our national sales
force that can access many resale markets across North America, and our
practice of selling used equipment before the equipment becomes obsolete. In
addition, the incentives created by our profit sharing program motivate our
branch managers to carefully consider the best time for selling equipment in
view of maintenance costs, rental demand patterns and resale prices.
We principally sell used equipment through our sales force and our Internet
web site which includes an online database of most of our used equipment
available for sale. We also sell our used equipment to used equipment dealers
and through public auctions. In addition, we sometimes trade in used equipment
to our vendors when we buy new equipment.
New Equipment Sales
We are a dealer for many leading tool and equipment manufacturers. These
include Genie Industries, Inc., Grove Worldwide, JLG Industries, Inc., and
Snorkel (aerial lifts); Deere & Co., Inc. (scrapers, backhoes, excavators,
loaders); Ingersoll-Rand Co., Inc. (air compressors, tools, pumps); Case
Corporation (loaders, backhoes, skid-steer loaders); Kubota (earthmoving
equipment); Trak International (loaders and forklifts); Multiquip, Inc.
(compaction equipment and compressors); Stihl, Inc. (chain saws and power cut-
off saws); Edco Manufacturing (surfacing equipment); and Wacker (compaction
equipment). Typically, dealership agreements do not have a specific term and
may be terminated at any time. The types of new equipment that we sell varies
by branch.
Related Merchandise, Parts and Other Services
At most of our locations, we sell equipment parts and a variety of supplies
and merchandise that may be used with our rental equipment, such as saw blades,
fasteners, drill bits, hard hats, gloves and other safety equipment. At certain
of our branches, we also offer maintenance services for equipment that is owned
by our customers.
40
<PAGE>
Operations of Our Wynne Systems Subsidiary
Our Wynne Systems subsidiary develops and markets software for use by
equipment rental companies in managing and operating multiple branch locations.
Eight of the ten largest equipment rental companies, including United Rentals,
use software developed by Wynne Systems.
Customers
We estimate that on a pro forma basis we rented equipment to approximately
633,000 customers in 1997 and 922,000 customers in the first nine months of
1998. Our customer base is highly diversified and ranges from Fortune 100
companies to small contractors and homeowners. We estimate that (1) no single
customer accounted for more than 0.5% of our revenues during 1997 or the first
nine months of 1998 and (2) our top 10 customers accounted for approximately 1%
of our revenues in 1997 and 4% in the first nine months of 1998.
Our customer base varies widely by branch and is determined by several
factors, including the equipment mix and marketing focus of the particular
branch and the business composition of the local economy. We classify our
customer base into the following general categories:
. construction industry participants--such as construction companies,
contractors and subcontractors--that require equipment for commercial
and residential construction projects;
. industrial companies--such as manufacturers, chemical companies, paper
mills and utilities--that require equipment for plant maintenance,
upgrades, expansion and construction; and
. homeowners and other individuals.
We estimate that on a pro forma basis (1) construction industry
participants and industrial companies combined accounted for 90% of our
revenues in 1997 and the first nine months of 1998 and (2) homeowners and
others accounted for 10% of such revenues.
Sales and Marketing
We are establishing a distinct corporate identity throughout North America.
In promoting our corporate identity, we emphasize the benefits that United
Rentals seeks to offer its customers, including:
. a comprehensive selection of equipment that is available when required
by the customer;
. on-time equipment delivery and pick-up;
. equipment that is well-maintained and reliable;
. rapid repair or replacement of equipment when required;
. instructions and training for equipment usage and safety; and
. experienced and knowledgeable sales personnel available to assist
customers.
We market our products and services through multiple channels as described
below.
Sales Force. We market our products and services though our own sales force
which, as of January 25, 1999, consisted of approximately 863 store-based
customer service representatives and 721 field-based salespeople. Our field-
based sales force calls on contractors' offices and job sites and industrial
facilities and assists our customers in planning for their equipment needs. We
provide our sales force with extensive training. Supplier representatives also
frequently visit our facilities and train our personnel on the operating
features and maintenance requirements of new equipment.
41
<PAGE>
We have established a national accounts program. Under this program, a
portion of our sales force is assigned to calling on the corporate headquarters
of our large customers, particularly those with a national or multi-regional
presence. The goal of this program is to expand existing business relationships
with these customers to include additional facilities and construction sites.
The efforts of our national accounts sales force supplement the efforts of our
branch-based sales personnel, who deal directly with the management of the
local facilities of these customers.
Internet Site. We have an Internet web site that describes our locations,
products and services, and used equipment available for sale. The site allows
visitors to search for a particular type of used equipment and obtain detailed
information about each item of used equipment available for sale.
Advertising. We promote our business through advertising in various media,
including trade publications, yellow pages, billboards and direct mail. We also
regularly participate in industry trade shows and conferences.
Branch Management
We currently operate 422 branch locations. Each branch has a full-time
branch manager who is responsible for the day-to-day operations of the branch.
In addition, each branch is staffed with additional personnel which, depending
on the specific needs of the location, may include an assistant manager, sales
personnel, back office clerks, truck drivers, and mechanics. We believe that
our branch managers, who average over 20 years of experience in the equipment
rental industry, are among the most knowledgeable and experienced in the
industry.
We encourage entrepreneurship at the branch level by giving branch managers
a high degree of autonomy with respect to day-to-day operations. For example,
each branch manager is empowered to make decisions--within budgetary
guidelines--concerning staffing, pricing and equipment purchases. We also
promote entrepreneurship at the branch level, as well as equipment sharing
among our branches, through a profit sharing program that directly ties the
compensation of branch personnel to their branch's financial performance and
equipment utilization rates.
We balance the autonomy that we grant to our branch managers with extensive
systems and procedures through which senior management closely tracks branch
performance. In addition, we share information across branches so that each
branch can measure its operating performance relative to other branches and
benefit from the best practices developed throughout our organization.
Important elements of the systems and procedures that we use to manage our
branches include:
. our eight regional vice presidents and 36 district managers supervise
our branch managers--with each branch manager reporting to a district
manager and each district manager reporting to a regional vice
president;
. all levels of management can obtain a wide range of branch-level
operating data on a real-time basis through our management information
system;
. on a monthly basis (1) each branch manager meets with his or her
district manager and thoroughly reviews the operation of his or her
branch and (2) a detailed operating report for each branch is provided
to senior management;
. each district manager generally meets with a member of senior
management on a quarterly basis to review in detail the operations of
the branches within his or her district;
. our 12-person internal audit department is engaged full-time in
ensuring that we have adequate financial, operating and information
technology controls throughout our organization; and
42
<PAGE>
. our team of six regional controllers and 17 district controllers
monitor each branch for compliance with financial and accounting
procedures established at corporate headquarters.
We encourage cooperation among our branches. In furtherance of this
objective, we have established procedures and policies to facilitate the
sharing of equipment and other resources among the branches in the same
cluster. In addition, we have guidelines that are intended to eliminate
competition among branches for the same customers.
Purchasing
We have significant purchasing power because of our volume purchases. As a
result, we can generally buy new equipment and related merchandise and parts at
prices that are significantly lower than prices paid by smaller companies. We
can also buy many other products and services--such as insurance, telephone and
fuel--at attractive rates. We believe that our purchasing power will continue
to increase as we expand and further consolidate purchasing.
We estimate that on a pro forma basis our largest supplier accounted for
approximately 15% of our equipment purchases in the first nine months of 1998,
and that our top 10 largest suppliers accounted for approximately 60% our
equipment purchases during that period. We believe that we have sufficient
alternative sources of supply for the equipment that we purchase in each of our
principal product categories.
Management Information System
We have a modern management information system designed to facilitate rapid
and informed decision-making and enable us to respond quickly to changing
market conditions. Each branch at which the system is operational is equipped
with a workstation that is electronically linked to each of our other locations
and to our centralized databases. All rental transactions are entered at these
workstations and processed on a real-time basis through a centralized AS400
system located at corporate headquarters. Personnel at each location are able
to access the system 24 hours a day in order to determine equipment
availability, monitor business activity on a real-time basis, and obtain a wide
range of operating and financial data. The data available through the system
includes: (1) inventory reports, (2) accounts receivable information, (3)
customer and vendor information, (4) price and sales trends by store, region,
salesperson, equipment category or customer, (5) fleet utilization by
individual asset or asset class and (6) financial results by store or region.
The system also enables branch personnel to search for needed equipment
throughout a geographic region, determine the closest location of such
equipment and arrange for delivery to a customer's work site.
Our management information system is supported by our in-house group of 24
management information specialists. This group operates a support desk to
assist branch personnel in the day-to-day use of the system; trains our branch
personnel, either at the branch or at one of our four training centers;
provides hardware and technology support; and extends the system to newly
acquired locations, a process which generally takes three to five weeks (but
may take longer in the case of very large acquisitions).
Our management information system is currently operational at all of our
locations, except for certain locations that were acquired in our merger with
U.S. Rentals and other recent acquisitions. We expect to complete the process
of extending the system to most of these locations by the end of February.
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<PAGE>
Risk and Safety Management
We place great emphasis on risk reduction and safety and believe that we
have one of the most comprehensive risk management and safety programs in the
industry. We have a separate department, which includes 25 experienced
professionals, that is responsible for: (1) developing and implementing safety
programs and procedures, (2) developing our employer and customer training
programs and (3) investigating and managing any claims that may be asserted
against us.
We are among the few equipment rental companies that have on staff
personnel who are certified by the National Safety Council (a government
sponsored agency) to provide training in the use of equipment. In 1997, our
equipment training program received the National Safety Council Chairman's
Award--granted for effectively promoting safety within a business organization.
Competition
The equipment rental industry is highly fragmented and competitive. Our
competitors primarily include: small, independent businesses with one or two
rental locations; regional competitors which operate in one or more states;
public companies or divisions of public companies; and equipment vendors and
dealers who both sell and rent equipment directly to customers. We believe
that, in general, large companies enjoy significant competitive advantages
compared to smaller operators, including greater purchasing power, a lower cost
of capital, the ability to provide customers with a broader range of equipment
and services and with newer and better maintained equipment, and greater
flexibility to transfer equipment among locations in response to customer
demand.
Locations and Properties
We currently operate 422 branch locations. Of these locations, 366 are in
the United States, 55 are in Canada and one is in Mexico. The number of
locations in each state or province is shown below:
United States: Alabama (11), Arizona (4), Arkansas (3), California
(82), Colorado (9), Connecticut (6), Delaware (5), Florida (18),
Georgia (3), Idaho (2), Indiana (6), Illinois (6), Kansas (2), Kentucky
(8), Louisiana (3), Maryland (18), Michigan (5), Minnesota (5),
Missouri (2), Nebraska (1), Nevada (11), New Jersey (7), New Mexico
(2), New York (9), North Carolina (17), Ohio (3), Oklahoma (2), Oregon
(24), Pennsylvania (6), Rhode Island (3), South Carolina (8), Tennessee
(3), Texas (32), Utah (7), Virginia (13), Washington (19), Wisconsin
(1)
Canada: Alberta (2), British Columbia (13), Ontario (30), Quebec (10)
Mexico: Nuevo Leon (1)
Our branch locations generally include facilities for displaying equipment
and, depending on the location, may include separate equipment service areas
and storage areas.
We own 76 of our rental locations and lease the other locations. Our leases
provide for varying terms and include 25 leases that are on a month-to-month
basis and 29 leases that provide for a remaining term of less than one year and
do not provide a renewal option. We are currently negotiating renewals for most
of the leases that provide for a remaining term of less than one year. Certain
of our leases were entered into (or assumed) in connection with acquisitions
and most of the lessors under these leases are former owners of businesses that
we acquired.
We maintain a fleet of vehicles that is used for delivery, maintenance and
sales functions. We own a portion of this fleet and lease a portion. As of
January 25, 1999, this fleet included approximately 9,700 vehicles.
44
<PAGE>
Our corporate headquarters are located in Greenwich, Connecticut, where we
occupy approximately 27,000 square feet under (1) a lease for approximately
15,000 square feet that extends until 2001 (subject to extension rights) and
(2) a lease for approximately 12,000 square feet that extends until 2003.
Environmental and Safety Regulations
There are numerous federal, state and local laws and regulations governing
environmental protection and occupational health and safety. These include laws
and regulations that govern 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. Under these laws, an owner or lessee of real estate may be liable
for, among other things, (1) the costs of removal or remediation of hazardous
or toxic substances located on, in, or emanating from, the real estate, as well
as related costs of investigation and property damage and substantial
penalties, and (2) environmental contamination at facilities where its waste is
or has been disposed. These laws often impose liability whether or not the
owner or lessee knew of the presence of the hazardous or toxic substances and
whether or not the owner or lessee was responsible for these substances. Our
activities that are or may be affected by these laws include our use of
hazardous materials to clean and maintain equipment and our disposal of solid
and hazardous waste and wastewater from equipment washing. We also dispense
petroleum products from underground and above-ground storage tanks located at
certain rental locations, and at times we must remove or upgrade tanks to
comply with applicable laws. Furthermore, we have acquired or lease certain
locations which have or may have been contaminated by leakage from underground
tanks or other sources and are in the process of assessing the nature of the
required remediation. Based on the conditions currently known to us, we believe
that any unreserved environmental remediation and compliance costs required
with respect to those conditions will not have a material adverse effect on our
business. However, we cannot be certain that we will not identify adverse
environmental conditions that are not currently known to us, that all potential
releases from underground storage tanks removed in the past have been
identified, or that environmental and safety requirements will not become more
stringent or be interpreted and applied more stringently in the future. If we
are required to incur environmental compliance or remediation costs that are
not currently anticipated by us, our business could be adversely affected
depending on the magnitude of the cost.
Employees
We have 8,084 employees (based on information as of January 25, 1999).
These include 271 corporate and regional management employees, 6,229
operational employees and 1,584 sales people. Of these employees, 2,070 are
salaried personnel and 6,014 are hourly personnel. Collective bargaining
agreements relating to 23 separate locations cover approximately 310 of our
employees. We consider our labor relations to be good.
Legal Proceedings
We and our subsidiaries are parties to various litigation matters, in most
cases involving ordinary and routine claims incidental to our business. We
cannot estimate with certainty our ultimate legal and financial liability with
respect to such pending litigations. However, we believe, based on our
examination of such matters, that our ultimate liability will not have a
material adverse effect on our business.
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<PAGE>
MANAGEMENT
Background
The Company was founded in September 1997 by a group that included the
following executive officers of the Company: Bradley Jacobs, John Milne,
Michael Nolan and Robert Miner. Each of these officers was formerly a senior
executive of United Waste Systems, Inc. ("United Waste"). United Waste, a solid
waste management company, was formed in 1989 and sold in August 1997 to USA
Waste Services, Inc. for stock consideration valued at over $2.2 billion. At
the time it was sold, United Waste was the sixth largest provider of
integrated, non-hazardous solid waste management services in the United States,
as measured by 1996 revenues.
Executive Officers and Directors
The table below identifies, and provides certain information concerning,
the executive officers and directors of the Company.
<TABLE>
<CAPTION>
Name Age Positions(1)
---- --- ------------
<S> <C> <C>
Bradley S. Jacobs....... 42 Chairman, Chief Executive Officer and Director
Wayland R. Hicks........ 56 Vice Chairman, Chief Operating Officer and Director
John N. Milne........... 39 Vice Chairman, Chief Acquisition Officer,
Secretary and Director
William F. Berry........ 46 President and Director
Michael J. Nolan........ 38 Chief Financial Officer
Robert P. Miner......... 49 Vice President, Strategic Planning
John S. McKinney........ 44 Vice President, Finance and Director
Leon D. Black........... 47 Director(2)
Richard D. Colburn...... 87 Director
Ronald M. DeFeo......... 46 Director
Michael S. Gross........ 37 Director(2)
Richard J. Heckmann..... 55 Director
Gerald Tsai, Jr. ....... 69 Director
Christian M. Weyer...... 74 Director
</TABLE>
- --------
(1) For information concerning the term served by directors, see "--Right of
Holders of Preferred Stock to Elect Directors" and "--Classification of
Board of Directors."
(2) Messrs. Black and Gross were elected directors by the holders of the
Company's Series A Perpetual Convertible Preferred Stock. See "--Right of
Holders of Preferred Stock to Elect Directors."
Bradley S. Jacobs has been Chairman, Chief Executive Officer and a director
of the Company since its formation in September 1997. Mr. Jacobs founded United
Waste Systems, Inc. and served as its Chairman and Chief Executive Officer from
its inception until the sale of the company in August 1997. From 1984 to July
1989, Mr. Jacobs was Chairman and Chief Operating Officer of Hamilton Resources
Ltd., an international trading company, and from 1979 to 1983, he was Chief
Executive Officer of Amerex Oil Associates, Inc., an oil brokerage firm that he
co-founded.
Wayland R. Hicks has been Chief Operating Officer of the Company since
November 1997 and a director since June 1998. He also served as President of
the Company during the period from November 1997 until September 1998, when he
became Vice Chairman. Mr. Hicks previously held various senior executive
positions at Xerox Corporation where he worked for 28 years (1966-1994). His
positions at Xerox Corporation included Executive Vice President, Corporate
Operations (1993-1994), Executive Vice President, Corporate Marketing and
Customer Support Operations (1989-1993) and Executive Vice President,
Engineering and Manufacturing--Xerox Business Products and Systems Group (1987-
1989). Mr. Hicks also served as Vice Chairman and Chief Executive Officer of
Nextel Communications Corp. (1994-1995) and as Chief Executive Officer and
President of Indigo N.V. (1996-1997). He is also a director of Maytag
Corporation.
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<PAGE>
John N. Milne has been Vice Chairman, Chief Acquisition Officer and a
director of the Company since its formation in September 1997. Mr. Milne was
Vice Chairman and Chief Acquisition Officer of United Waste Systems, Inc. from
1993 until August 1997 and held other senior executive positions at United
Waste from 1990 until 1993. Mr. Milne had primary responsibility for
implementing United Waste's acquisition program. From September 1987 to March
1990, Mr. Milne was employed in the Corporate Finance Department of Drexel
Burnham Lambert Incorporated.
William F. Berry joined the Company as President and a director in
September 1998 following the merger of the Company with U.S. Rentals. Mr. Berry
served as President and Chief Executive Officer of U.S. Rentals from 1987 until
the merger and held numerous other operational and managerial positions at U.S.
Rentals and a predecessor during the more than 30 years that he was employed
there (1966-1998).
Michael J. Nolan has been Chief Financial Officer of the Company since its
formation in September 1997. Mr. Nolan served as the Chief Financial Officer of
United Waste Systems, Inc. from February 1994 until August 1997. He served in
other finance positions at United Waste from November 1991 until February 1994,
including Vice President, Finance, from October 1992 to February 1994. From
1985 until November 1991, Mr. Nolan held various positions at the accounting
firm of Ernst & Young, including senior audit manager. Mr. Nolan is a Certified
Public Accountant.
Robert P. Miner has been an executive officer of the Company since its
formation in September 1997. He currently serves as Vice President, Strategic
Planning (a position he was appointed to in July 1998) and also heads our Risk
Management and Safety Department. He previously served as Vice President,
Finance. Mr. Miner was an executive officer of United Waste Systems, Inc. from
November 1994 until August 1997, serving first as Vice President, Finance and
then Vice President, Acquisitions. Prior to joining United Waste, he was a
research analyst with PaineWebber Incorporated (November 1988 to October 1994)
and Needham & Co. (January 1987 to October 1988) and held various executive
positions at General Electric Environmental Services, Inc., Stauffer Chemical
Company, and OHM Corporation.
John S. McKinney joined the Company as Vice President, Finance and a
director in September 1998 following the merger of the Company with U.S.
Rentals. Mr. McKinney served as Chief Financial Officer of U.S. Rentals from
1990 until the merger and as Controller of U.S. Rentals from 1988 until 1990.
Prior to joining U.S. Rentals, Mr. McKinney's experience included holding
various positions at Iomega Corporation, including Assistant Controller, and at
the accounting firm of Arthur Andersen & Co.
Leon D. Black became a director of the Company in January 1999. Mr. Black
is one of the founding principals of (i) Apollo Advisors, L.P. (which was
established in August 1990 and which, together with its affiliates, acts as the
managing general partner of several private securities investment funds); (ii)
Apollo Real Estate Advisors, L.P. (which, together with its affiliates, acts as
the managing general partner of several real estate investment funds); and
(iii) Lion Advisors, L.P. (a financial advisor to, and representative of
institutional investors with respect to, securities investments). Mr. Black is
also a director of Converse, Inc., Samsonite Corporation, Sequa Industries,
Inc., Telemundo Group Inc. and Vail Resorts, Inc. He also serves as a trustee
of The Museum of Modern Art, Mount Sinai--NYU Medical Center, Lincoln Center
for the Performing Arts, and Vail Valley Foundation.
Richard D. Colburn became a director of the Company in September 1998
following the merger of the Company with U.S. Rentals. Mr. Colburn was Chairman
of U.S. Rentals for 22 years. Mr. Colburn is a private investor.
Ronald M. DeFeo has been a director of the Company since October 1997. Mr.
DeFeo is the Chairman, Chief Executive Officer, President and a director of
Terex Corporation, a leading global provider of equipment for the
manufacturing, mining and construction industries. Mr. DeFeo joined
47
<PAGE>
Terex in 1992 as President of the Terex heavy equipment group and was appointed
President and Chief Operating Officer in 1993 and Chief Executive Officer in
1995. From 1984 to 1992, Mr. DeFeo held various management positions at
Tenneco, Inc., including Senior Vice President and Managing Director of East
Europe.
Michael S. Gross became a director of the Company in January 1999. Mr.
Gross is one of the founding principals of Apollo Advisors, L.P. (which was
established in August 1990 and which, together with its affiliates, acts as the
managing general partner of several private securities investment funds) and of
Lion Advisors, L.P. (a financial advisor to, and representative of
institutional investors with respect to, securities investments). Mr. Gross is
also a director of Alliance Imaging, Inc., Allied Waste Industries, Inc.,
Breuners Home Furnishings, Inc., Converse, Inc., Florsheim Group, Inc., and
Saks Incorporated.
Richard J. Heckmann has been a director of the Company since October 1997.
Mr. Heckmann has served since 1990 as Chairman, President and Chief Executive
Officer of United States Filter Corporation, a leading global provider of
industrial and commercial water and wastewater treatment systems and services.
Mr. Heckmann is also a director of Waste Management, Inc. and K2 Inc.
Gerald Tsai, Jr. has been a director of the Company since December 1997.
Mr. Tsai served as Chairman, Chief Executive Officer and President of Delta
Life Corporation, an insurance company, from 1993 until the sale of the company
in October 1997. Mr. Tsai was Chairman of the Executive Committee of the Board
of Directors of Primerica Corporation, a diversified financial services
company, from December 1988 until April 1991, and served as Chief Executive
Officer of Primerica Corporation from April 1986 until December 1988. Mr. Tsai
is currently a private investor and serves as a director of The Meditrust
Companies, Saks Incorporated, Rite Aid Corporation, Sequa Corporation, Triarc
Companies, Inc. and Zenith National Insurance Corp. He also serves as a trustee
of Boston University, Mount Sinai--NYU Medical Center and Health System and NYU
School of Medicine Foundation Board.
Christian M. Weyer became a director of the Company in December 1998. Mr.
Weyer has been in the international banking business for 31 years and has
served as President of Enerfin S.A., an international trade and financial
advisory firm, since 1985. From May 1988 to December 1992, Mr. Weyer was a
member of senior management at Banque Indosuez in Geneva, Switzerland, with
responsibility for matters relating to commercial banking, and from 1971 to
1985, held various senior management positions at Banque Paribas and its
affiliates (including President of Banque Paribas (Suisse) in Geneva during
1984). Prior to 1971, Mr. Weyer held senior management positions with Chase
Manhattan Bank in Paris and in Geneva.
Capital Contributions by Executive Officers and Directors
The executive officers and directors of the Company listed below have made
capital contributions to the Company in the aggregate amount of $45.3 million
(excluding amounts paid by certain officers and directors in respect of shares
of Common Stock purchased by them in the Company's initial public offering in
December 1997). Such capital contributions were made in connection with the
sale to such officers and directors in private placements in 1997 of an
aggregate of 12,717,714 shares of Common Stock and 6,142,858 warrants
("Warrants"). Each such Warrant entitles the holder to purchase one share of
Common Stock at an exercise price of $10.00 per share at any time prior to
September 12, 2007. Such shares and Warrants were sold at a price of $3.50 per
unit consisting of one share of Common Stock and one-half of a Warrant (except
that Messrs. Tsai and Weyer purchased only Common Stock at a price of $3.50 per
share and Messrs. Hicks and Heckmann purchased only Common Stock at a price of
$10.00 per share). The table below indicates (i) the number of shares of Common
Stock and the number of Warrants purchased by such officers
48
<PAGE>
and directors (excluding shares purchased in the Company's initial public
offering) and (ii) the aggregate amount paid by such officers and directors for
such securities:
<TABLE>
<CAPTION>
Securities Purchased(1)
-------------------------
Common
Name Stock Warrants Purchase Price
---- ------------ --------------------------
<S> <C> <C> <C>
Bradley S. Jacobs.................. 10,000,000 5,000,000 $35,000,000
Wayland R. Hicks................... 100,000 -- 1,000,000
John N. Milne...................... 1,428,571 714,286 5,000,000
Michael J. Nolan................... 571,429 285,715 2,000,000
Robert P. Miner.................... 285,714 142,857 1,000,000
Richard J. Heckmann................ 20,000 -- 200,000
Gerald Tsai, Jr. .................. 240,000 -- 840,000
Christian M. Weyer................. 72,000 -- 252,000
</TABLE>
- --------
(1) In certain cases includes securities owned by one or more entities
controlled by the named holder.
Right of Holders of Preferred Stock to Elect Directors
In January 1999, the Company sold 300,000 shares of its Series A Perpetual
Convertible Preferred Stock ("Series A Preferred") to Apollo Investment Fund
IV, L.P. and Apollo Overseas Partners IV, L.P. (collectively "Apollo").
The holders of the Series A Preferred, voting separately as a single class,
have the right to elect:
. two directors, if (as of the record date for such vote) the aggregate
number of shares of Common Stock that are issuable upon conversion of
Series A Preferred then held by Apollo, Apollo Management IV, L.P., or
their affiliates (plus any shares of Common Stock then held by such
entities that were issued upon conversion of the Series A Preferred) is
at least eight million; or
. one director, if (as of the record date for such vote) the aggregate
number of shares of Common Stock that are issuable upon conversion of
Series A Preferred then held by Apollo, Apollo Management IV, L.P., or
their affiliates (plus any shares of Common Stock then held by such
entities that were issued upon conversion of the Series A Preferred) is
at least four million but less than eight million.
Any director that is elected by the holders of the Series A Preferred,
voting separately as a single class, holds office until the next annual meeting
of stockholders and the election and qualification of a successor (or the
earlier resignation or removal of such director). Leon D. Black and Michael S.
Gross were elected as directors by the holders of the Series A Preferred.
Messrs. Black and Gross are affiliated with Apollo. See "--Executive Officers
and Directors."
If the holders of the Series A Preferred do not have the right, voting
separately as a single class, to elect any directors pursuant to the provisions
described above, then the holders of the Series A Preferred have the right to
vote for the election of directors together with the holders of the Common
Stock, as a single class, with each share of Series A Preferred entitled to one
vote for each share of Common Stock issuable upon conversion of such share of
Series A Preferred.
Classification of Directors
The directors of the Company (excluding any elected by the holders of the
Series A Preferred) are divided into three classes. The term of office of the
first class (currently comprised of Messrs. Hicks, McKinney and Tsai) will
expire at the first annual meeting of stockholders following January 1, 1999,
the term of office of the second class (currently comprised of Messrs. Berry,
DeFeo and Heckmann) will
49
<PAGE>
expire at the second annual meeting of stockholders following January 1, 1999,
and the term of office of the third class (currently comprised of Messrs.
Colburn, Jacobs, Milne and Weyer) will expire at the third annual meeting of
stockholders following January 1, 1999. At each annual meeting of stockholders,
successors to directors of the class whose term expires at such meeting will be
elected to serve for three-year terms and until their successors are elected
and qualified.
Committees of the Board
The Board of Directors has three standing committees: the Audit Committee,
the Compensation/Stock Option Committee, and the Special Stock Option
Committee.
The responsibilities of the Audit Committee include selecting the firm of
independent accountants to be appointed to audit the Company's financial
statements and reviewing the scope and results of the audit with the
independent accountants. The members of this committee are Messrs. DeFeo,
Heckmann and Tsai.
The responsibilities of the Compensation/Stock Option Committee include
making recommendations with respect to the compensation to be paid to officers
and directors, administering any stock option plan in which officers or
directors are eligible to participate and approving the grant of options
pursuant to any such plan. The members of this committee are Messrs. DeFeo,
Heckmann and Tsai.
The responsibilities of the Special Stock Option Committee include
administering any stock option plan in which officers and directors are not
eligible to participate and approving the grant of options pursuant to any such
plan to persons who are not officers or directors. The members of this
committee are Messrs. Jacobs and Milne.
Employment Agreements
The Company has entered into employment agreements with each of the
executive officers of the Company. Certain information with regard to these
agreements is set forth below.
Base Salary. The agreements provide for base salary to be paid at a rate
per annum as follows: Mr. Jacobs ($290,000), Mr. Hicks ($400,000), Mr. Milne
($190,000), Mr. Berry ($225,000), Mr. Nolan ($175,000), Mr. McKinney ($175,000)
and Mr. Miner ($150,000). The base salary payable to Mr. Hicks is payable 50%
in cash and 50% in Common Stock (valued at the average closing sales price of
the Common Stock during all trading days in the calendar quarter preceding the
quarter in which the payment is made). Shares of Common Stock issued to Mr.
Hicks are subject to certain restrictions on transfer as described under
"Principal Stockholders--Certain Agreements Relating to Securities Held by
Officers." The base salary payable to Messrs. Jacobs, Milne, Berry and McKinney
is subject to possible upward annual adjustments based upon changes in a
designated cost of living index.
Bonus. The agreements do not provide for mandatory bonuses. However, the
agreements provide that in addition to the compensation specifically provided
for, the Company may pay such salary increases, bonuses or incentive
compensation as may be authorized by the Board of Directors.
Other Compensation and Benefits. The agreements with Messrs. Jacobs and
Milne provide for each such executive to receive an automobile allowance of at
least $700 per month. The agreements with Messrs. Berry and McKinney provide
that the employee is entitled to participate in an automobile allowance program
which is made available to other senior executives of the Company.
The agreements with Messrs. Hicks and Berry provide for the Company to
reimburse the employee for certain relocation expenses up to a maximum of
$100,000.
Certain of the agreements provide that the employee is entitled to
participate in certain specified insurance, retirement, compensation and
benefit plans if such plans are made available to other specified executives of
the Company.
50
<PAGE>
Term. The employment agreements with the following executives provide that
the term shall automatically renew so that at all times the balance of the
terms will not be less than the period hereinafter specified with respect to
such executive: Mr. Jacobs (five years), Mr. Milne (five years), Mr. Nolan
(three years) and Mr. Miner (three years). The employment agreement with Mr.
Hicks provides for a term extending until November 2000. The employment
agreements with Messrs. Berry and McKinney provide for a term of three years
commencing on September 29, 1998, subject to automatic renewal so that at all
times the balance of the term will not be less than two years.
Termination and Severance. Under each of the agreements, the Company or the
employee may at any time terminate the agreement, with or without cause,
provided that if the Company terminates the agreement, the Company is required
to make severance payments to the extent described below.
The employment agreements with Messrs. Jacobs and Milne provide that the
executive is entitled to severance benefits in the event that (i) his
employment agreement is terminated by the Company without Cause (as defined in
the employment agreement), (ii) the executive terminates his employment
agreement for Good Reason (as defined in the employment agreement) or because
of a breach by the Company of its obligations thereunder, (iii) his employment
is terminated as a result of death or (iv) the Company or the executive
terminates the employment agreement due to the disability of the executive. The
severance benefits include (i) a lump sum payment equal to five times the sum
of the executive's annual base salary at the time of termination plus the
highest annual bonus paid to the executive in the preceding three years and
(ii) the continuation of the executive's benefits for such specified period.
The employment agreements with Messrs. Jacobs and Milne also provide that if
any portion of the required severance payment to the executive constitutes an
"excess parachute payment" (as defined in Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code")), the executive is entitled to receive a
payment sufficient on an after-tax basis to offset any excise tax payable by
the executive pursuant to Section 4999 of the Code. Any payment constituting an
"excess parachute payment" would not be deductible by the Company.
The employment agreement with Mr. Hicks provides that the executive is
entitled to a severance payment in the amount of $1 million in the event that
his employment agreement is terminated by the Company without Cause (as defined
in the employment agreement) or he terminates his employment for Good Reason
(as defined in the employment agreement).
The employment agreements with Messrs. Berry and McKinney provide that if
the employment agreement is terminated by the Company without Cause (as defined
in the employment agreement), the executive is entitled to continue receiving
from the Company his then current monthly base salary and benefits over the
balance of the term.
The employment agreements with the other officers provide that the
executive is entitled to severance benefits of up to three months' base salary
in the event that the executive's employment agreement is terminated without
Cause (as defined in the employment agreement).
Options. Each of the agreements provides that all stock options at any time
to be granted to the executive will automatically vest upon a change of control
of the Company (as defined in the agreement).
Pursuant to the employment agreement with Mr. Hicks, Mr. Hicks has been
granted (i) options to purchase an aggregate of 350,000 shares of Common Stock
at a price per share of $10.00, (ii) options to purchase an aggregate of 50,000
shares of Common Stock at a price per share of $15.00, and (iii) options to
purchase an aggregate of 50,000 shares of Common Stock at a price per share of
$20.00. One third of these options vested in November 1998. The balance will
vest one-half in November 1999 and one-half in November 2000.
51
<PAGE>
Pursuant to the employment agreement with Mr. Berry, Mr. Berry has been
granted (i) options to purchase an aggregate of 200,000 shares of Common Stock
at a price per share of $21.375 and (ii) options to purchase an aggregate of
75,000 shares of Common Stock at a price per share of $45. These options will
vest one-third in September 1999, one-third in September 2000 and one-third in
September 2001.
Pursuant to the employment agreement with Mr. McKinney, Mr. McKinney has
been granted (i) options to purchase an aggregate of 100,000 shares of Common
Stock at a price per share of $21.375 and (ii) options to purchase an aggregate
of 37,500 shares of Common Stock at a price per share of $45. These options
will vest one-third in September 1999, one-third in September 2000 and one-
third in September 2001.
Other Provisions. The agreement with Mr. Hicks provides that at each annual
meeting of the stockholders of the Company which occurs during the term of the
agreement and at which Mr. Hicks' term as director would be scheduled to
expire, the Company will nominate Mr. Hicks for re-election as a director.
Compensation Committee Interlocks and Insider Participation
At the time the employment agreements with Messrs. Jacobs and Milne were
approved by the Board of Directors, the sole members of the Board were Messrs.
Jacobs and Milne. No compensation committee interlocks with other companies
have existed.
Stock Option Plans
1997 Stock Option Plan. Holdings' 1997 Stock Option Plan provides for the
granting of options to purchase not more than an aggregate of 5,000,000 shares
of Common Stock. Some or all of such options may be "incentive stock options"
within the meaning of the Code. All officers, directors and employees of the
Company and other persons who perform services on behalf of the Company are
eligible to participate in this plan. Each option granted pursuant to this plan
must provide for an exercise price per share that is at least equal to the fair
market value per share of Common Stock on the date of grant. No options may be
granted under this plan after August 31, 2007. As of January 28, 1999, options
to purchase an aggregate of 4,852,636 shares of Common Stock were outstanding
under this plan. These options have a weighted average exercise price of $22.69
per share.
1998 Stock Option Plan. Holdings' 1998 Stock Option Plan provides for the
granting of options to purchase not more than an aggregate of 4,000,000 shares
of Common Stock. Some or all of the options issued under the 1998 Stock Option
Plan may be "incentive stock options" within the meaning of the Code. All
officers and directors of Holdings and its subsidiaries are eligible to
participate in the 1998 Stock Option Plan. Each option granted pursuant to the
1998 Stock Option Plan must provide for an exercise price per share that is at
least equal to the fair market value per share of Common Stock on the date of
grant. No options may be granted under the 1998 Stock Option Plan after August
20, 2008. As of January 28, 1999, options to purchase an aggregate of 3,980,000
shares had been granted pursuant to this plan to executive officers and
directors. These options have a weighted average exercise price of $13.12 per
share.
Plan for Persons Other Than Officers and Directors. Holdings has adopted a
stock option plan pursuant to which options, for up to an aggregate of
2,750,000 shares of Common Stock, may be granted to employees who are not
officers or directors and to consultants and independent contractors who
perform services for Holdings or its subsidiaries. As of January 28, 1999,
options to purchase an aggregate of 923,100 shares had been granted pursuant to
this plan. These options have a weighted average exercise price of $23.58 per
share.
52
<PAGE>
PRINCIPAL STOCKHOLDERS
General
The table below and the notes thereto set forth as of January 25, 1999,
certain information concerning the beneficial ownership (as defined in Rule
13d-3 under the Securities Exchange Act of 1934) of the Common Stock by (i)
each person known to the Company to be the owner of more than 5% of the Common
Stock, (ii) each director and executive officer of the Company and (iii) all
executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
Percent of Common Stock
Owned(3)
------------------------------
Number of Shares of
Common Stock
Name and Address(1) Beneficially Owned(2)(3) Before Offering After Offering
- ------------------- ------------------------ --------------- --------------
<S> <C> <C> <C>
Apollo Investment Fund
IV, L.P.
Apollo Overseas Partners
IV, L.P.
c/o Apollo Advisors
IV, L.P.
Two Manhattanville
Road
Purchase, New York
10577................ 12,000,000(4) 14.9% 14.5%
Bradley S. Jacobs....... 20,117,006(5) 26.9% 26.1%
Wayland R. Hicks........ 515,571(6) * *
John N. Milne........... 2,392,857(7) 3.5% 3.3%
William F. Berry........ 2,170,466(8) 3.1% 3.0%
Michael J. Nolan........ 1,028,911(9) 1.5% 1.5%
John S. McKinney........ 1,088,182(10) 1.6% 1.5%
Robert P. Miner......... 441,904(11) * *
Leon D. Black........... -- (12) * *
Richard D. Colburn...... 19,833,462(13) 29.0% 20.0%
Ronald M. DeFeo......... 73,000(14) * *
Michael S. Gross........ -- (12) * *
Richard J. Heckmann..... 90,000(15) * *
Gerald Tsai, Jr......... 590,001(16) * *
Christian M. Weyer...... 102,000(17) * *
All executive officers
and directors as a
group
(14 persons)........... 44,309,788(18) 55.3% 46.8%
</TABLE>
- --------
*Less than 1%.
(1) Unless otherwise indicated, the address is c/o the Company.
(2) Unless otherwise indicated, each person has sole investment and voting
power with respect to the shares indicated. For purposes of this table, a
person or group of persons is deemed to have "beneficial ownership" of any
shares as of a given date which such person has the right to acquire
within 60 days after such date. For purposes of computing the percentage
of outstanding shares held by each person or group of persons named above
on a given date, any security which such person or persons has the right
to acquire within 60 days after such date is deemed to be outstanding for
the purpose of computing the percentage ownership of such person or
persons, but is not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person.
(3) In certain cases, includes securities owned by one or more entities
controlled by the named holder.
(4) Consists of shares issuable upon conversion of outstanding shares of the
Company's Series A Preferred. Of the shares indicated, (i) 11,389,040
shares are owned by Apollo Investment Fund IV, L.P. ("AIFIV") and (ii)
610,960 shares are owned by Apollo Overseas Partners IV, L.P. ("Overseas
IV"). Apollo Advisors IV, L.P. ("Advisors IV") is the general partner of
AIFIV and the managing general partner of Overseas IV. Apollo Capital
Management IV, L.P. ("Capital Management IV") is the general partner of
Advisors IV. The directors and principal executive officers of Capital
Management IV are Leon D. Black and John J. Hannan. Messrs. Black and
Hannan are also limited partners of Advisors IV. Messrs. Black, Gross and
Hannan disclaim beneficial ownership of the shares owned by AIFIV and
Overseas IV.
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<PAGE>
(5) Consists of 12,790,814 outstanding shares, 6,342,858 shares issuable upon
the exercise of currently exercisable Warrants and 983,334 shares issuable
upon the exercise of currently exercisable options. Does not include
1,966,667 shares issuable upon exercise of options which are not currently
exercisable. Mr. Jacobs has certain rights relating to the disposition of
the shares and Warrants owned by certain of the other officers of United
Rentals as described under "--Certain Agreements Relating to Securities
Held by Officers." By virtue of such rights, Mr. Jacobs is deemed to share
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
Act) of the shares owned by such other officers of United Rentals. The
shares that the table indicates are owned by Mr. Jacobs include the shares
with respect to which Mr. Jacobs is deemed to share beneficial ownership
as aforesaid. Excluding such shares, Mr. Jacobs is deemed the beneficial
owner of an aggregate of 15,983,434 shares of Common Stock (composed of
10,000,100 outstanding shares, 5,000,000 shares issuable upon the exercise
of outstanding Warrants and 983,334 shares issuable upon the exercise of
currently exercisable options).
(6) Consists of 107,238 outstanding shares and 408,333 shares issuable upon
the exercise of currently exercisable options. Does not include unissued
shares that the Company is required to pay Mr. Hicks as part of his base
salary as described under "Management--Employment Agreements." Also does
not include 816,667 shares issuable upon exercise of options which are not
currently exercisable.
(7) Consists of 1,428,571 outstanding shares, 714,286 shares issuable upon the
exercise of currently exercisable Warrants and 250,000 shares issuable
upon the exercise of currently exercisable options. Does not include
500,000 shares issuable upon exercise of options which are not currently
exercisable.
(8) Consists of 100 outstanding shares and 2,170,366 shares issuable upon the
exercise of currently exercisable options. Does not include 575,000 shares
issuable upon exercise of options that are not currently exercisable.
(9) Consists of 571,529 outstanding shares, 285,715 shares issuable upon the
exercise of currently exercisable Warrants and 171,667 shares issuable
upon the exercise of currently exercisable options. Does not include
343,333 shares issuable upon exercise of options which are not currently
exercisable.
(10) Consists of 3,000 outstanding shares and 1,085,182 shares issuable upon
the exercise of currently exercisable options. Does not include 337,500
shares issuable upon exercise of options that are not currently
exercisable.
(11) Consists of 285,714 outstanding shares and 142,857 shares issuable upon
the exercise of currently exercisable Warrants and 13,333 shares issuable
upon exercise of currently exercisable options. Does include 66,667 shares
issuable upon exercise of options which are not currently exercisable.
(12) Messrs. Black and Gross disclaim beneficial ownership of certain shares as
described in footnote 4.
(13) Consists of 19,823,462 outstanding shares and 10,000 shares issuable upon
the exercise of currently exercisable options. Of such outstanding shares,
6,000,000 shares are owned by the Colburn Foundation (5,710,000 shares of
which are being offered for sale by this prospectus) and the balance are
owned by a corporation wholly owned by Mr. Colburn. Does not include
20,000 shares issuable upon exercise of options that are not currently
exercisable.
(14) Consists of 3,000 outstanding shares and 70,000 shares issuable upon the
exercise of currently exercisable options. Does not include 20,000 shares
issuable upon exercise of options that are not currently exercisable.
(15) Consists of 20,000 outstanding shares and 70,000 shares issuable upon
exercise of currently exercisable options. Does not include 20,000 shares
issuable upon exercise of options that are not currently exercisable.
(16) Consists of 270,001 outstanding shares and 320,000 shares issuable upon
exercise of currently exercisable options. Does not include 20,000 shares
issuable upon exercise of options that are not currently exercisable.
(17) Consists of 72,000 outstanding shares and 30,000 shares issuable upon
exercise of currently exercisable options.
(18) Consists of 32,584,715 outstanding shares, 6,142,858 shares issuable upon
the exercise of currently exercisable Warrants and 5,582,215 shares
issuable upon the exercise of currently exercisable options. Does not
include 4,685,834 shares issuable upon exercise of options which are not
currently exercisable.
54
<PAGE>
Certain Agreements Relating to Securities Held By Officers
Prior to the Company's initial public offering, certain executive officers
and other employees of the Company purchased Common Stock (and in certain cases
Warrants) from the Company in private placements. (For information concerning
the securities purchased by certain executive officers of the Company in such
private placements, see "Management--Capital Contributions by Executive
Officers and Directors.") All shares of Common Stock and Warrants purchased by
the executive officers and other employees of the Company prior to the
Company's initial public offering (and any shares of Common Stock acquired upon
exercise of such Warrants) are referred to as the "Private Placement
Securities."
Each holder of Private Placement Securities (other than Mr. Jacobs and Mr.
Hicks) has entered into an agreement with the Company and Mr. Jacobs that
provides that (1) if Mr. Jacobs sells any Private Placement Securities that he
beneficially owns in a commercial, non-charitable transaction, then Mr. Jacobs
is required to use his best efforts to sell (and has the right to sell subject
to certain exceptions) on behalf of such holder a pro rata portion of such
holder's Private Placement Securities at then prevailing prices, and (2) except
for sales that may be required to be made as aforesaid, the officer shall not
(without the prior written consent of the Company) sell or otherwise dispose of
the Private Placement Securities owned by such officer (subject to certain
exceptions for charitable gifts). The foregoing provisions of the agreements
terminate, depending on the individual, in either September or October 2002.
Each holder of Private Placement Securities (other than Mr. Jacobs and Mr.
Hicks) has also agreed pursuant to such agreements that the Company, in its
sole discretion, may (1) prior to September 1, 2005, repurchase the Private
Placement Securities owned by such officer in the event that such officer
breaches any agreement with the Company or acts adversely to the interest of
the Company and (2) repurchase such Private Placement Securities without any
cause (provided that such repurchase right without cause has lapsed with
respect to one-third of the securities and will lapse with respect to an
additional one-third on each of the second and third anniversaries of the date
of such agreements). The amount to be paid by the Company in the event of a
repurchase will be equal to (1) in the case of Messrs. Milne, Nolan and Miner,
$9.125 per share of Common Stock and $0.625 per Warrant plus an amount
representing a 4% annual return on such amounts from the date on which such
securities were purchased and (2) in the case of any other holder of Private
Placement Securities, the amount originally paid by such holder for such
securities plus an amount representing a 10% annual return on such amount. See
"Management--Capital Contributions by Executive Officers and Directors" for
information concerning the amounts paid by the executive officers of the
Company for the Private Placement Securities owned by them.
Mr. Hicks has agreed that he will not transfer any shares of Common Stock
that are issued to him as compensation pursuant to his employment agreement for
a one-year period following the date of issuance. See "Management--Employment
Agreements."
SELLING STOCKHOLDER
The Colburn Foundation (the "selling stockholder") is selling 5,710,000 of
the shares offered hereby. The Colburn Foundation is a non-profit corporation
organized by Richard D. Colburn who is a non-officer director of United
Rentals. See "Management." The shares that are being offered by the selling
stockholder were originally owned by an affiliate of Richard D. Colburn and
were transferred by such affiliate to the selling stockholder. Mr. Colburn was
formerly Chairman of U.S. Rentals and became a director of the Company
following the U.S. Rentals Merger. The shares that the affiliate of Mr. Colburn
transferred to the selling stockholder were acquired by such affiliate in
connection with the U.S. Rentals Merger. Following completion of the offering,
the selling stockholder will continue to own 290,000 shares of Common Stock and
an affiliate of Mr. Colburn will continue to own 13,823,462 shares (which
shares in the aggregate will represent 20.0% of the Common Stock outstanding
after the offering, assuming the underwriters do not exercise their over-
allotment option).
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
The authorized capital stock of Holdings consists of 500,000,000 shares of
Common Stock, par value $0.01 per share, and 5,000,000 shares of preferred
stock, par value $0.01 per share (the "Preferred Stock").
The following description of Holdings' capital stock is a summary of the
material terms of such stock. The following does not purport to be complete and
is subject in all respects to applicable Delaware law and to the provisions of
Holdings' Certificate of Incorporation and By-laws.
Common Stock
As of February 1, 1999, there were 68,446,806 shares of Common Stock
outstanding. The holders of shares of Common Stock are entitled to one vote per
share held on all matters submitted to a vote at a meeting of stockholders.
Each stockholder may exercise such vote either in person or by proxy.
Stockholders are not entitled to cumulate their votes for the election of
directors, which means that, subject to such rights as may be granted to the
holders of shares of Preferred Stock, the holders of more than 50% of the
outstanding shares of Common Stock are able to elect all of the directors to be
elected by holders of shares of Common Stock and the holders of the remaining
shares of Common Stock will not be able to elect any director. Subject to such
preferences to which holders of shares of Preferred Stock may be entitled, the
holders of outstanding shares of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, the holders of
outstanding shares of Common Stock are entitled to share ratably in all assets
of the Company which are legally available for distribution to stockholders,
subject to the prior rights on liquidation of creditors and to preferences to
which holders of shares of Preferred Stock may be entitled. The holders of
outstanding shares of Common Stock do not have any preemptive, subscription,
redemption or sinking fund rights.
Preferred Stock
General
Holdings is authorized by its Certificate of Incorporation to issue up to
5,000,000 shares of Preferred Stock, in one or more series and containing such
rights, privileges and limitations, including dividend rights, voting rights,
conversion privileges, redemption rights, liquidation rights and/or sinking
fund rights, as may from time to time be determined by the Board of Directors
of Holdings. Preferred Stock may be issued in the future in connection with
acquisitions, financings or such other matters as the Board of Directors deems
to be appropriate. In the event that any such shares of Preferred Stock shall
be issued, a Certificate of Designation, setting forth the series of such
Preferred Stock and the relative rights, privileges and limitations with
respect thereto, is required to be filed with the Secretary of State of the
State of Delaware. The effect of having such Preferred Stock authorized is that
Holdings' Board of Directors alone, within the bounds and subject to the
federal securities laws and the Delaware General Corporation Law (the "Delaware
law"), may be able to authorize the issuance of Preferred Stock, which may
adversely affect the voting and other rights of holders of Common Stock. The
issuance of Preferred Stock may also have the effect of delaying or preventing
a change in control of Holdings. As of the date of this prospectus, Holdings
has designated one series of Preferred Stock as described below.
56
<PAGE>
Series A Perpetual Convertible Preferred Stock
Holdings has designated 300,000 shares of Preferred Stock as Series A
Perpetual Convertible Preferred Stock ("Series A Preferred"). A complete
description of the terms of the Series A Preferred is set forth in the
Certificate of Designation therefor (the "Designation"), a copy of which is
filed as an exhibit to the Registration Statement of which this prospectus
forms a part. Set forth below is a summary of certain terms of the Series A
Preferred, which summary is qualified in its entirety by reference to the
Designation.
Dividends. The Series A Preferred bears no stated dividend. However, in the
event that Holdings declares or pays any dividends or other distributions upon
the Common Stock, Holdings must (subject to certain exceptions) also declare
and pay to the holders of the Series A Preferred, at the same time that it
declares and pays such dividends or other distributions to the holders of the
Common Stock, the dividends or distributions which would have been declared and
paid with respect to the Common Stock issuable upon conversion of the Series A
Preferred had all of the outstanding shares of Series A Preferred been
converted immediately prior to the record date for such dividend or
distribution, or if no record date is fixed, the date as of which the record
holders of Common Stock entitled to such dividends or distributions are
determined.
Conversion Rights. Each share of Series A Preferred is convertible at any
time, at the option of the holder thereof, into shares of Common Stock
initially at the rate of 40 shares of Common Stock for each share of Series A
Preferred (equivalent to an initial conversion price of $25 per share of Common
Stock based on the liquidation preference of $1,000 per share of Series A
Preferred). The conversion price is subject to adjustment in certain events as
set forth in the Designation.
Voting. Under certain circumstances the holders of the Series A Preferred,
voting separately as a single class, have the right to elect one or two
directors as described under "Management--Right of Holders of Preferred Stock
to Elect Directors."
Except as described above with respect to the election of directors and
except as otherwise required by applicable law, the holders of Series A
Preferred are entitled to vote together with the holders of the Common Stock as
a single class on all matters submitted to stockholders of Holdings for a vote.
Each share of Series A Preferred is entitled to one vote for each share of
Common Stock issuable upon conversion of such share of Series A Preferred.
In addition, Holdings may not, without the affirmative vote or consent of
the holders of at least a majority of the shares of Series A Preferred then
outstanding voting or consenting as the case may be, as a separate class, take
certain actions specified in the Designation.
Ranking. The Series A Preferred ranks senior to the Common Stock with
respect to distributions upon the liquidation, winding-up and dissolution of
Holdings.
Liquidation Preference. Upon any voluntary or involuntary liquidation,
dissolution or winding-up of Holdings or reduction or decrease in its capital
stock resulting in a distribution of assets to the holders of any class or
series of Holdings' capital stock, the holders Series A Preferred will be
entitled to payment out of the assets of Holdings available for distribution of
an amount equal to $1,000 per share of Series A Preferred (the "Liquidation
Preference"), plus accrued and unpaid dividends, if any, to the date fixed for
liquidation, dissolution, winding-up or reduction or decrease in capital stock,
before any distribution is made on the Common Stock. After payment in full of
the Liquidation Preference and such dividends, if any, to which holders of
Series A Preferred are entitled, such holders will not be entitled to any
further participation in any distribution of assets of Holdings.
57
<PAGE>
Redemption; Automatic Conversion. If Holdings is subject to a Change in
Control (as defined in the Designation) in connection with an acquisition which
is not accounted for under the "pooling-of-interests" method of generally
accepted accounting principles, Holdings must offer to purchase within 10
business days after the Change in Control all of the then outstanding shares of
Series A Preferred at a purchase price per share, in cash, equal to the
Liquidation Preference thereof plus an amount equal to 6.25% of the Liquidation
Preference, compounded annually from January 7, 1999 to the purchase date (the
"Call Price"). Upon the occurrence of a Change in Control in connection with an
acquisition which is accounted for under the "pooling-of-interests" method of
accounting, all of the then outstanding Series A Preferred will be
automatically converted into Common Stock having a market value equal to 109.5%
of the Call Price, valued at the closing price of the Common Stock at the close
of business on the business day prior to the date of the Change in Control.
If, after 2 1/2 years following the date of issuance of the Series A
Preferred, Holdings issues for cash Common Stock or a series of preferred stock
convertible into Common Stock, in either a public offering or a bona fide
private financing, for a price for the Common Stock (including any amount
payable upon conversion of such preferred stock) below the then current
conversion price of Series A Preferred into Common Stock (currently $25 per
share) (a "Reduced Price Offering"), then Holdings must make an offer to apply
towards the purchase of outstanding shares of Series A Preferred, at the Call
Price, 40% of the amount by which the net cash proceeds from any such Reduced
Price Offering and for all other Reduced Price Offerings consummated during the
preceding 12 months (but excluding any Reduced Price Offerings prior to June
30, 2001) exceeds an aggregate of $50,000,000, less a credit for all amounts
theretofore paid for such purchases during such 12-month period.
Warrants, Options and Convertible Securities
There are currently outstanding warrants to purchase an aggregate of
6,539,329 shares of Common Stock. Such warrants provides for a weighted average
exercise price of $10.18 per share.
There are currently outstanding options to purchase an aggregate of
13,768,775 shares of Common Stock (which includes options to purchase 4,013,039
shares which were assumed in the U.S. Rentals Merger). These options provide
for a weighted average exercise price of $19.50 per share. Of these options,
options to purchase an aggregate of 4,765,414 shares of Common Stock are
currently exercisable and options to purchase 9,003,361 shares of Common Stock
will become exercisable in installments over specified periods.
Convertible Quarterly Income Preferred Securities
A subsidiary trust of Holdings has issued $300 million of Trust Preferred
Securities as described under "Management's Discussion and Analysis of
Financial Conditions and Results of Operations--Certain Information Concerning
Preferred Securities." These securities are convertible at the option of the
holders thereof into Common Stock at a conversion price equivalent to $46.63
per share (subject to adjustment).
Transfer Agent and Registrar
American Stock Transfer & Trust Company serves as transfer agent and
registrar for the Common Stock.
58
<PAGE>
CERTAIN CHARTER AND BY-LAW PROVISIONS
The following brief description of certain provisions of Holdings'
Certificate of Incorporation (the "Certificate") and By-laws does not purport
to be complete and is subject in all respects to the provisions of the
Certificate and By-laws, copies of which have been filed as exhibits to the
Registration Statement of which this prospectus forms a part.
Classified Board of Directors
The Certificate provides that the directors (other than directors elected
by holders of Preferred Stock) shall be divided into three classes and that the
number of directors in each class shall be as nearly equal as is possible based
upon the number of directors constituting the entire Board. The Certificate
effectively provides that the term of office of the first class will expire at
the first annual meeting of stockholders following January 1, 1999, the term of
office of the second class will expire at the second annual meeting of
stockholders following January 1, 1999, and the term of office of the third
class will expire at the third annual meeting of stockholders following January
1, 1999. At each annual meeting of stockholders, successors to directors of the
class whose term expires at such meeting will be elected to serve for three-
year terms and until their successors are elected and qualified.
The classification of directors has the effect of making it more difficult
for stockholders to change the composition of the Board. At least two annual
meetings of stockholders, instead of one, will generally be required to effect
a change in a majority of the Board. Such a delay may help ensure that the
Company's directors, if confronted by a third party attempting to force a proxy
contest, a tender or exchange offer or other extraordinary corporate
transaction, would have sufficient time to review the proposal as well as any
available alternatives to the proposal and to act in what they believe to be
the best interests of the stockholders. However, such classification provisions
could also have the effect of discouraging a third party from initiating a
proxy contest, making a tender offer or otherwise attempting to obtain control
of the Company, even though such an attempt might be beneficial to the Company
and its stockholders. The classification of the Board could thus increase the
likelihood that incumbent directors will retain their positions.
Number of Directors; Removal; Filling Vacancies
The Certificate provides that, subject to any rights of holders of
Preferred Stock to elect directors, the number of directors comprising the
entire Board will be fixed from time to time by action of not less than a
majority of the directors then in office. If the number of directors is at any
time fixed at three or greater, then thereafter in no event shall such number
be less than three or more than nine, unless approved by action of not less
than two-thirds of the directors then in office. In addition, the Certificate
provides that, subject to any rights of holders of Preferred Stock, newly
created directorships resulting from an increase in the authorized number of
directors or vacancies on the Board resulting from death, resignation,
retirement, disqualification or removal of directors or any other cause may be
filled only by the Board (and not by the stockholders unless there are no
directors in office), provided that a quorum is then in office and present, or
by a majority of the directors then in office, if less than a quorum is then in
office, or by the sole remaining director. Accordingly, the Board could prevent
any stockholder from enlarging the Board and filling the new directorships with
such stockholder's own nominees.
Under the Delaware law, unless otherwise provided in the certificate of
incorporation, directors serving on a classified board may only be removed by
the stockholders for cause. The Certificate provides that directors may be
removed only for cause and only upon the affirmative vote of holders
59
<PAGE>
of at least 66 2/3% of the voting power of all the then outstanding shares of
stock entitled to vote generally in the election of directors ("Voting Stock"),
voting together as a single class.
The provisions of the Certificate governing the number of directors, their
removal and the filling of vacancies may have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to gain control of the Company, or of attempting to change the
composition or policies of the Board, even though such attempts might be
beneficial to the Company or its stockholders. These provisions of the
Certificate could thus increase the likelihood that incumbent directors retain
their positions.
Limitation on Special Meetings; No Stockholder Action by Written Consent
The Certificate and the By-laws provide that (subject to the rights, if
any, of holders of any class or series of Preferred Stock then outstanding) (i)
only a majority of the Board of Directors or the chief executive officer will
be able to call a special meeting of stockholders; (ii) the business permitted
to be conducted at a special meeting of stockholders shall be limited to
matters properly brought before the meeting by or at the direction of the Board
of Directors; and (iii) stockholder action may be taken only at a duly called
and convened annual or special meeting of stockholders and may not be taken by
written consent. These provisions, taken together, prevent stockholders from
forcing consideration by the stockholders of stockholder proposals over the
opposition of the Board, except at an annual meeting.
Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals
The By-laws establish an advance notice procedure for stockholders to make
nominations of candidates for election as director, or to bring other business
before an annual meeting of stockholders of Holdings (the "Stockholder Notice
Procedure").
The Stockholder Notice Procedure provides that, subject to the rights of
any holders of Preferred Stock, only persons who are nominated by or at the
direction of the Board, any committee appointed by the Board, or by a
stockholder who has given timely written notice to the Secretary of Holdings
prior to the meeting at which directors are to be elected, will be eligible for
election as directors of Holdings. The Stockholder Notice Procedure provides
that at an annual meeting only such business may be conducted as has been
brought before the meeting by, or at the direction of, the Board, any committee
appointed by the Board, or by a stockholder who has given timely written notice
to the Secretary of Holdings of such stockholder's intention to bring such
business before such meeting. Under the Stockholder Notice Procedure, to be
timely, notice of stockholder nominations or proposals to be made at an annual
or special meeting must be received by Holdings not less than 60 days nor more
than 90 days prior to the scheduled date of the meeting (or, if less than 70
days' notice or prior public disclosure of the date of the meeting is given,
then the 15th day following the earlier of (i) the day such notice was mailed
or (ii) the day such public disclosure was made).
Under the Stockholder Notice Procedure, a stockholder's notice to Holdings
proposing to nominate a person for election as director must contain certain
information about the nominating stockholder and the proposed nominee. Under
the Stockholder Notice Procedure, a stockholder's notice relating to the
conduct of business other than the nomination of directors must contain certain
information about such business and about the proposing stockholder. If the
Chairman or other officer presiding at a meeting determines that a person was
not nominated, or other business was not brought before the meeting, in
accordance with the Stockholder Notice Procedure, such person will not be
eligible for election as a director, or such business will not be conducted at
such meeting, as the case may be.
60
<PAGE>
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure affords the Board an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Board, to inform stockholders about such qualifications. By
requiring advance notice of other proposed business, the Stockholder Notice
Procedure also provides a more orderly procedure for conducting annual meetings
of stockholders and, to the extent deemed necessary or desirable by the Board,
provides the Board with an opportunity to inform stockholders, prior to such
meetings, of any business proposed to be conducted at such meetings, together
with any recommendations as to the Board's position regarding action to be
taken with respect to such business, so that stockholders can better decide
whether to attend such a meeting or to grant a proxy regarding the disposition
of any such business.
61
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the offering described in this
prospectus will be passed upon for the Company by Weil, Gotshal & Manges LLP,
New York, New York, and Ehrenreich Eilenberg Krause & Zivian LLP, New York, New
York. Certain legal matters in connection with the offering will be passed upon
for the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the following
financial statements, as set forth in their reports, which are included herein
or incorporated in this prospectus by reference:
. the consolidated financial statements of United Rentals, Inc. as of
December 31, 1997 and 1996 and for each of the two years in the period
ended December 31, 1997, included in the Company's Current Report on
Form 8-K dated December 15, 1998;
. the financial statements of Mission Valley Rentals, Inc. at June 30,
1996 and 1997 and for the years then ended, included in the Company's
Current Report on Form 8-K/A dated February 4, 1998;
. the financial statements of Power Rental Co. Inc. at July 31, 1997 and
for the year then ended, included in the Company's Current Report on
Form 8-K/A dated July 21, 1998 and in the Company's Current Report on
Form 8-K dated December 24, 1998;
. the combined financial statements of Valley Rentals, Inc. at December
31, 1997 and for the year then ended; the financial statements of J&J
Rental Services, Inc. at December 31, 1996 and October 22, 1997 and for
each of the two years in the period ended December 31, 1996, the six
months ended June 30, 1997 and for the period from July 1, 1997 to
October 22, 1997; the financial statements of Bronco Hi-Lift, Inc. at
December 31, 1996 and October 24, 1997 and for each of the two years in
the period ended December 31, 1996 and for the period from January 1,
1997 to October 24, 1997; the financial statements of Pro Rentals, Inc.
at December 31, 1997 and for the year then ended; the combined financial
statements of Able Equipment Rental, Inc. at December 31, 1997 and for
the year then ended; the combined financial statements of Channel
Equipment Holding, Inc. at December 31, 1997 and for the year then
ended; the financial statements of ASC Equipment Company, Inc. at
December 31, 1997 and for the year then ended; and the combined
financial statements of Adco Equipment, Inc. at December 31, 1997 and
for the year then ended, included in the Company's Current Report on
Form 8-K dated December 24, 1998.
These financial statements are included herein or incorporated herein by
reference in reliance on their reports, given on their authority as experts in
accounting and auditing.
The consolidated statements of income, of cash flows and of changes in
stockholders' equity of United Rentals, Inc. for the year ended December 31,
1995, included in the Company's Current Report on Form 8-K dated December 15,
1998, and the financial statements of U.S. Rentals, Inc. at December 31, 1997
and 1996 and for each of the three years in the period ended December 31, 1997,
incorporated by reference in the Company's Current Report on Form 8-K dated
October 9, 1998, have been audited by PricewaterhouseCoopers LLP, independent
accountants, as set forth in their reports thereon included therein, and are
incorporated by reference herein in reliance on such reports given upon the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of A&A Tool Rentals & Sales, Inc. and
subsidiary as of October 19, 1997 and October 31, 1996, and for the period from
November 1, 1996 to October 19, 1997 and for the years ended October 31, 1996
and 1995, included in the Company's Current Report
62
<PAGE>
on Form 8-K dated December 24, 1998, have been audited by KPMG LLP, independent
certified public accountants, as set forth in their report thereon included
therein, and are incorporated by reference herein in reliance on such report
given upon the authority of such firm as experts in accounting and auditing.
The financial statements of MERCER Equipment Company included in the
Company's Current Report on Form 8-K dated December 24, 1998 have been audited
by Webster Duke & Co., independent auditors, as set forth in their reports
thereon included therein, and are incorporated by reference herein in reliance
on such reports given upon the authority of such firm as experts in accounting
and auditing.
The combined financial statements of Coran Enterprises, Inc. (dba A-1
Rents) and Monterey Bay Equipment Rental, Inc. included in the Company's
Current Report on Form 8-K dated December 24, 1998 have been audited by Grant
Thornton LLP, independent auditors, as set forth in their report thereon
appearing therein, and are incorporated by reference herein in reliance on such
report given upon the authority of such firm as experts in accounting and
auditing.
The combined financial statements of BNR Group of Companies as of March 31,
1996 and 1997 and for the years ended March 31, 1996 and 1997 included in the
Company's Current Report on Form 8-K/A dated February 4, 1998; and the
consolidated financial statements of Perco Group Ltd. as of December 31, 1997
and for the year ended December 31, 1997, included in the Company's Current
Report on Form 8-K dated December 24, 1998, have been audited by KPMG LLP,
independent chartered accountants, as set forth in their reports thereon
included therein and are incorporated by reference herein in reliance on such
reports given upon the authority of such firm as experts in accounting and
auditing.
The audited financial statements of Access Rentals, Inc. and Subsidiary and
Affiliate, included in the Company's Current Report on Form 8-K/A dated
February 4, 1998, have been incorporated by reference herein in reliance upon
the report of Battaglia, Andrews & Moag, P.C., independent certified public
accountants, 210 East Main Street, Batavia, New York 14020, for the periods
indicated, given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of West Main Rentals & Sales, Incorporated as of
December 31, 1997, and the year then ended, included in the Company's Current
Report on Form 8-K dated December 24, 1998, have been incorporated by reference
herein in reliance upon the report of Moss Adams LLP, independent certified
public accountants, appearing therein and upon the authority of such firm as
experts in accounting and auditing.
The combined financial statements of Equipment Supply Co., Inc. and
Affiliates as of December 31, 1997 and 1996 and for each of the three years in
the period ended December 31, 1997, included in the Company's Current Reports
on Form 8-K dated July 21, 1998 and December 24, 1998, have been audited by BDO
Seidman, LLP independent certified public accountants, as set forth in their
report thereon included therein, and are incorporated by reference herein in
reliance on such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of McClinch, Inc. and subsidiaries as
of January 31, 1998 and August 31, 1998, and for the year ended January 31,
1998 and the financial statements of McClinch Equipment Services, Inc. as of
December 31, 1997 and August 31, 1998, and for the year ended December 31,
1997, included in the Company's Current Report on Form 8-K dated December 24,
1998, have been audited by PricewaterhouseCoopers L.L.P., independent
accountants, as set forth in their reports thereon included therein, and are
incorporated by reference herein in reliance on such reports given upon the
authority of such firm as experts in accounting and auditing.
63
<PAGE>
The financial statements of Lift Systems, Inc. as of December 31, 1997 and
the year then ended included in the Company's Current Report on Form 8-K dated
December 24, 1998 are incorporated by reference herein in reliance upon the
report of Altschuler, Melvoin and Glasser LLP, independent accountants,
appearing therein and upon the authority of such firm as experts in accounting
and auditing.
The financial statements of Reitzel Rentals Ltd. as of February 28, 1998
and for the year ended February 28, 1998, included in the Company's Current
Report on Form 8-K dated December 24, 1998, have been audited by
PricewaterhouseCoopers LLP, independent chartered accountants, as set forth in
their report thereon included therein, and are incorporated by reference herein
in reliance on such report given upon the authority of such firm as experts in
accounting and auditing.
The combined financial statements of Grand Valley Equipment Co., Inc. and
Kubota of Grand Rapids, Inc. as of December 31, 1997, and the year then ended,
included in the Company's Current Report on Form 8-K dated December 24, 1998,
have been audited by Beene Garter LLP, independent certified public
accountants, as set forth in their report thereon included therein, and are
incorporated by reference herein in reliance on such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements of Paul E. Carlson, Inc. (d/b/a/ Carlson Equipment
Company) as of February 28, 1998, and for the year then ended, included in the
Company's Current Report on Form 8-K dated December 24, 1998, have been audited
by McGladrey & Pullen, LLP, independent auditors, as stated in their report
appearing therein, and are incorporated by reference herein in reliance on such
report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Industrial Lift, Inc. as of December 31, 1997
and 1996 and the years then ended included in the Company's Current Report on
Form 8-K dated December 24, 1998 are incorporated by reference herein in
reliance upon the report of Schalleur & Surgent, LLC, independent auditors,
appearing therein and upon the authority of such firm as experts in accounting
and auditing.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Pro Forma Unaudited Consolidated Financial Statements of United
I. Rentals, Inc.
Introduction........................................................ F-2
Pro Forma Consolidated Balance Sheet--September 30, 1998
(unaudited)........................................................ F-3
Pro Forma Consolidated Statement of Operations for the nine months
ended September 30, 1998 (unaudited)............................... F-4
Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1997 (unaudited)...................................... F-5
Notes to Pro Forma Unaudited Consolidated Financial Statements...... F-6
II. Unaudited Consolidated Financial Statements of United Rentals, Inc.
United Rentals, Inc. Consolidated Balance Sheets--September 30, 1998
(unaudited) and December 31, 1997.................................. F-8
United Rentals, Inc. Consolidated Statements of Operations for the
nine and three months ended September 30, 1998 and 1997
(unaudited)........................................................ F-9
United Rentals, Inc. Consolidated Statement of Stockholders' Equity
for the nine months ended September 30, 1998 (unaudited)........... F-11
United Rentals, Inc. Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1997 (unaudited).......... F-12
Notes to Unaudited Consolidated Financial Statements................ F-14
III. Consolidated Financial Statements of United Rentals, Inc.
Report of Independent Auditors...................................... F-21
Report of Independent Accountants................................... F-22
Consolidated Balance Sheets--December 31, 1997 and 1996............. F-23
Consolidated Statements of Operations for the years ended December
31, 1997, 1996 and 1995............................................ F-24
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995................................... F-25
Consolidated Statements of Cash Flows for the years ended to
December 31, 1997, 1996 and 1995................................... F-26
Notes to Consolidated Financial Statements.......................... F-27
</TABLE>
F-1
<PAGE>
UNITED RENTALS, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following pro forma unaudited consolidated balance sheet of the Company
gives effect to the acquisitions completed by the Company subsequent to
September 30, 1998 and the financing thereof, as if all such transactions had
occurred on September 30, 1998.
The following pro forma unaudited consolidated statements of operations
with respect to the nine months ended September 30, 1998 and the year ended
December 31, 1997, give effect to each acquisition completed by the Company
after the beginning of the period and the financing thereof and as if all such
transactions had occurred at the beginning of the period.
The pro forma consolidated financial statements are based upon certain
assumptions and estimates which are subject to change. These statements are not
necessarily indicative of the actual results of operations that might have
occurred, nor are they necessarily indicative of expected results in the
future.
The pro forma consolidated financial statements should be read in
conjunction with the Company's historical Consolidated Financial Statements and
related notes included elsewhere in this prospectus and the Financial
Statements and related notes incorporated by reference in this prospectus of
certain of the companies we acquired.
F-2
<PAGE>
UNITED RENTALS, INC.
PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET
September 30, 1998
<TABLE>
<CAPTION>
United Other
Rentals Acquisitions Adjustments Pro Forma
---------- ------------ ----------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash
equivalents............ $ 21,795 $ 1,842 $(19,637)(a) $ 4,000
Accounts receivable,
net.................... 232,448 12,134 244,582
Inventory............... 74,895 3,695 78,590
Rental equipment, net... 1,191,448 34,845 6,918 (b) 1,233,211
Property and equipment,
net.................... 180,622 5,111 (724)(c) 185,009
Intangible assets, net.. 819,094 57,238 (d) 876,332
Prepaid expenses and
other assets........... 36,700 2,628 39,328
---------- ------- -------- ----------
$2,557,002 $60,255 $ 43,795 $2,661,052
========== ======= ======== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Liabilities:
Accounts payable,
accrued expenses and
other liabilities...... $ 313,456 $ 9,362 $ $ 322,818
Debt.................... 1,235,508 31,001 (31,001)(e) 1,330,096
94,588 (f)
---------- ------- -------- ----------
Total liabilities...... 1,548,964 40,363 63,587 1,652,914
Company-obligated
mandatorily redeemable
convertible preferred
securities of a
subsidiary trust....... 300,000 300,000
STOCKHOLDERS' EQUITY:
Common stock............ 684 1,265 (1,265) 684
Additional paid-in
capital................ 689,102 635 (635)(g) 689,202
100 (h)
Retained earnings....... 18,252 17,992 (17,992)(g) 18,252
---------- ------- -------- ----------
Total stockholders'
equity................ 708,038 19,892 (19,792) 708,138
---------- ------- -------- ----------
$2,557,002 $60,255 $ 43,795 $2,661,052
========== ======= ======== ==========
</TABLE>
See notes to pro forma unaudited Consolidated Financial Statements.
F-3
<PAGE>
UNITED RENTALS, INC.
PRO FORMA UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1998
<TABLE>
<CAPTION>
Equipment
Supply McClinch Inc.
Access Power Co., Inc. and McClinch
United Rentals, Rental and Equipment Other
Rentals Inc. Co., Inc. Affiliates Service, Inc. Acquisitions Adjustments Pro Forma
-------- -------- --------- ---------- ------------- ------------ ----------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Equipment rentals...... $592,502 $2,313 $ 6,295 $34,382 $16,515 $151,729 $ 803,736
Sales of equipment,
merchandise and other
revenue............... 211,760 841 1,555 8,958 5,601 111,611 340,326
-------- ------ ------- ------- ------- -------- -------- ----------
Total revenues.......... 804,262 3,154 7,850 43,340 22,116 263,340 1,144,062
Cost of revenues
Cost of equipment
rentals, excluding
depreciation.......... 263,529 1,131 3,416 12,529 6,770 60,603 347,978
Depreciation of rental
equipment............. 119,970 402 2,987 10,368 3,316 35,860 $ (9,572)(a) 163,331
Cost of sales and other
operating costs....... 146,713 741 638 7,267 3,795 73,811 232,965
-------- ------ ------- ------- ------- -------- -------- ----------
Total cost of revenues.. 530,212 2,274 7,041 30,164 13,881 170,274 (9,572) 744,274
-------- ------ ------- ------- ------- -------- -------- ----------
Gross profit............ 274,050 880 809 13,176 8,235 93,066 9,572 399,788
Selling, general and
administrative
expenses............... 128,763 774 3,200 9,672 3,535 69,573 (13,476)(c) 201,847
(194)(d)
Merger-related
expenses............... 42,216 42,216
Non-rental depreciation
and amortization....... 23,693 23 304 359 382 4,232 6,556(e) 35,549
-------- ------ ------- ------- ------- -------- -------- ----------
Operating income
(loss)................. 79,378 83 (2,695) 3,145 4,318 19,261 16,686 120,176
Interest expense........ 39,170 147 631 4,220 763 9,625 (12,243)(f) 64,186
21,873(g)
Preferred dividends of a
subsidiary trust....... 2,979 2,979
Other (income) expense,
net.................... (4,524) (52) (95) (198) (51) (4,774) (9,694)
-------- ------ ------- ------- ------- -------- -------- ----------
Income (loss) before
provision for income
taxes and extraordinary
item................... 41,753 (12) (3,231) (877) 3,606 14,410 7,056 62,705
Provision for income
taxes.................. 25,229 (2,638) 896 1,806 103(h) 25,396
-------- ------ ------- ------- ------- -------- -------- ----------
Income (loss) before
extraordinary item..... $ 16,524 $ (12) $(3,231) $ 1,761 $ 2,710 $ 12,604 $ 6,953 $ 37,309
======== ====== ======= ======= ======= ======== ======== ==========
Basic earnings per share
before extraordinary
item................... $ 0.26 $ 0.55
======== ==========
Diluted earnings per
share before
extraordinary item..... $ 0.23 $ 0.50
======== ==========
</TABLE>
See notes to pro forma unaudited Consolidated Financial Statements.
F-4
<PAGE>
UNITED RENTALS, INC.
PRO FORMA UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONSFor the Year Ended
December 31, 1997
<TABLE>
<CAPTION>
McClinch
Equipment Inc. and
Mission Supply McClinch
Access BNR Group Valley Power Co., Inc. Equipment
United Rentals, of Rentals, Rental and Services, Other
Rentals Inc. Companies Inc. Co., Inc. Affiliates Inc. Acquisitions Adjustments Pro Forma
-------- -------- --------- -------- --------- ---------- --------- ------------ ----------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Equipment rent-
als............ $388,181 $42,316 $ 9,403 $7,853 $35,382 $78,142 $30,615 $349,031 $ 940,923
Sales of
equipment,
merchandise and
other
revenues....... 101,657 9,943 14,612 765 5,154 16,416 9,418 227,133 385,098
-------- ------- ------- ------ ------- ------- ------- -------- -------- ----------
Total revenues... 489,838 52,259 24,015 8,618 40,536 94,558 40,033 576,164 1,326,021
Cost of revenues
Cost of
equipment
rentals,
excluding
depreciation... 189,578 12,415 4,662 3,437 12,678 23,510 11,590 143,886 401,756
Depreciation of
rental
equipment...... 82,097 8,480 1,589 1,746 9,706 20,397 5,888 72,764 $(16,522)(a) 186,145
Cost of sales
and other
operating
costs.......... 68,871 8,862 10,361 518 3,648 11,362 6,485 161,595 (72)(b) 271,630
-------- ------- ------- ------ ------- ------- ------- -------- -------- ----------
Total cost of
revenues........ 340,546 29,757 16,612 5,701 26,032 55,269 23,963 378,245 (16,594) 859,531
-------- ------- ------- ------ ------- ------- ------- -------- -------- ----------
Gross profit..... 149,292 22,502 7,403 2,917 14,504 39,289 16,070 197,919 16,594 466,490
Selling, general
and
administrative
expenses........ 70,835 10,440 5,402 3,062 12,147 17,875 8,605 137,699 (27,464)(c) 238,406
(195)(d)
Non-rental
depreciation and
amortization.... 13,424 1,355 104 32 1,226 878 714 8,245 16,103 (e) 42,081
Termination costs
of deferred
compensation
agreements...... 20,290 20,290
-------- ------- ------- ------ ------- ------- ------- -------- -------- ----------
Operating income
(loss).......... 44,743 10,707 1,897 (177) 1,131 20,536 6,751 51,975 28,150 165,713
Interest
expense......... 11,847 3,700 501 434 2,344 11,186 2,195 20,395 (40,204)(f) 84,983
72,585 (g)
Other (income)
expense, net (2,021) (809) (61) (370) (2,859) (715) (1,766) (8,601)
-------- ------- ------- ------ ------- ------- ------- -------- -------- ----------
Income (loss)
before provision
for income taxes
and
extraordinary
item............ 34,917 7,816 1,396 (550) (843) 12,209 5,271 33,346 (4,231) 89,331
Provision for
income taxes.... 29,508 2,745 459 (73) 1,242 1,189 3,854 (2,745)(h) 36,179
-------- ------- ------- ------ ------- ------- ------- -------- -------- ----------
Income (loss)
before
extraordinary
item............ $ 5,409 $ 5,071 $ 937 $ (477) $ (843) $10,967 $ 4,082 $ 29,492 $ (1,486) $ 53,152
======== ======= ======= ====== ======= ======= ======= ======== ======== ==========
Basic earnings
per share before
extraordinary
item............ $ 0.12 $ 0.78
======== ==========
Diluted earnings
per share before
extraordinary
item............ $ 0.11 $ 0.75
======== ==========
</TABLE>
See notes to pro forma unaudited Consolidated Financial Statements.
F-5
<PAGE>
UNITED RENTALS, INC.
NOTES TO PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
1. Basis of Presentation
The Company is a large geographically diversified equipment rental company
in the United States, Canada and Mexico. The Company rents a broad array of
equipment to a diverse customer base that includes construction industry
participants, industrial companies, homeowners and other individuals. The
Company also sells rental equipment, acts as a distributor for certain new
equipment, and sells related merchandise and parts.
The financial data for United Rentals, Inc. is derived from the historical
financial statements of the Company. The financial data for each of the
acquisitions is derived from the respective historical financial statements of
such companies. The results of operations for each acquisition acquired during
a period presented includes the results of operations from the beginning of
such period through the date of acquisition.
2. Acquisitions
Since its formation, the Company has completed a total of 95 acquisitions
through January 25, 1999. These include the acquisition of the six companies
in October 1997 and the acquisition of 89 additional companies thereafter.
Based upon management's preliminary estimates, it is estimated that the
carrying value of the assets and liabilities of the 20 companies acquired by
the Company subsequent to September 30, 1998 approximates fair value, with the
exception of rental equipment and other property and equipment, which required
adjustments to reflect fair market value. The following table presents the
allocation of purchase price of each of the 20 companies acquired by the
Company subsequent to September 30, 1998:
<TABLE>
<CAPTION>
<S> <C>
Purchase price......................................................... $83,323
Net assets acquired.................................................... 19,891
Fair value adjustments:
Rental equipment..................................................... 6,918
Property and equipment............................................... (724)
-------
Intangible assets recorded............................................. $57,238
=======
</TABLE>
3. Pro Forma Adjustments
Balance sheet adjustments:
a. Records the portion of the acquisition consideration and debt repayment
paid from available cash on hand.
b.Adjusts the carrying value of rental equipment to fair market value.
c.Adjusts the carrying value of property and equipment to fair market
value.
d. Records the excess of the acquisition consideration over the estimated
fair value of net assets acquired.
e.Records the repayment of certain indebtedness of the acquisitions.
f. Records the portion of the acquisition consideration and debt repayment
funded by borrowing under United Rentals' credit facility, senior
subordinated notes, term loan and seller notes.
F-6
<PAGE>
g.Records the elimination of the stockholders' equity of the acquisitions.
h.Records the portion of the acquisition consideration paid in the form of
common stock.
Statement of operations adjustments:
a. Adjusts the depreciation of rental equipment and other property and
equipment based upon adjusted carrying values utilizing the following
lives (subject to a salvage value ranging from 0 to 10%):
<TABLE>
<S> <C>
Rental equipment.............................................. 2-10 years
Other property and equipment.................................. 2-15 years
</TABLE>
b. Adjusts the method of accounting for inventory at one of the
acquisitions from the LIFO method to the FIFO method.
c. Adjusts the compensation to former owners and executives of the
acquisitions to current levels of compensation.
d. Adjusts the lease expense for real estate utilized by the acquisitions
to current lease agreements.
e. Records the amortization of the excess of cost over net assets acquired
attributable to the acquisitions using an estimated life of 40 years.
f. Eliminates interest expense related to the outstanding indebtedness of
the acquisitions which was repaid by United Rentals.
g. Records interest expense relating to the portion of the acquisitions
funded through borrowing under United Rentals' credit facility using a
rate per annum of 7%, senior subordinated notes using a rate per annum
of 9 1/2%, term loan using a rate per annum of 7.6% and seller notes
using a rate per annum of 7.0%.
h.Records a provision for income taxes at an estimated rate of 40.5%.
4. Earnings Per Share
Pro forma earnings per share is calculated by dividing income before
extraordinary item by the weighted average shares outstanding during the
period. The weighted average outstanding shares during the period is
calculated as follows:
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Basic:
United Rentals Shares Outstanding at September 30,
1998............................................... 68,406 68,406
Shares issued for acquisitions subsequent to
September 30, 1998................................. 15 15
------ ------
68,421 68,421
====== ======
Diluted:
United Rentals Shares outstanding at September 30,
1998............................................... 68,406 68,406
Shares issued for acquisitions subsequent to
September 30, 1998................................. 15 15
Common Stock equivalents (based on the initial
public offering price of $13.50 per share for
1997).............................................. 6,631 2,388
------ ------
75,052 70,809
====== ======
</TABLE>
F-7
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
------------ -----------
Assets
- ------
<S> <C> <C>
Cash and cash equivalents............................ $ 21,795 $ 72,411
Accounts receivable, net of allowance for doubtful
accounts
of $29,577 in 1998 and $11,085 in 1997.............. 232,448 82,592
Inventory............................................ 74,895 21,778
Prepaid expenses and other assets.................... 36,700 17,167
Rental equipment, net................................ 1,191,448 461,026
Property and equipment, net.......................... 180,622 98,268
Intangible assets, net of accumulated amortization of
$8,675
in 1998 and $568 in 1997............................ 819,094 73,648
---------- --------
$2,557,002 $826,890
========== ========
<CAPTION>
Liabilities and Stockholders' Equity
- ------------------------------------
<S> <C> <C>
Liabilities:
Accounts payable................................... $ 137,339 $ 41,392
Debt............................................... 1,235,508 264,573
Deferred income taxes.............................. 20,761 25,275
Accrued expenses and other liabilities............. 155,356 49,262
---------- --------
Total liabilities................................ 1,548,964 380,502
Commitments and contingencies
Company-obligated mandatorily redeemable convertible
preferred securities of a subsidiary trust.......... 300,000
Stockholders' equity:
Preferred stock--$.01 par value, 5,000,000 shares
authorized,
no shares issued and outstanding..................
Common stock--$.01 par value, 500,000,000 shares
authorized
in 1998 and 75,000,000 in 1997, 68,406,401 in 1998
and
56,239,375 in 1997 shares issued and outstanding.. 684 562
Additional paid-in capital......................... 689,102 401,758
Retained earnings.................................. 18,535 44,068
Cumulative translation adjustments................. (283)
---------- --------
Total stockholders' equity........................... 708,038 446,388
---------- --------
$2,557,002 $826,890
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
------------------ -------------------
1998 1997 1998 1997
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues:
Equipment rentals.................. $592,502 $263,249 $ 282,818 $104,835
Sales of rental equipment.......... 73,703 26,990 30,481 10,026
Sales of new equipment, merchandise
and other revenues................ 138,057 37,585 65,775 14,159
-------- -------- --------- --------
Total revenues....................... 804,262 327,824 379,074 129,020
Cost of revenues:
Cost of equipment rentals,
excluding depreciation............ 263,529 127,799 119,594 46,687
Depreciation of rental equipment... 119,970 56,715 52,953 21,221
Cost of rental equipment sales..... 39,820 13,084 17,261 4,594
Cost of new equipment and
merchandise sales and other
operating costs................... 106,893 30,040 50,549 10,870
-------- -------- --------- --------
Total cost of revenues............... 530,212 227,638 240,357 83,372
-------- -------- --------- --------
Gross profit......................... 274,050 100,186 138,717 45,648
Selling, general and administrative
expenses............................ 128,763 48,488 60,413 21,002
Merger-related expenses.............. 42,216 42,216
Non-rental depreciation and
amortization........................ 23,693 9,223 11,201 3,492
Termination cost of deferred
compensation agreements............. 20,290
-------- -------- --------- --------
Operating income..................... 79,378 22,185 24,887 21,154
Interest expense..................... 39,170 6,316 23,924 2,624
Preferred dividends of a subsidiary
trust............................... 2,979 2,979
Other (income) expense............... (4,524) (1,356) (291) (531)
-------- -------- --------- --------
Income (loss) before provision for
income taxes and extraordinary
items............................... 41,753 17,225 (1,725) 19,061
Provision for income taxes........... 25,229 21,875 8,431 7,363
-------- -------- --------- --------
Income (loss) before extraordinary
items............................... 16,524 (4,650) (10,156) 11,698
Extraordinary items, net of income
taxes of $14,255 in 1998 and $995 in
1997................................ 21,337 1,511 21,337
-------- -------- --------- --------
Net income (loss).................... $ (4,813) $ (6,161) $ (31,493) $ 11,698
======== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS--(Continued)
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
------------------ ---------------------
1998 1997 1998 1997
-------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Earnings (loss) per equivalent share--
basic:
Income (loss) before extraordinary
items.............................. $ 0.26 $ (0.10) $ (0.15) $ 0.24
Extraordinary items, net............ 0.33 0.03 0.31
-------- -------- ---------- --------
Net income (loss)................... $ (0.07) $ (0.13) $ (0.46) $ 0.24
======== ======== ========== ========
Earnings (loss) per equivalent share--
diluted:
Income (loss) before extraordinary
items.............................. $ 0.23 $ (0.10) $ (0.13) $ 0.24
Extraordinary items, net............ 0.30 0.03 0.28
-------- -------- ---------- --------
Net income (loss)................... $ (0.07) $ (0.13) $ (0.41) $ 0.24
======== ======== ========== ========
Supplemental pro forma data:
Historical income (loss) before
provision for income taxes and
extraordinary items.................. $ 41,753 $ 17,225 $ (1,725) $ 19,061
Pro forma provision for income taxes.. 27,162 21,637 9,604 7,803
-------- -------- ---------- --------
Pro forma net income (loss) before
extraordinary items.................. $ 14,591 $ (4,412) $ (11,329) $ 11,258
======== ======== ========== ========
Pro forma basic net income (loss)
before extraordinary items per
share................................ $ 0.23 $ (0.10) $ (0.17) $ 0.24
======== ======== ========== ========
Pro forma diluted net income (loss)
before extraordinary items per
share................................ $ 0.21 $ (0.09) $ (0.15) $ 0.24
======== ======== ========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Common Stock
------------------
Additional Cumulative
Number Paid-in Retained Translation
of Shares Amount Capital Earnings Adjustments
---------- ------ ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1997..................... 56,239,375 $562 $401,758 $44,068 --
Issuance of common stock.. 10,807,790 108 267,559
Translation adjustments... $(283)
Conversion of convertible
note..................... 14,814 200
Cancellation of common
stock.................... (137,600) (1) 1
Reclassification of
Subchapter S accumulated
earnings to
paid-in capital.......... 18,979 (18,979)
Pooling-of-interest....... 1,456,997 15 (14) 1,795
Exercise of common stock
options.................. 25,025 619
Subchapter S distributions
of a pooled entity....... (3,536)
Net loss.................. (4,813)
---------- ---- -------- ------- -----
Balance, September 30,
1998..................... 68,406,401 $684 $689,102 $18,535 $(283)
========== ==== ======== ======= =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------
September 30
----------------------
1998 1997
----------- ---------
(In thousands)
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss............................................. $ (4,813) $ (6,161)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization...................... 143,663 65,938
Amortization of original issue discount and
deferred financing fees........................... 527
Extraordinary items................................ 35,592 2,506
Write down of assets held for sale................. 4,040
Gain on sale of rental equipment................... (33,883) (13,906)
Deferred income taxes.............................. 402 12,829
Changes in operating assets and liabilities:
Accounts receivable................................ (59,718) (17,612)
Inventory.......................................... (9,414) (3,100)
Prepaid expenses and other assets.................. 10,272 (3,880)
Accounts payable................................... 68,161 5,759
Accrued expenses and other liabilities............. 53,269 4,319
----------- ---------
Net cash provided by operating activities........ 208,098 46,692
Cash Flows From Investing Activities:
Purchases of rental equipment........................ (426,717) (188,041)
Purchases of property and equipment.................. (66,134) (34,258)
Proceeds from sales of rental equipment.............. 73,703 26,990
In-process acquisition costs......................... (4,413)
Payment of contingent purchase price................. (2,617)
Purchases of other companies......................... (833,297) (36,607)
----------- ---------
Net cash used in investing activities............ (1,259,475) (231,916)
Cash Flows From Financing Activities:
Proceeds from issuance of common stock, net of issu-
ance costs.......................................... 206,993 240,922
Proceeds from debt................................... 1,934,137 105,776
Repayments of debt................................... (1,410,122) (100,541)
Payment of debt financing costs...................... (26,711) (3,841)
Proceeds from the issuance of redeemable convertible
preferred securities................................ 300,000
Distribution to stockholders......................... (3,536)
----------- ---------
Net cash provided by financing activities........ 1,000,761 242,316
Net increase (decrease) in cash and cash equiva-
lents............................................... (50,616) 57,092
Cash and cash equivalents at beginning of period..... 72,411 2,906
----------- ---------
Cash and cash equivalents at end of period........... $ 21,795 $ 59,998
=========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- CONTINUED
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
--------------------
1998 1997
---------- --------
(in Thousands)
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest................................................ $ 17,795 $ 11,131
Income taxes............................................ $ 9,679 $ 11,681
Supplemental disclosure of non-cash investing and
financing activities:
During the nine month period ended September 30, 1998, a
convertible note in the principal amount of $200 was
converted into 15 shares of common stock.
The Company acquired the net assets and assumed certain
liabilities of other companies as follows:
Assets, net of cash acquired............................ 1,335,091 36,607
Liabilities assumed..................................... (441,120)
Less:
Amounts paid in common stock and warrants............... (60,674)
---------- --------
Net cash paid.......................................... $ 833,297 $ 36,607
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
1. Basis Of Presentation
General
United Rentals, Inc. is principally a holding company ("Holdings") and
conducts its operations principally through its wholly owned subsidiary United
Rentals (North America), Inc. ("URI") and subsidiaries of URI. URI was
incorporated in August 1997, initially capitalized in September 1997 and
commenced equipment rental operations in October 1997. Holdings was
incorporated in July 1998 and became the parent of URI on August 5, 1998,
pursuant to the reorganization of the legal structure of URI described in Note
4. Prior to such reorganization, the name of URI was United Rentals, Inc.
References herein to the "Company" refer to Holdings and its subsidiaries, with
respect to periods following the reorganization, and to URI and its
subsidiaries, with respect to periods prior to the reorganization. Prior to the
formation of Holdings, the consolidated financial statements of the Company
represented the accounts of URI and its subsidiaries.
The Company's consolidated balance sheet, statements of operations and
statements of cash flows as of December 31, 1997, and for the nine and three
month periods ended September 30, 1998 and 1997, have been restated to include
the accounts of certain acquisitions completed in 1998, that were accounted for
as poolings-of-interests. See Note 2.
The Consolidated Financial Statements of the Company included herein are
unaudited and, in the opinion of management, such financial statements reflect
all adjustments, consisting only of normal recurring adjustments, necessary to
a fair statement of the results of the interim periods presented. Interim
financial statements do not require all disclosures normally presented in year-
end financial statements, and, accordingly, certain disclosures have been
omitted. Results of operations for the nine and three month periods ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. The Consolidated Financial
Statements included herein should be read in conjunction with the Company's
Consolidated Financial Statements and related Notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
Impact of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in a primary financial
statement. The Company adopted SFAS No. 130 during the period ended March 31,
1998. The adoption of SFAS No. 130 did not have a material effect on the
consolidated financial position, results of operations or cash flows of the
Company. SFAS No. 131 establishes a new method by which companies will report
operating segment information. This method is based on the manner in which
management organizes the segments within a company for making operating
decisions and assessing performance. The Company continues to evaluate the
provisions of SFAS No. 131 and, upon adoption, the Company may report operating
segments. The Company is required to adopt SFAS No. 131 for its financial
statements for the year ended December 31, 1998.
F-14
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SEPTEMBER 30, 1998 AND 1997
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Post Retirement
Benefits." SFAS No. 132 revises employers' disclosures about pension and other
post retirement benefit plans but does not change the measurement or
recognition of those plans. The Company is required to adopt SFAS No. 132 for
its financial statements for the year ended December 31, 1998. The adoption of
SFAS No. 132 is not expected to have a material effect on the Company's
consolidated financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes a new model for accounting for derivatives and hedging activities.
The Company is required to adopt SFAS No. 133 beginning January 1, 2000. The
adoption of SFAS No. 133 is not expected to have a material effect on the
Company's consolidated financial position or results of operations.
2. Acquisitions
During the nine months ended September 30, 1998, the Company completed 69
acquisitions. Three of such acquisitions were accounted for as poolings-of-
interests (the "Pooling Transactions") and 66 were accounted for as purchases.
Acquisitions Accounted for as Poolings-of-Interests
On August 24, 1998, the Company issued 2,744,368 shares of its Common Stock
for all of the outstanding shares of common stock of Rental Tools and Equipment
Co. ("Rental Tools"). This transaction was accounted for as a pooling-of-
interests and, accordingly, the consolidated financial statements at December
31, 1997 and for all periods presented have been restated to include the
accounts of Rental Tools.
On September 24, 1998, the Company issued 1,456,997 shares of its Common
Stock for all of the outstanding shares of common stock of Wynne Systems, Inc.
("Wynne"). The transaction was accounted for as a pooling-of-interests;
however, this transaction was not material to the Company's consolidated
operations and financial position and, therefore, the Company's financial
statements have not been restated for this transaction.
On September 29, 1998, a merger (the "Merger") of United Rentals, Inc. and
U.S. Rentals, Inc. ("U.S. Rentals") was completed. The Merger was effected by
having a wholly owned subsidiary of United Rentals, Inc. merge with and into
U.S. Rentals. Following the Merger, United Rentals, Inc. contributed the
capital stock of U.S. Rentals to URI, a wholly owned subsidiary of United
Rentals, Inc. Pursuant to the Merger, each outstanding share of common stock of
U.S. Rentals was converted into the right to receive 0.9625 of a share of
common stock of United Rentals, Inc. An aggregate of approximately 29.6 million
shares of United Rentals, Inc. Common Stock were issued in the Merger in
exchange for the outstanding shares of U.S. Rentals common stock. The Merger
was accounted for as a pooling-of-interests and, accordingly, the consolidated
financial statements at December 31, 1997, and for all periods presented have
been restated to include the accounts of U.S. Rentals.
F-15
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SEPTEMBER 30, 1998 AND 1997
The table below shows the separate revenue and net income (loss) of the
Company, U.S. Rentals and Rental Tools for periods prior to combination (in
thousands):
<TABLE>
<CAPTION>
U.S. Rental
The Company Rentals Tools Combined
----------- -------- ------- --------
<S> <C> <C> <C> <C>
Nine months ended September 30, 1998
Revenues............................. $311,919 $451,101 $41,242 $804,262
Net income (loss).................... (53,178) 43,670 4,695 (4,813)
Nine months ended September 30, 1997
Revenues............................. 291,501 36,323 327,824
Net income (loss).................... (273) (6,471) 583 (6,161)
Three months ended September 30, 1998
Revenues............................. 184,566 178,219 16,289 379,074
Net income (loss).................... (61,398) 27,190 2,715 (31,493)
Three months ended September 30, 1997
Revenues............................. 114,020 15,000 129,020
Net income (loss).................... (273) 10,857 1,114 11,698
</TABLE>
Rental Tools was accounted for as a Subchapter S Corporation prior to being
acquired by the Company. In general, the income or loss of a Subchapter S
Corporation is passed through to its stockholders rather than being subjected
to taxes at the corporate level.
Acquisitions Accounted for as Purchases
The acquisitions completed by the Company in the first nine months of 1998
include 66 that were accounted for as purchases. The results of operations of
the businesses acquired in these acquisitions have been included in the
Company's results of operations from their respective acquisition dates.
The aggregate initial consideration paid by the Company for such
acquisitions that were accounted for as purchases was $878.6 million and
consisted of approximately $818.4 million in cash and 5.1 million shares of
Common Stock and warrants to purchase an aggregate of 30,000 shares of Common
Stock. In addition, the Company repaid or assumed outstanding indebtedness of
the companies acquired in such acquisitions in the aggregate amount of $418.6
million. The Company also agreed in connection with 12 of such acquisitions to
pay additional amounts to the former owners based upon specified future
revenues and/or new store openings (such amounts being limited to (i) $10.0
million, $2.0 million, $1.4 million, $1.0 million, $0.8 million, $0.8 million,
$0.5 million, $0.5 million, $0.5 million, $0.4 million and Cdn. $4.0 million,
respectively, with respect to 11 of such acquisitions and (ii) an amount based
on the revenues of a single store with respect to the other acquisition).
The purchase prices for such acquisitions have been allocated to the assets
acquired and liabilities assumed based on their respective fair values at their
respective acquisition dates. However, the Company has not completed its
valuation of all of its purchases and, accordingly, the purchase price
allocations are subject to change when additional information concerning asset
and liability valuations are completed.
F-16
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SEPTEMBER 30, 1998 AND 1997
The following table summarizes, on an unaudited pro forma basis, the
results of operations of the Company for the nine months ended September 30,
1998 as though each acquisition described above that was accounted for as a
purchase was completed on January 1, 1998 (in thousands, except per share
data):
<TABLE>
<CAPTION>
Nine Months Ended
September 30, 1998
------------------
<S> <C>
Revenues.............................................. $1,070,883
Net income............................................ 34,006
Basic earnings per share.............................. $ 0.49
Diluted earnings per share............................ $ 0.44
</TABLE>
The unaudited pro forma results are based upon certain assumptions and
estimates, which are subject to change. These results are not necessarily
indicative of the actual results of operations that might have occurred, nor
are they necessarily indicative of expected results in the future.
Merger-Related Expenses and Extraordinary Item
The results of operations for the third quarter of 1998 include pre-tax
expenses related to the three Pooling Transactions totaling approximately $42.2
million ($29.5 million after-tax), consisting of (i) $18.5 million for
investment banking, legal, accounting services and other merger costs, (ii)
$14.5 million of expenses relating to the closing of duplicate facilities,
(iii) $6.3 million for employee severance and (iv) $2.9 million in other
expenses. Certain merger related expenses are transitional in nature and, in
accordance with generally accepted accounting principles, are not presently
accruable and will be expensed in future quarters.
Additionally, in the third quarter of 1998, the Company recorded a pre-tax
extraordinary charge of $35.6 million ($21.3 million after-tax) relating to
early extinguishment of debt primarily related to the Merger with U.S. Rentals.
3. Revolving Credit Facility
In connection with the Merger, URI obtained a new credit facility (the
"Credit Facility") dated as of September 29, 1998, with a group of financial
institutions. The credit facility enables URI to borrow up to $762.5 million on
a revolving basis and permits a Canadian subsidiary of URI (the "Canadian
Subsidiary") to directly borrow up to $40 million under the Credit Facility
(provided that the aggregate
borrowings of URI and the Canadian Subsidiary do not exceed $762.5 million). Up
to $25 million is available in the form of letters of credit. The agreement
governing the Credit Facility requires that the aggregate commitment shall be
reduced on the last day of each calendar quarter, beginning September 30, 2001
and continuing through June 30, 2003 by an amount equal to $19.1 million.
The Credit Facility terminates on September 26, 2003, at which time all
outstanding indebtedness is due. The amount of indebtedness outstanding under
the Credit Facility was $535.0 million at September 30, 1998.
Borrowings by URI under the Credit Facility accrue interest at URI's
option, at either (a) the Base Rate (which is equal to the greater of (i) the
Federal Funds Rate plus 0.5% or (ii) Bank of America's reference rate) or (b)
the Eurodollar Rate (which for borrowings by URI is equal to Bank of America's
reserve adjusted eurodollar rate) plus a margin ranging from 0.950% to 1.625%
per
F-17
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SEPTEMBER 30, 1998 AND 1997
annum. Borrowings by the Canadian subsidiary under the Credit Facility accrue
interest, at such subsidiary's option, at either (x) the Prime Rate (which is
equal to Bank of America Canada's prime rate), (y) the BA Rate (which is equal
to Bank of America Canada's BA Rate) plus a margin ranging from 0.950% to
1.625% per annum or (z) the Eurodollar Rate (which for borrowing by the
Canadian Subsidiary is equal to the Bank of America Canada's reserve adjusted
Eurodollar Rate) plus a margin ranging from 0.95% to 1.625% per annum. If at
any time an event of default (as defined in the agreement governing the Credit
Facility) exists, the interest rate applicable to each loan will increase by 2%
per annum. The Company is also required to pay the banks an annual facility fee
equal to 0.375% of the banks' $762.5 million aggregate lending commitment under
the Credit Facility (which fee may be reduced to 0.300% for periods during
which the Company maintains a specified funded debt to cash flow ratio).
4. Holding Company Reorganization
URI was formerly named United Rentals, Inc. On August 5, 1998, a
reorganization was effected pursuant to which (i) URI became a wholly owned
subsidiary of Holdings a newly formed holding company, (ii) the name of URI was
changed from United Rentals, Inc. to United Rentals (North America), Inc.,
(iii) the name of the new holding company became United Rentals, Inc., (iv) the
outstanding common stock of URI was automatically converted, on a share-for-
share basis, into Common Stock of Holdings and (v) the Common Stock of Holdings
commenced trading on the New York Stock Exchange under the symbol "URI" instead
of the common stock of URI. The purpose of the reorganization was to facilitate
certain financings. The business operations of the Company did not change as a
result of the new legal structure. The stockholders of Holdings have the same
rights, privileges and interests with respect to Holdings as they had with
respect to URI immediately prior to the reorganization.
5. Term Loan
In July 1998, URI obtained a $250 million term loan from a group of
financial institutions (the "Term Loan"). The Term Loan matures on June 30,
2005. The term loan accrues interest, at the Company's option, at either (a)
the Base Rate (as defined with respect to the Credit Facility) plus a margin
ranging from 0% to 0.5% per annum, or (b) the Eurodollar Rate (as defined with
respect to the Credit Facility for borrowings by URI) plus a margin ranging
from 1.875% to 2.375% per annum. The Term Loan is secured pari passu with the
Credit Facility. URI used the net proceeds from the Term Loan for acquisitions.
6. Senior Subordinated Notes
In May 1998, the Company issued $200 million aggregate principal amount of
9 1/2% Senior Subordinated Notes which are due June 1, 2008. The Company used
$102.8 million of the net proceeds from the sale of such notes to repay all of
the then outstanding indebtedness under the Company's credit facility and used
the balance of such net proceeds from this offering for acquisitions, capital
expenditures and general corporate purposes.
In August 1998, URI issued $205 million aggregate principal amount of 8.80%
Senior Subordinated Notes which are due August 15, 2008. URI used $90.3 million
of the net proceeds from the sale of such notes to repay all of the then
outstanding indebtedness under the Company's credit facility and used the
balance of such net proceeds from this offering for acquisitions, capital
expenditures and general corporate purposes.
F-18
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SEPTEMBER 30, 1998 AND 1997
7. Issuance Of 6 1/2 % Convertible Quarterly Income Preferred Securities
On August 5, 1998, a subsidiary trust (the "Trust") of Holdings issued and
sold in a private offering (the "Preferred Securities Offering") $300 million
of 6 1/2% Convertible Quarterly Income Preferred Securities (the "Preferred
Securities"). The net proceeds from the Preferred Securities Offering were
approximately $290 million. The Trust used the proceeds from the Preferred
Securities Offering to purchase convertible subordinated debentures from
Holdings which resulted in Holdings receiving all of the net proceeds of the
Preferred Securities Offering. Holdings in turn contributed the net proceeds of
the Preferred Securities Offering to URI. URI used approximately $281 million
of such net proceeds to repay the then outstanding indebtedness under the
Company's credit facility and used the balance of such net proceeds for
acquisitions.
8. Common Stock
On March 11, 1998, the Company completed a public offering of 8,625,000
shares of Common Stock. The net proceeds to the Company from this offering were
approximately $207.4 million (after deducting the underwriting discounts and
offering expenses). The Company used $132.7 million of the net proceeds from
this offering to repay all of the then outstanding indebtedness under the
Company's credit facility and used the balance of such net proceeds for
acquisitions. At a special meeting of stockholders held on September 29, 1998,
the shareholders approved an amendment to the Company's Certificate of
Incorporation increasing the number of authorized shares of Common Stock to
500,000,000.
9. 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>
Nine Months Three Months
Ended Ended
September 30 September 30
--------------- -----------------
1998 1997 1998 1997
------- ------- -------- -------
<S> <C> <C> <C> <C>
Numerator:
Income (loss) before extraordinary items.. $16,524 $(4,650) $(10,156) $11,698
======= ======= ======== =======
Denominator:
Denominator for basic earnings per share
weighted-average shares.................. 64,363 46,072 68,415 47,863
Effect of dilutive securities:
Employee stock options.................. 2,335 2,720
Warrants................................ 4,296 1,644 4,437 1,644
------- ------- -------- -------
Dilutive potential common shares
Denominator for diluted earnings per
share--adjusted weighted-average
shares................................. 70,994 47,716 75,572 49,507
Basic earnings (loss) before extraordinary
items per share............................ $ 0.26 $ (0.10) $ (0.15) $ 0.24
======= ======= ======== =======
Diluted earnings (loss) before extraordinary
items per share............................ $ 0.23 $ (0.10) $ (0.13) $ 0.24
======= ======= ======== =======
</TABLE>
F-19
<PAGE>
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
SEPTEMBER 30, 1998 AND 1997
10. Subsequent Events
Completed Acquisitions
Subsequent to September 30, 1998 (through November 10, 1998), the Company
completed the acquisition of eight equipment rental companies. The aggregate
consideration paid by the Company for these acquisitions was $22.9 million and
consisted of approximately $18.8 million in cash and notes, and 4,868 shares of
Common Stock. The Company also agreed in connection with one of the
acquisitions to pay the former owners additional amounts based upon specified
future revenues not to exceed $300,000 in the aggregate. The Company funded a
portion of the cash consideration for these acquisitions with cash on hand and
the balance with borrowings under the Company's revolving credit facility.
F-20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
United Rentals, Inc.
We have audited the accompanying consolidated balance sheets of United
Rentals, Inc. as of December 31, 1997 and 1996 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended December 31, 1997. These consolidated financial
statements are the responsibility of the management of United Rentals, Inc. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of United Rentals, Inc. at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
November 17, 1998,
except for Note 14, as
to which the date is
January 25, 1999
F-21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
United Rentals, Inc.
In our opinion, the accompanying consolidated statements of income, of cash
flows and of changes in stockholders' equity for the year ended December 31,
1995 present fairly, in all material respects, the results of operations and
cash flows of United Rentals, Inc. for the year ended December 31, 1995, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the management of United Rentals, Inc.;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which required 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above. We have not audited the consolidated financial
statements of United Rentals, Inc. for any period subsequent to December 31,
1995.
PricewaterhouseCoopers LLP
Sacramento, California
November 17, 1998
F-22
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
-----------------
1997 1996
-------- --------
(In thousands,
except share
data)
<S> <C> <C>
Assets
Cash and cash equivalents.................................... $ 72,411 $ 2,906
Accounts receivable, net of allowance for doubtful accounts
of $11,085 and $7,346 at 1997 and 1996, respectively........ 82,592 48,193
Notes receivable from affiliate.............................. 25,365
Inventory.................................................... 21,778 6,358
Prepaid expenses and other assets............................ 17,167 5,873
Rental equipment, net........................................ 461,026 235,055
Property and equipment, net.................................. 98,268 56,443
Intangible assets, net of accumulated amortization of $568
and $207 at 1997 and 1996, respectively..................... 73,648 1,035
-------- --------
$826,890 $381,228
======== ========
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable........................................... $ 41,392 $ 23,912
Debt....................................................... 247,573 189,826
Notes payable to related parties........................... 17,000 24,511
Deferred taxes............................................. 25,275 --
Accrued expenses and other liabilities..................... 49,262 37,559
-------- --------
Total liabilities........................................ 380,502 275,808
Commitments and contingencies
Stockholders' equity:
Preferred stock--$.01 par value, 5,000,000 shares
authorized, No shares issued and outstanding.............. -- --
Common stock--$.01 par value, 75,000,000 shares authorized,
56,239,375 and 22,636,765 shares issued and outstanding at
1997 and 1996, respectively............................... 562 227
Additional paid-in capital................................. 401,758 13,278
Retained earnings.......................................... 44,068 91,915
-------- --------
Total stockholders' equity............................... 446,388 105,420
-------- --------
$826,890 $381,228
======== ========
</TABLE>
See accompanying notes.
F-23
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Equipment rentals................................ $388,181 $295,308 $252,283
Sales of rental equipment........................ 41,406 25,518 11,155
Sales of new equipment, merchandise and other
revenues........................................ 60,251 33,652 19,994
-------- -------- --------
Total revenues.................................... 489,838 354,478 283,432
Cost of revenues:
Cost of equipment rentals, excluding
depreciation.................................... 189,578 138,018 124,201
Depreciation of rental equipment................. 82,097 65,294 51,947
Cost of rental equipment sales................... 20,455 10,570 5,185
Cost of new equipment and merchandise sales and
other operating costs........................... 48,416 27,563 12,901
-------- -------- --------
Total cost of revenues............................ 340,546 241,445 194,234
-------- -------- --------
Gross profit...................................... 149,292 113,033 89,198
Selling, general and administrative expenses...... 70,835 54,721 39,707
Non-rental depreciation and amortization.......... 13,424 9,387 6,916
Termination cost of deferred compensation
agreements....................................... 20,290
-------- -------- --------
Operating income.................................. 44,743 48,925 42,575
Interest expense.................................. 11,157 11,620 6,755
Related party interest expense (income), net...... 690 (342) 735
Other (income) expense............................ (2,021) (499) 1,304
-------- -------- --------
Income before provision for income taxes and
extraordinary item............................... 34,917 38,146 33,781
Provision for income taxes........................ 29,508 420 484
-------- -------- --------
Income before extraordinary item.................. 5,409 37,726 33,297
Extraordinary item, net of tax benefit of $995.... 1,511
-------- -------- --------
Net income........................................ $ 3,898 $ 37,726 $ 33,297
======== ======== ========
Basic earnings before extraordinary item per
share............................................ $ 0.12 $ 1.67 $ 1.47
======== ======== ========
Diluted earnings before extraordinary item per
share............................................ $ 0.11 $ 1.67 $ 1.47
======== ======== ========
Basic earnings per share.......................... $ 0.08 $ 1.67 $ 1.47
======== ======== ========
Diluted earnings per share........................ $ 0.08 $ 1.67 $ 1.47
======== ======== ========
Unaudited pro forma data (Note 9):
Historical income before income taxes and
extraordinary item.............................. $ 34,917 $ 38,146 $ 33,781
Pro forma income tax expense..................... 14,176 15,487 13,715
-------- -------- --------
Pro forma income before extraordinary item....... $ 20,741 $ 22,659 $ 20,066
======== ======== ========
Pro forma basic income before extraordinary item
per share....................................... $ 0.44 $ 1.00 $ 0.89
======== ======== ========
Pro forma diluted income before extraordinary
item per share.................................. $ 0.42 $ 1.00 $ 0.89
======== ======== ========
</TABLE>
See accompanying notes.
F-24
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
-----------------------------
Additional
Number Paid-in Retained
of Shares Amount Capital Earnings
---------- ------ ---------- --------
(in thousands except share amounts)
<S> <C> <C> <C> <C>
Balance, December 31, 1994, as
previously reported................... -- $-- $ -- $ --
Poolings-of-interests................ 22,659,191 227 13,366 64,006
---------- ---- -------- --------
Balance, December 31, 1994, as
restated.............................. 22,659,191 227 13,366 64,006
Issuance of common stock............. 2,803 17
Distributions to stockholders........ (6,584)
Net income........................... 33,297
---------- ---- -------- --------
Balance, December 31, 1995............. 22,661,994 227 13,383 90,719
Distributions to stockholders........ (36,530)
Treasury stock purchase.............. (25,229) (105)
Net income........................... 37,726
---------- ---- -------- --------
Balance, December 31, 1996............. 22,636,765 227 13,278 91,915
Issuance of common stock and
warrants............................ 33,602,610 335 343,797
Distribution of non-operating assets,
net................................. (4,219)
Reclassification of Subchapter S
accumulated earnings to paid-in
capital............................. 48,902 (48,902)
Distributions to stockholders........ (2,843)
Net income........................... 3,898
---------- ---- -------- --------
Balance, December 31, 1997............. 56,239,375 $562 $401,758 $ 44,068
========== ==== ======== ========
</TABLE>
See accompanying notes.
F-25
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------
1997 1996 1995
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities
Net income.................................... $ 3,898 $ 37,726 $ 33,297
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................ 95,521 74,681 58,863
Gain on sale of rental equipment............. (20,951) (14,948) (5,970)
Non-cash interest, net....................... 201
Loss on early extinguishment of debt......... 2,506
Deferred taxes............................... 25,075
Changes in operating assets and liabilities:
Accounts receivable.......................... (19,837) (8,271) (6,578)
Inventory.................................... (3,785) (1,148) (1,413)
Prepaid expenses and other assets............ (9,821) (2,219) (2,323)
Accounts payable............................. 11,704 (7,966) 8,058
Accrued expenses and other liabilities....... 8,618 8,116 5,360
--------- --------- ---------
Net cash provided by operating activities..... 93,129 85,971 89,294
--------- --------- ---------
Cash flows from investing activities
Purchases of rental equipment................. (268,548) (116,021) (102,241)
Purchases of property and equipment........... (53,653) (27,269) (14,433)
Proceeds from sales of rental equipment....... 41,406 25,518 11,155
Collection (funding) of notes receivable...... 122 2,537 (1,061)
Purchase of other companies................... (115,528) (15,033)
In-process acquisition costs.................. (129)
--------- --------- ---------
Net cash used in investing activities......... (396,330) (130,268) (106,580)
--------- --------- ---------
Cash flows from financing activities
Proceeds from issuance of common stock, net of
issuance costs............................... 340,738 17
Proceeds from debt............................ 291,858 131,053 61,769
Payments on debt.............................. (271,418) (50,713) (37,144)
Proceeds from related party notes............. 17,000
Purchase of treasury stock.................... (105)
Cash retained by Predecessor in connection
with Recapitalization........................ (998)
Distributions to stockholders................. (2,843) (36,530) (6,584)
Payment of debt financing costs............... (1,631) (230)
--------- --------- ---------
Net cash provided by financing activities..... 372,706 43,475 18,058
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents.................................. 69,505 (822) 772
Cash and cash equivalents at beginning of
year......................................... 2,906 3,728 2,956
--------- --------- ---------
Cash and cash equivalents at end of year...... $ 72,411 $ 2,906 $ 3,728
========= ========= =========
Supplemental disclosure of cash flow
information
Cash paid for interest........................ $ 13,090 $ 13,766 $ 9,707
Cash paid for taxes........................... $ 11,487 $ 399 $ 613
Deferred compensation and bonus payments
through issuance of common stock............. $ 486
Net assets retained by Predecessor in
connection with Recapitalization............. $ 3,221
Supplemental schedule of non cash investing
and financing activities
The Company acquired the net assets and
assumed certain liabilities of other
companies as follows:
Assets, net of cash acquired................. $ 162,954 $ 15,033 $ --
Liabilities assumed.......................... (43,301)
Less:
Amounts paid in common stock................. (3,825)
Amount paid through issuance of convertible
note........................................ (300)
--------- --------- ---------
Net cash paid................................. $ 115,528 $ 15,033 $ --
========= ========= =========
</TABLE>
See accompanying notes.
F-26
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands Except Share and Per Share Amounts)
1. Organization and Basis of Presentation
United Rentals, Inc. was incorporated in August 1997 for the purpose of
creating a large, geographically diversified equipment rental company in the
United States and Canada. On August 5, 1998, a reorganization was effected
pursuant to which existing United Rentals, Inc. became a wholly-owned
subsidiary of United Rentals Holdings, Inc. (Holdings), a newly formed holding
company. The name of existing United Rentals, Inc. changed to United Rentals
(North America), Inc. The name of Holdings was changed to United Rentals, Inc.
(referred to herein as the "Company"). As a result of the Reorganization, the
Holding Company's primary asset is its sole ownership of all issued and
outstanding shares of common stock of United Rentals (North America), Inc.,
through which substantially all of the Company's operations are conducted.
United Rentals (North America) Inc.'s various credit agreements and debt
instruments place restrictions on its ability to transfer funds to its
shareholder.
The Company rents a broad array of equipment to a diverse customer base
that includes construction industry participants, industrial companies,
homeowners and others. The Company also engages in related activities such as
selling used rental equipment, acting as a distributor for certain new
equipment and selling related merchandise and parts. The nature of the
Company's business is such that short-term obligations are typically met by
cash flow generated from long-term assets. Consequently, consistent with
industry practice, the accompanying balance sheets are presented on an
unclassified basis.
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, giving retro-active effect for
the reorganization for all periods presented. All significant intercompany
accounts and transactions have been eliminated. The accompanying consolidated
financial statements have been restated for all periods presented to include
the accounts of U.S. Rentals, Inc. ("U.S. Rentals") and Rental Tools &
Equipment Co. International Inc. ("Rental Tools"), two acquisitions accounted
for as poolings-of-interests (See Note 3).
2. Summary of Significant Accounting Policies
Cash Equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents.
Inventory
Inventory consists of equipment, tools, parts, fuel and related supply
items. Inventory is stated at the lower of cost or market. Cost is determined
on either a weighted average or first-in, first-out method.
Rental Equipment
Rental equipment is recorded at cost and depreciated over the estimated
useful lives of the equipment generally using the straight-line method. The
range of useful lives estimated by management for rental equipment is two to
ten years. Rental equipment is depreciated to a salvage value of zero to ten
percent of cost. Rental equipment having a cost of $.5 or less is expensed at
the time of purchase. Ordinary maintenance and repair costs are charged to
operations as incurred.
F-27
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue Recognition
Revenue related to the sale of equipment and merchandise is recognized at
the point of sale. Revenue related to rental equipment is recognized over the
contract term.
Property and Equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method. The range of useful
lives estimated by management for property and equipment is two to thirty-nine
years. Ordinary maintenance and repair costs are charged to operations as
incurred. Leasehold improvements are amortized using the straight-line method
over their estimated useful lives or the remaining life of the lease, whichever
is shorter.
Intangible Assets
Intangible assets consist of the excess of cost over the value of
identifiable net assets of businesses acquired and are being amortized on a
straight-line basis over their estimated useful lives of forty years.
Long-Lived Assets
Long-lived assets are recorded at the lower of amortized cost or fair
value. As part of an ongoing review of the valuation of long-lived assets,
management assesses the carrying value of such assets if facts and
circumstances suggest they may be impaired. If this review indicates that the
carrying value of these assets may not be recoverable, as determined by a
nondiscounted cash flow analysis over the remaining useful life, the carrying
value would be reduced to its estimated fair value. There have been no material
impairments recognized in these financial statements.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for accounts
receivable, accounts payable, accrued expenses and other liabilities
approximate fair value due to the immediate to short-term maturity of these
financial instruments. The fair value of notes payable is determined using
current interest rates for similar instruments as of December 31, 1997 and
approximates the carrying value of these notes due to the fact that the
underlying instruments include provision to adjust note balances and interest
rates to approximate fair market value.
Advertising Expense
The Company advertises primarily through trade journals and the media.
Advertising costs are expensed as incurred and totaled $6,866, $4,487 and
$3,779 for the years ended December 31, 1997, 1996 and 1995, respectively.
Income Taxes
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on the
differences between financial statement and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that are expected to 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 realized in future periods.
F-28
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
U.S. Rentals (prior to February 20, 1997) and Rental Tools (prior to August
28, 1998) elected to be treated as Subchapter S Corporations. See Note 9.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents with high
quality financial institutions.
Concentration of credit risk with respect to accounts receivable are
limited because a large number of geographically diverse customers make up the
Company's customer base. No single customer represents greater than 10% of
total accounts receivable. The Company controls credit risk through credit
approvals, credit limits, and monitoring procedures.
Stock-Based Compensation
The Company accounts for its stock based compensation arrangements under
the provisions of APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Since stock options are granted by the Company with exercise prices
at or greater than the fair value of the shares at the date of grant, no
compensation expense is recognized.
Computation of Earnings Per Share
Earnings per share is calculated under the provisions of Statement 128,
Earnings Per Share. Common Stock issued for consideration below the initial
public offering price ("IPO price") of $13.50 per share at which shares were
sold in the Company's initial public offering (the "IPO"), and stock options
and warrants granted with exercise prices below the IPO price per share during
the twelve months preceding the date of the initial filing of the registration
statement for the IPO are included in the calculation of common equivalent
shares at the IPO price per share.
Related Party Transactions
As disclosed in these financial statements, the Company has participated in
certain transactions with related parties during the current and previous
years. In the opinion of management, all transactions with related parties have
been conducted on terms which are fair and equitable.
insurance
The Company is insured for general liability, workers' compensation, and
group medical claims up to a specified claim and aggregate amounts (subject to
deductibles of $250-$3,000). Insured losses subject to these deductibles are
accrued based upon the aggregate liability for reported claims incurred and an
estimated liability for claims incurred but not reported. These liabilities are
not discounted.
F-29
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Impact of Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." The Company is required to adopt the
provisions of these Statements for its financial statements for the year ended
December 31, 1998. SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in primary financial statements. The
Company is currently evaluating the reporting formats recommended under this
Statement. SFAS No. 131 establishes a new method by which companies will report
operating segment information. This method is based on the manner in which
management organizes the segments within a company for making operating
decisions and assessing performance. The Company continues to evaluate the
provisions of SFAS No. 131 and, upon adoption, the Company may report operating
segments.
In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, "Employers' Disclosures about Pensions and Other Post Retirement
Benefits." SFAS No. 132 revises employers' disclosures about pension and other
post retirement benefit plans but does not change the measurement or
recognition of those plans. The Company is required to adopt SFAS No. 132 for
its financial statements for the year ended December 31, 1998. The adoption of
SFAS No. 132 is expected to have no effect on the Company's disclosure of
employee benefit matters.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes a new model for accounting for derivatives and hedging activities.
The Company is required to adopt SFAS No. 133 beginning January 1, 2000. The
adoption of SFAS No. 133 is not expected to have a material effect on the
Company's consolidated financial position or results of operations.
Reclassifications
Certain prior year balances have been reclassified to conform to the 1997
presentation.
3. Acquisitions
On September 29, 1998 and August 24, 1998, the Company issued 29,620,913
and 2,744,368 shares of its common stock for all outstanding shares of common
stock of U.S. Rentals and Rental Tools, respectively. These transactions have
been accounted for as poolings-of-interests and, accordingly, the consolidated
financial statements of the Company have been restated for all periods
presented to include the accounts of U.S. Rentals and Rental Tools.
Separate revenue and net income (loss) of the Company prior to the above
mergers ("United"), U.S. Rentals and Rental Tools prior to the combination are
as follows:
<TABLE>
<CAPTION>
U.S. Rental
United Rentals Tools Combined
------- -------- ------- --------
<S> <C> <C> <C> <C>
For the year ended December 31, 1997:
Revenues.............................. $10,633 $430,443 $48,762 $489,838
Net income (loss)..................... 34 4,830 (966) 3,898
For the year ended December 31, 1996:
Revenues.............................. 306,118 48,360 354,478
Net income............................ 33,084 4,642 37,726
For the year ended December 31, 1995:
Revenues.............................. 242,847 40,585 283,432
Net income............................ 30,624 2,673 33,297
</TABLE>
F-30
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During 1997 and 1996, the Company acquired certain assets and assumed
certain liabilities of fifteen and two businesses, respectively. The
acquisitions were financed through borrowings under the Company's lines of
credit and have been recorded using the purchase method of accounting. A
summary of the purchase price, assets acquired and liabilities assumed is as
follows:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Rental equipment........................................... $ 59,486 $12,435
Inventories................................................ 11,008 --
Accounts receivable........................................ 14,625 1,348
Other assets............................................... 9,542 356
Goodwill................................................... 72,425 894
Liabilities assumed........................................ (43,301) --
-------- -------
$123,785 $15,033
======== =======
</TABLE>
All of the consideration paid for the acquisitions was in cash with the
exception of two 1997 acquisitions. One acquisition included a $300 convertible
note and the consideration for another acquisition was paid through the
issuance of 318,712 shares of the Company's Common Stock. These shares are
subject to adjustment so that their value will equal $3,800 based upon the
average daily closing price of the Company's Common Stock during the 60 day
period beginning December 18, 1997. In accordance with such provision, 137,600
shares of Common Stock issued by the Company in connection with such
acquisition were canceled. In addition, contingent consideration is due on that
acquisition based upon a percentage of revenues up to a maximum of $2,800.
These acquisitions have been accounted for as purchases and, accordingly,
the results of their operations have been included in the Company's results of
operations from their respective acquisition dates. The purchase prices have
been allocated to the assets acquired and liabilities assumed based on their
respective fair values at their respective acquisition dates. Contingent
purchase price is capitalized when earned and amortized over the remaining life
of the related asset.
The following table summarizes, on an unaudited pro forma basis, the
combined results of operations of the Company for the years ended December 31,
1997 and 1996 as though each acquisition described above was made on January 1,
for each of the periods.
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revenues.................................................. $568,244 $464,097
Net income................................................ 24,715 30,391
Basic earnings per share.................................. $ 0.53 $ 1.32
======== ========
Diluted earings per share................................. $ 0.50 $ 1.32
======== ========
</TABLE>
The unaudited pro forma results are based upon certain assumptions and
estimates which are subject to change. These results are not necessarily
indicative of the actual results of operations that might have occurred, nor
are they necessarily indicative of expected results in the future.
4. Notes Receivable from Affiliate
On February 20, 1997, U.S. Rentals completed a recapitalization upon
completing its initial public offering whereby it exchanged 20,748,975 shares
of its common stock for all the operating assets and liabilities of its
predecessor (the "Recapitalization"). The predecessor retained only non-
F-31
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
operating assets and liabilities, including $25,700 of notes receivable from an
affiliate and $24,400 of notes payable to related parties. In conjunction with
the Recapitalization, certain deferred compensation agreements totaling $20,290
were terminated and expensed. Unless otherwise indicated, U.S. Rentals also
refers to the Predecessor prior to the Recapitalization.
Prior to the Recapitalization, the Company earned interest income from the
affiliate of $555, $3,420 and $3,343 for the years ended December 31, 1997,
1996 and 1995, respectively. The notes provide for positive or negative annual
adjustments of the principal amount based on the change in the Consumer Price
Index, limited to certain percentages of the affiliated entity's cumulative net
income from December 31, 1984. The accompanying financial statements include
principal adjustments in notes receivable and other income in the amounts of
$146, $572 and $220 for the years ended December 31, 1997, 1996 and 1995,
respectively.
5. Rental Equipment
Rental equipment and related accumulated depreciation consists of the
following:
<TABLE>
<CAPTION>
December 31
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Rental equipment....................................... $ 718,960 $ 456,735
Less accumulated depreciation.......................... (257,934) (221,680)
--------- ---------
Rental equipment, net.................................. $ 461,026 $ 235,055
========= =========
</TABLE>
6. Property And Equipment
A summary of property and equipment is as follows:
<TABLE>
<CAPTION>
December 31
------------------
1997 1996
-------- --------
<S> <C> <C>
Land..................................................... $ 24,102 $ 16,582
Buildings................................................ 34,474 21,127
Vehicles and delivery equipment.......................... 52,407 34,601
Yard equipment........................................... 7,751 6,793
Furniture and fixtures................................... 9,521 4,626
Leasehold improvements................................... 17,846 11,041
-------- --------
146,101 94,770
Less accumulated depreciation and amortization........... (47,833) (38,327)
-------- --------
$ 98,268 $ 56,443
======== ========
</TABLE>
F-32
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
December 31
---------------
1997 1996
------- -------
<S> <C> <C>
Accrued profit sharing..................................... $12,844 $ 9,102
Insurance reserves......................................... 11,665 14,002
Accrued payroll............................................ 3,345 1,882
Accrued vacation........................................... 2,668 1,377
Deferred compensation...................................... 2,581 2,214
Accrued interest........................................... 924 2,962
Other...................................................... 15,235 6,020
------- -------
$49,262 $37,559
======= =======
</TABLE>
8. Debt and Notes Payable to Related Parties
Debt and notes payable to related parties consists of the following:
<TABLE>
<CAPTION>
December 31
-----------------
1997 1996
-------- --------
<S> <C> <C>
U.S. Rentals' revolving line of credit, interest payable
monthly at money market rate (ranging from 6.03% to
6.34% at December 31, 1997)............................. $203,000 $43,000
Rental Tools' revolving line of credit, interest payable
monthly at various rates (ranging from 7.58% to 8.50% at
December 31, 1997), due 2003............................ 38,213 --
Subordinated convertible notes........................... 500 --
Senior notes payable to various parties, interest payable
semiannually ranging from 6.82% to 7.76%................ -- 90,000
Revolving line of credit, interest payable monthly at
reference rate plus .125% (8.25% at December 31, 1996).. -- 26,300
Notes payable to related parties:
Demand note to stockholder, interest payable monthly at
a rate tied to the Company's revolving line of credit
(5.90% at December 31, 1997)........................... 17,000 --
Subordinated note payable to The Colburn School of Per-
forming Arts, interest payable quarterly at prime rate
plus 5%................................................ -- 20,000
Other related party notes............................... -- 4,511
Other debt............................................... 5,860 30,526
-------- --------
$264,573 $214,337
======== ========
</TABLE>
United Rentals (North America) Inc.'s credit facility with a group of
financial institutions, for which Bank of America National Trust and Savings
Association acts as agent, enables the Company to borrow up to $155,000 on a
revolving basis (the "Facility"). The facility terminates on October 8, 2000,
at which time all outstanding indebtedness is due. As of December 31, 1997,
there was no outstanding indebtedness under the Facility.
F-33
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
U.S. Rentals' credit facility with various banks provides for an unsecured
line of credit of $300,000 maturing no later than 2002. The revolving line of
credit is unsecured and includes restrictions as to limitations upon certain
ratios of liabilities to net worth and upon the minimum net worth of U.S.
Rentals. The Senior and bank note agreements existing at December 31, 1996 were
paid down with the proceeds from U.S. Rentals' IPO.
During the third quarter of 1998, United Rentals (North America) Inc. paid
down all of the amounts outstanding as of December 31, 1997 under the credit
facilities with the proceeds of a new Credit Facility. The new revolving credit
facility in the amount of $762,500 replaced the credit facilities that had been
previously in place (the Credit Facility). The Credit Facility is with a group
of financial institutions, for which Bank of America National Trust and Savings
Association acts as the agent. The Credit Facility requires that the aggregate
commitment shall be reduced on the last day of each calendar quarter, beginning
September 30, 2001 and continuing through June 30, 2003 by an amount equal to
$19,062. The Credit Facility terminates on September 26, 2003, at which time
all outstanding indebtedness is due. Borrowings by United Rentals (North
America) Inc. under the Credit Facility accrue interest at United Rentals
(North America) Inc.'s option at either (a) the Base Rate (which is equal to
the greater of (i) the Federal Funds Rate plus 0.5% or (ii) Bank of America's
reference rate) or (b) the Eurodollar Rate (which for borrowings by United
Rentals (North America) Inc. is equal to Bank of America's reserve adjusted
eurodollar rate) plus a margin ranging from 0.950% to 1.625% per annum.
Borrowings by a Canadian Subsidiary under the Credit Facility accrue interest,
at such subsidiary's option, at either (x) the Prime Rate (which is equal to
Bank of America Canada's prime rate), (y) the BA Rate (which is equal to Bank
of America Canada's BA Rate) plus a margin ranging from 0.95% to 1.625% per
annum or (z) the Eurodollar Rate (which for borrowing by the Canadian
Subsidiary is equal to Bank of America Canada's reserve adjusted Eurodollar
Rate) plus a margin ranging from 0.95% to 1.625% per annum. If at any time an
event of default (as defined in the agreement governing the Credit Facility)
exists, the interest rate applicable to each loan will increase by 2% per
annum. United Rentals (North America) Inc. is also required to pay the banks an
annual facility fee equal to 0.375% of the banks' $762,500 aggregate lending
commitment under the Credit Facility (which fee may be reduced to 0.300% for
periods during which the Company maintains a specified funded debt to cash flow
ratio).
The obligations of United Rentals (North America) Inc. under the Credit
Facility are (i) secured by substantially all of its assets, the stock of its
United States subsidiaries and a portion of the stock of the Company's Canadian
subsidiaries and (ii) guaranteed by the Company and secured by the stock of the
Company.
The Credit Facility contains certain covenants that require United Rentals
(North America) Inc. to, among other things, satisfy certain financial tests
relating to: (a) maximum leverage, (b) the ratio of senior debt to cash flow,
(c) minimum interest coverage ratio, (d) the ratio of funded debt to cash flow,
and (e) the ratio of senior debt to tangible assets. The agreements governing
the Credit Facility also contains various other covenants that restrict the
Company's ability to, among other things, (i) incur additional indebtedness,
(ii) permit liens to attach to its assets, (iii) pay dividends or make other
restricted payments on its common stock and certain other securities and (iv)
make acquisitions unless certain financial conditions are satisfied. In
addition, the agreement governing the Credit Facility requires the Company to
maintain certain financial ratios and (b) provides that failure by any two of
certain of the Company's executive officers to continue to hold executive
positions with the Company for a period of 30 consecutive days constitutes an
event of default unless replacement officers satisfactory to the lenders are
appointed.
F-34
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The subordinated convertible notes consists of two notes; $300 in principal
bearing interest at 7% per annum and $200 in principal bearing interest at 7
1/2% per annum. The $200 note was converted into 14,814 shares of Common Stock
during January 1998. The $300 note is repayable in equal quarterly installments
of principal and interest through October 2002, is convertible into the
Company's Common Stock at a conversion rate of $16.20 per share and is
subordinated to the Company's Credit Facility.
Maturities of the Company's debt for each of the next five years at
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998................................ $ 17,394
1999................................ 491
2000................................ 239
2001................................ 182
2002................................ 69
Thereafter.......................... 246,198
</TABLE>
9. Income Taxes
U.S. Rentals (prior to February 20, 1997) and Rental Tools (prior to August
24, 1998), the companies acquired through mergers with the Company in
transactions accounted for as poolings-of-interests (see Note 3), had elected
to be treated as Subchapter S Corporations. In general, the income or loss of a
Subchapter S Corporation is passed through to its owners rather than being
subjected to taxes at the entity level. Pro forma net income reflects a
provision for income taxes on a pro forma basis for all periods presented as if
all such companies were liable for federal and state income taxes as taxable
corporate entities for all periods presented.
The provision for historical federal and state income taxes is as follows:
<TABLE>
<CAPTION>
Year ended December 31
------------------------
1997 1996 1995
--------- --------------
<S> <C> <C> <C>
Historical:
Federal:
Current......................................... $ 3,765 $ -- $ --
Deferred........................................ 14,276
Deferred tax recorded upon Recapitalization..... 6,141
--------- ------ ------
24,182 -- --
State:
Current......................................... 668 420 484
Deferred........................................ 3,279
Deferred tax recorded upon Recapitalization..... 1,379
--------- ------ ------
5,326 420 484
--------- ------ ------
$29,508 $420 $ 484
========= ====== ======
</TABLE>
F-35
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of the provision for income taxes and the amount computed
by applying the statutory federal income tax rate of 35% to income before
provision for income taxes is as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
1997
------------
<S> <C>
Computed tax rate at statutory tax rate....................... $12,221
Increase (decrease) in taxes State income taxes, net of
federal tax benefit.......................................... 1,716
Cumulative deferred taxes recorded upon Recapitalization...... 7,520
Loss prior to Recapitalization excluded from taxable income... 7,543
Other......................................................... 508
-------
$29,508
=======
</TABLE>
The components of deferred income tax assets (liabilities) as of December
31, 1997 are as follows:
<TABLE>
<S> <C>
Accrued liabilities............................................... $ 7,576
Net operating loss carryforward................................. 314
Property and equipment.......................................... 44
Allowance for doubtful accounts................................. 2,079
State income taxes.............................................. 1,636
Other, net...................................................... 923
--------
12,572
Depreciation.................................................... (36,334)
Intangibles and other........................................... (633)
--------
$(24,395)
========
</TABLE>
The Company has net short-term deferred tax assets in the amount of $880,
which are reported in the balance sheet in prepaid expenses and other assets.
The Company has net operating loss carryforwards ("NOL's") of $846 for
income tax purposes that expire in 2012.
10. Capital Stock
The Company's Board of Directors has the authority to designate 5,000,000
shares of $.01 par value preferred stock in series, to establish as to each
series the designation and number of shares to be issued and the rights,
preferences, privileges and restrictions of the shares of each series, and to
determine the voting powers, if any, of such shares. At December 31, 1997, the
Company's Board of Directors had not designated any shares.
As of December 31, 1997 there are outstanding warrants to purchase an
aggregate of 6,344,058 shares of Common Stock. Each warrant provides for an
exercise price of $10.00 per share, is currently exercisable and may be
exercised at any time until September 12, 2007.
F-36
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1997 Stock Option Plan
The Board of Directors of the Company has adopted the 1997 Stock Option
Plan (the "Stock Option Plan") which provides for the granting of options to
purchase not more than an aggregate of 5,000,000 shares of Common Stock. All
officers, employees and others who render services to the Company are eligible
to participate in the Stock Option Plan. Each option granted pursuant to the
Stock Option Plan must provide for an exercise price per share that is at least
equal to the fair market value per share of Common Stock on the date of grant.
No options may be granted under the Stock Option Plan after August 21, 2007.
The exercise price of each option, the period during which each option may be
exercised and the other terms and conditions of each option are determined by
the Board of Directors (or by a committee appointed by the Board).
During 1997, 904,583 options to purchase shares of the Common Stock were
granted under the Stock Option Plan and remain outstanding at December 31,
1997. The weighted average exercise price per share of such options was $12.76.
Such options had exercise prices ranging from $10 to $30 per share. Of such
options 818,583 provided for an exercise price per share in the range of $10.00
to $19.99 (the weighted average exercise price and weighted average remaining
life of the options in this range being $11.84 and 9.9 years, respectively) and
86,000 provided for an exercise price per share in the range of $20.01 to
$30.00 (the weighted average exercise price and weighted average remaining life
of the options in this range being $22.51 and 9.9 years, respectively). At
December 31, 1997, 60,000 options to purchase Common Stock at $15.00 per share
were exercisable.
1997 Performance Award Plan
Effective February 20, 1997, U.S. Rentals adopted the 1997 Performance
Award Plan under which stock options and other awards could be granted to key
employees and directors at prices and terms established by U.S. Rentals at the
date of grant. The exercise price of all options issued during 1997 equaled the
fair value of the stock on the grant date which ranged from $17.88 to $26.88.
Accordingly, no compensation expense has been recognized. Options outstanding
at December 31, 1997 vest ratably over periods ranging from five to ten years
and expire in 2007.
The following table summarizes the activity under the Performance Award
Plan:
<TABLE>
<CAPTION>
Weighted
Average
Number of
Exercise
Shares Price
--------- ---------
<S> <C> <C>
Shares under option:
Outstanding at December 31, 1996......................... -- $ --
Granted ($17.88-$20.00).................................. 3,867,387 $19.99
($23.44-$26.88)........................................ 206,500 $25.78
---------
Outstanding at December 31, 1997......................... 4,073,887 $20.29
=========
</TABLE>
There were no vested options outstanding and 526,113 shares were available
for future grants under the Performance Award Plan at December 31, 1997.
As a result of the merger, all outstanding options to purchase shares of
U.S. Rentals common stock became fully vested and were converted into options
to purchase United Rentals common stock at the exchange ratio of 0.9625.
F-37
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" in accounting for stock-based
employee compensation arrangements whereby no compensation cost related to
stock options is deducted in determining net income. Had compensation cost for
the Company's stock option plans been determined pursuant to Financial
Accounting Standards Board Statement No. 123 ("SFAS No. 123"), "Accounting for
Stock-Based Compensation," the Company's net income and earnings per share
would have differed. The Black-Scholes option pricing model estimates fair
value of options using subjective assumptions which can materially affect fair
value estimates and, therefore, does not necessarily provide a single measure
of fair value of options. Using the Black-Scholes option pricing model and a
risk-free interest rate ranging from 5.8% to 6.61%, a volatility factor for
the market price of the Company's Common Stock of 32% and a weighted-average
expected life of options of approximately three to five years, the Company's
net income, basic earnings per share and diluted earnings per share after
giving affect to the Recapitalization, would have been $17,055, $0.37 and
$0.35, respectively. For purposes of these pro forma disclosures, the
estimated fair value of options is amortized over the options' vesting period.
Since the number of options granted and their fair value may vary
significantly from year to year, the pro forma compensation expense in future
years may be materially different.
At December 31, 1997 there are 6,344,058 shares of Common Stock reserved
for the exercise of warrants, 5,000,000 shares of Common Stock reserved for
issuance pursuant to options granted, and that may be granted in the future,
under the 1997 Stock Option Plan and 33,332 shares of Common Stock reserved
for the future conversion of convertible debt.
11. Earnings Per Share
The following table sets forth the computation of historical basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Numerator:
Net income............................... $ 3,898 $ 37,726 $ 33,297
========== ========== ==========
Denominator:
Denominator for basic earnings per share-
weighted-average shares................. 46,660,955 22,654,599 22,660,013
Effect of dilutive securities:
Employee stock options.................. 743,597
Warrants................................ 1,644,445
---------- ---------- ----------
Denominator for dilutive earnings per
shares- adjusted weighted-average
shares.................................. 49,048,997 22,654,599 22,660,013
========== ========== ==========
Basic earnings before extraordinary item
per share................................ $ 0.12 $ 1.67 $ 1.47
========== ========== ==========
Diluted earnings before extraordinary item
per share................................ $ 0.11 $ 1.67 $ 1.47
========== ========== ==========
Basic earnings per share.................. $ 0.08 $ 1.67 $ 1.47
========== ========== ==========
Diluted earnings per share................ $ 0.08 $ 1.67 $ 1.47
========== ========== ==========
</TABLE>
F-38
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. 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, by year and in
the aggregate, for noncancellable operating leases with initial or remaining
terms of one year or more are as follows at December 31, 1997:
<TABLE>
<S> <C>
1998.............................................................. $ 9,185
1999.............................................................. 7,270
2000.............................................................. 5,709
2001.............................................................. 4,891
2002.............................................................. 3,418
Thereafter........................................................ 13,061
-------
$43,534
=======
</TABLE>
Rent expense under non-cancelable operating leases totaled $6,367, $4,151
and $3,855 for the years ended December 31, 1997, 1996 and 1995, respectively.
Employee Benefit Plans
The Company sponsors two defined contribution 401(k) retirement plans (the
Plans) which are subject to the provisions of ERISA. Under the Plans, the
Company matches a minimum of 50% of the participants contributions up to a
specified amount. Company contributions to the Plans were $358, $316 and $404
for the years ended December 31, 1997, 1996 and 1995, respectively.
Legal Matters
The Company is party to legal proceedings and potential claims arising in
the ordinary course of its business. In the opinion of management, the Company
has adequate legal defenses, reserves, or insurance coverage with respect to
these matters so that the ultimate resolution will not have a material adverse
effect on the Company's financial position, results of operations, or cash
flows. The Company has accrued $9,563 and $12,011 at December 31, 1997 and
1996, respectively, to cover the uninsured portion of possible costs arising
from these pending claims and other potential unasserted claims.
Environmental Matters
The Company and its operations are subject to various laws and related
regulations governing environmental matters. Under such laws, an owner or
lessee 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. The Company incurs
ongoing expenses associated with the removal of underground storage tanks and
the performance of appropriate remediation at certain of its locations. The
Company believes that such removal and remediation will not have a material
adverse effect on the Company's financial position, results of operations, or
cash flows.
F-39
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Quarterly Financial Information (Unaudited)
Selected Financial Data
The following table of quarterly financial information has been prepared
from unaudited financial statements of the Company, and reflects adjustments
which are, in the opinion of management, necessary for a fair presentation of
the interim periods presented.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
For the year ended December 31, 1997:
Total revenues....................... $ 90,409 $108,395 $129,020 $162,014
Gross profit......................... 22,025 32,515 45,464 49,288
Income (loss) before extraordinary
item................................ (24,165) 8,062 11,258 10,254
Extraordinary item................... 1,511 -- -- --
Net income (loss).................... (25,676) 8,062 11,258 10,254
For the year ended December 31, 1996:
Total revenues....................... 67,290 83,323 102,708 101,157
Gross profit......................... 17,784 24,973 35,859 34,417
Net income........................... 3,621 7,790 15,813 10,502
</TABLE>
14. Subsequent Events
Subsequent to December 31, 1997 and through January 25, 1999, the Company
completed the acquisition of 89 equipment rental companies (the "Acquisitions")
and the aggregate consideration paid by the Company for the Acquisitions was
$882,563 and consisted of approximately $777,669 in cash, $12,610 in notes,
3,631,765 shares of the Common Stock and warrants to purchase 30,000 shares of
the Common Stock. The Company funded a portion of the cash consideration for
these acquisitions with cash on hand and the balance with borrowings under the
Credit Facility and proceeds from the offerings noted below.
On March 11, 1998, the Company completed a public offering of 8,625,000
shares of its Common Stock. Net proceeds of the offering were approximately
$207,400.
On May 19, 1998, United Rentals (North America) Inc. completed an offering
of $200,000 of 9 1/2% Senior Subordinated Notes due 2008. Net proceeds of the
offering were approximately $193,000.
On August 5, 1998 United Rentals Trust I, a subsidiary of the Company,
completed a $300,000 offering of Convertible Quarterly Income Preferred
Securities. Net proceeds of the offering were approximately $290,000.
On August 12, 1998, United Rentals (North America) Inc. completed an
offering of $205,000 of 8.80% Senior Subordinated Notes due 2008. Net proceeds
of the offering were approximately $196,000.
On September 29, 1998, the shareholders of United approved an amendment to
the Company's Certificate of Incorporation increasing the number of authorized
shares of Common Stock from 75,000,000 shares to 500,000,000 shares.
On December 15, 1998, United Rentals (North America) Inc., completed an
offering of $300,000 of 9.25% Senior Subordinated Notes due 2009. Net proceeds
of the offering were approximately $292,100.
On January 7, 1999, the Company completed the sale of 300,000 shares of
Series A Perpetual Convertible Preferred Stock. Net proceeds of the sale were
approximately $287,000.
F-40
<PAGE>
UNDERWRITING
The Company, the selling stockholder and the underwriters for the U.S.
offering (the "U.S. Underwriters") named below have entered into an
underwriting agreement with respect to the shares being offered in the United
States. Subject to certain conditions, each U.S. Underwriter has severally
agreed to purchase the number of shares indicated in the following table.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co. ........................................
Donaldson, Lufkin & Jenrette Securities Corporation..........
---------
Total...................................................... 6,400,000
=========
</TABLE>
----------------
If the U.S. Underwriters sell more shares than the total number set forth
in the table above, the U.S. Underwriters have an option to buy up to an
additional 960,000 shares from the Company. They may exercise that option for
30 days. If any shares are purchased pursuant to this option, the U.S.
Underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above.
The following tables show the per share and total underwriting discounts
and commissions to be paid to the U.S. Underwriters by the Company and the
selling stockholder. Such amounts are shown assuming both no exercise and full
exercise of the U.S. Underwriters' option to purchase 960,000 additional
shares.
Paid by the Company
<TABLE>
<CAPTION>
No Full
Exercise Exercise
-------- --------
<S> <C> <C>
Per Share............................................... $ $
Total................................................... $ $
</TABLE>
Paid by the selling stockholder
<TABLE>
<CAPTION>
No Full
Exercise Exercise
-------- --------
<S> <C> <C>
Per Share............................................... $ $
Total................................................... $ $
</TABLE>
Shares sold by the U.S. Underwriters to the public will initially be
offered at the initial public offering price set forth on the cover of this
prospectus. Any shares sold by the U.S. Underwriters to securities dealers may
be sold at a discount of up to $ per share from the initial public offering
price. Any such securities dealers may resell any shares purchased from the
U.S. Underwriters to certain other brokers or dealers at a discount of up to
$ per share from the initial public offering price. If all the shares are
not sold at the public offering price, the U.S. Underwriters may change the
initial offering price and the other selling terms.
The Company and the selling stockholder have entered into an underwriting
agreement with the Underwriters for the sale of 1,600,000 shares outside of the
United States. The terms and conditions
U-1
<PAGE>
of both offerings are the same and the sale of shares in both offerings are
conditioned on each other. Goldman Sachs International and Donaldson, Lufkin &
Jenrette Securities Corporation are the underwriters for the international
offering outside the United States (the "International Underwriters"). The
Company has granted the International Underwriters a similar option to purchase
up to an aggregate of an additional 240,000 shares.
The underwriters for both of the offerings have entered into an agreement
in which they agree to restrictions on where and to whom they and any dealer
purchasing from them may offer shares as a part of the distribution of the
shares. The underwriters also have agreed that sales may be made between the
U.S. Underwriters and the International Underwriters.
The selling stockholder, Richard Colburn, and Ayr, Inc. (an affiliate of
Mr. Colburn) have agreed that until 270 days after the date of this prospectus
neither they nor any of their affiliates will, without the prior written
consent of Goldman, Sachs & Co., offer, sell, contract to sell or otherwise
dispose of, any shares of common stock of United Rentals or any other
securities of United Rentals or any derivative securities, whether or not such
securities have been registered and whether or not such sale could otherwise be
made under Rule 144 or otherwise. Subject to certain conditions, the foregoing
agreement does not limit transfers (a) upon the consummation of any merger or
reorganization of United Rentals in which the surviving entity is not
controlled by the persons who controlled United Rentals before such
consummation, (b) to one or more affiliates or one or more members of Mr.
Colburn's family, or a trust, corporation, partnership or limited liability
company, the sole beneficiaries of which are members of Mr. Colburn's family,
or (c) to one or more charitable organizations. In the case of any transfer
pursuant to clause (b) or (c) of the preceding sentence, the transferee is
required to agree in writing to be bound by the terms of the foregoing lock-up,
except that charitable organizations which receive shares under clause (c) may
after completion of the offering sell such shares pursuant to Rule 144 so long
as no individual charitable organization sells more than 25,000 of such shares
under Rule 144 and so long all such charitable organizations together sell no
more than 100,000 of such shares under Rule 144.
The Company and all of the Company's executive officers and directors
(other than Mr. Colburn, who entered into the lock-up described in the
preceding paragraph) have agreed during the period beginning from , 1999
and continuing for 90 days, not to offer, sell, contract to sell, or otherwise
dispose of any shares of any class of common stock of the Company (except that
Mr. Berry may sell up to 723,455 shares and Mr. McKinney may sell up to 361,727
shares) or any other securities which are convertible into, or exercisable or
exchangeable for, common stock of the Company, without the prior written
consent of Goldman, Sachs & Co. The foregoing agreement will not limit a
stockholder's ability to transfer shares in a private placement or to pledge
shares, provided that the transferee or pledgee agrees to be bound by such
agreement. The foregoing agreement also will not limit the Company's ability to
(i) grant stock options under the existing stock option plans described under
"Management--Stock Option Plans" or issue shares upon the exercise of stock
options granted pursuant to such plans, (ii) issue shares upon exercise or
conversion of outstanding options, warrants and convertible securities, (iii)
issue shares, warrants or convertible securities as consideration for
acquisitions, provided that the number of shares, warrants or convertible
securities (calculated on a common stock equivalent basis in the case of
warrants and convertible securities) that may be issued as consideration for
acquisitions may not exceed 5,000,000 unless the recipients of such excess
shares, warrants or convertible securities agree with the Company (which
agreement may not be amended without the prior written consent of Goldman,
Sachs & Co.) to be subject to the foregoing lock-up agreement with respect to
such excess shares, warrants or convertible securities or (iv) issue shares
upon the exercise of any warrants or convertible securities issued pursuant to
the preceding clause, provided that such shares will be subject to the
foregoing lock-up to the same extent, if any, as the warrants or convertible
securities pursuant to which such shares were issued.
In connection with the offering described in this prospectus, the
Underwriters may purchase and sell shares of common stock in the open market.
These transactions may include short sales, over-
U-2
<PAGE>
allotment and stabilizing transactions and purchases to cover positions created
by short sales. Short sales involve the sale by the Underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because an Underwriter has repurchased shares sold by
or for the account of such Underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected on the NYSE, in
the over-the-counter market or otherwise.
The Company estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $1,000,000. The
Company will pay all such expenses.
Each of the Underwriters has from time to time provided, and may in the
future provide, certain investment banking services to the Company and certain
of its affiliates, for which such Underwriter has received or may receive
customary fees and commissions.
The Company and the selling stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. In addition, the Company has agreed to reimburse the
Underwriters for certain of their expenses.
This Prospectus may be used by the Underwriters and other dealers in
connection with offers and sales of the shares, including sales of shares
initially sold by the Underwriters in the offering being made outside of the
United States, to persons located in the United States.
U-3
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely
on any unauthorized information or representations. This prospectus is an
offer to sell only the shares offered hereby, and only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Cautionary Notice Regarding Forward-Looking Statements................... 3
Where You Can Find More Information...................................... 3
Incorporation of Certain Documents by Reference.......................... 3
Prospectus Summary....................................................... 5
Risk Factors............................................................. 13
Corporate Information.................................................... 17
Use of Proceeds.......................................................... 18
Price Range of Common Stock.............................................. 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Selected Historical and Pro Forma Consolidated Financial Information..... 21
Management's Discussion and Analysis of Financial Condition and Results
of Operation............................................................ 24
Business................................................................. 35
Management............................................................... 46
Certain Transactions..................................................... 53
Principal Stockholders................................................... 54
Selling Stockholder...................................................... 56
Description of Capital Stock............................................. 57
Certain Charter and By-Law Provisions.................................... 60
Legal Matters............................................................ 63
Experts.................................................................. 63
Index to Financial Statements............................................ F-1
Underwriting............................................................. U-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
8,000,000 Shares
United Rentals, Inc.
Common Stock
-----------
[LOGO] United Logo
-----------
Goldman, Sachs & Co.
Donaldson, Lufkin & Jenrette
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 14. Other Expenses of Issuance and Distribution
<TABLE>
<S> <C>
SEC Registration Fee.......................................... $ 89,107
Printing and engraving expenses............................... 300,000
Listing Fee................................................... 10,000
NASD Fee...................................................... 30,500
Legal fees and expenses (other than blue sky)................. 250,000
Blue Sky fees and expenses.................................... 15,000
Accounting fees and expenses.................................. 150,000
Transfer agent fees........................................... 15,000
Miscellaneous................................................. 140,393
----------
Total..................................................... $1,000,000
==========
</TABLE>
All of such expenses will be paid by Holdings.
ITEM 15. Indemnification of Directors and Officers
The Certificate of Incorporation (the "Certificate") of Holdings provides
that a director will not be personally liable to Holdings or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the Delaware General Corporation Law (the "Delaware Law"),
which concerns unlawful payments of dividends, stock purchases or redemptions,
or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware Law is subsequently amended to permit further
limitation of the personal liability of directors, the liability of a director
of Holdings will be eliminated or limited to the fullest extent permitted by
the Delaware Law as amended.
Holdings, as a Delaware corporation, is empowered by Section 145 of the
Delaware Law, subject to the procedures and limitation stated therein, to
indemnify any person against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with any threatened, pending or completed action, suit or proceeding
in which such person is made a party by reason of his being or having been a
director, officer, employee or agent of Holdings. The statute provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any by-law, agreement,
vote of stockholders or disinterested directors, or otherwise. Holdings has
entered into indemnification agreements with its directors and officers. In
general, these agreements require Holdings to indemnify each of such persons
against expenses, judgments, fines, settlements and other liabilities incurred
in connection with any proceeding (including a derivative action) to which such
person may be made a party by reason of the fact that such person is or was a
director, officer or employee of Holdings or guaranteed any obligations of
Holdings, provided that the right of an indemnitee to receive indemnification
is subject to the following limitations: (i) an indemnitee is not entitled to
indemnification unless he acted in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of Holdings,
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe such conduct was unlawful and (ii) in the case of a derivative
action, an indemnitee is not entitled to indemnification in the event that he
is judged in a final non-appealable decision of a court of competent
jurisdiction to be liable to Holdings due to willful misconduct in the
performance of his duties to Holdings (unless and only to the extent that the
court determines that the indemnitee is fairly and reasonably entitled to
indemnification).
Pursuant to Section 145 of the Delaware Law, Holdings has purchased
insurance on behalf of its directors and officers against any liability
asserted against or incurred by them in such capacity or arising out of their
status as such. The Registrant has entered into indemnification agreements with
certain members of its management in the form filed as an exhibit to this
registration statement.
II-1
<PAGE>
ITEM 16. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------- ----------------------
<C> <S>
1(a) Form of U.S. Underwriting Agreement (to be filed by amendment)
1(b) Form of International Underwriting Agreement (to be filed by
amendment)
4(a) Amended and Restated Certificate of Incorporation of United Rentals
dated August 5, 1998 (incorporated by reference to Exhibit 3.1 to the
United Rentals Report on Form 10-Q for the quarterly period ended June
30, 1998)
4(b) Certificate of Amendment to the United Rentals Certificate of
Incorporation dated September 29, 1998 (incorporated by reference to
Exhibit 4.2 to the United Rentals Registration Statement on Form S-3,
No. 333-70151)
4(c) Form of Certificate of Designation for Series A Perpetual Convertible
Preferred Stock (incorporated by reference to the United Rentals
Registration Statement on Form S-3, No. 333-64463)
4(d) By-laws of United Rentals (incorporated by reference to Exhibit 3.2 to
the United Rentals Report on Form 10-Q for the quarterly period ended
June 30, 1998)
4(e) Form of certificate representing United Rentals, Inc. Common Stock
(incorporated by reference to Exhibit 4 to the United Rentals
Registration Statement on Form S-1, No. 333-39117)
5(a) Opinion of Ehrenreich Eilenberg Krause & Zivian LLP (to be filed by
amendment)
23(a) Consent of Ehrenreich Eilenberg Krause & Zivian LLP (to be included in
the opinion filed as Exhibit 5(a))
23(b)* Consent of Ernst & Young LLP
23(c)* Consent of PricewaterhouseCoopers LLP
23(d)* Consent of KPMG LLP
23(e)* Consent of Webster Duke & Co.
23(f)* Consent of Grant Thornton LLP
23(g)* Consent of KPMG LLP
23(h)* Consent of Battaglia, Andrews, & Moag, P.C.
23(i)* Consent of Moss Adams LLP
23(j)* Consent of BDO Siedman LLP
23(k)* Consent of PricewaterhouseCoopers LLP
23(l)* Consent of Altschuler, Melvoin and Glasser LLP
23(m)* Consent of PricewaterhouseCoopers LLP
23(n)* Consent of Beene Garter LLP
23(o)* Consent of McGladrey & Pullen LLP
23(p)* Consent of Schalleur & Surgent LLC
23(q)* Consent of KPMG LLP
24(a) Power of Attorney (included in Part II of the original Registration
Statement under the caption "Signatures")
</TABLE>
- --------
*Filed herewith.
II-2
<PAGE>
ITEM 17. Undertakings
A. The registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that paragraphs (A)(1)(i) and (A)(1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities and Exchange
Act of 1934) that is incorporated by reference in the Registration Statement
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item 20
above, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expense incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted against the registrant by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been
II-3
<PAGE>
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
D. The undersigned registrant hereby undertakes that:
(i) For the purpose of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, United Rentals,
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on February 2, 1999.
United Rentals, Inc.
/s/ Michael J. Nolan
By: _________________________________
Michael J. Nolan
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in their
respective capacities and on the respective dates indicated. Each person whose
signature appears below hereby authorizes Bradley S. Jacobs, John N. Milne and
Michael J. Nolan and each with full power of substitution, to execute in the
name and on behalf of such person any amendment or any post-effective amendment
to this Registration Statement and any registration statement relating to any
offering made in connection with the offering covered by this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same, with exhibits
thereto, and other documents in connection therewith, making such changes in
this Registration Statement as the Registrant deems appropriate, and appoints
each of Bradley S. Jacobs, John N. Milne and Michael J. Nolan, each with full
power of substitution, attorney-in-fact to sign any amendment and any post-
effective amendment to this Registration Statement and to file the same, with
exhibits thereto, and other documents in connection therewith.
Signatures Title Date
/s/ Bradley S. Jacobs Chairman, Chief February 2,
- ------------------------------------- Executive Officer 1999
Bradley S. Jacobs and Director
(Principal
Executive Officer)
/s/ Wayland R. Hicks Director February 2,
- ------------------------------------- 1999
Wayland R. Hicks
/s/ John N. Milne Director February 2,
- ------------------------------------- 1999
John N. Milne
/s/ William F. Berry Director February 2,
- ------------------------------------- 1999
William F. Berry
/s/ John S. McKinney Director February 2,
- ------------------------------------- 1999
John S. McKinney
II-5
<PAGE>
Signatures Title Date
/s/ Leon D. Black Director February 2,
- ------------------------------------ 1999
Leon D. Black
Director
- ------------------------------------
Richard D. Colburn
/s/ Ronald M. DeFeo Director February 2,
- ------------------------------------ 1999
Ronald M. DeFeo
/s/ Michael S. Gross Director February 2,
- ------------------------------------ 1999
Michael S. Gross
/s/ Richard J. Heckmann Director February 2,
- ------------------------------------ 1999
Richard J. Heckmann
/s/ Gerald Tsai, Jr. Director February 2,
- ------------------------------------ 1999
Gerald Tsai, Jr.
/s/ Christian M. Weyer Director February 2,
- ------------------------------------ 1999
Christian M. Weyer
/s/ Michael J. Nolan Chief Financial February 2,
- ------------------------------------ Officer (Principal 1999
Michael J. Nolan Financial Officer)
/s/ Sandra E. Welwood Vice President, February 2,
- ------------------------------------ Corporate 1999
Sandra E. Welwood Controller
(Principal
Accounting
Officer)
II-6
<PAGE>
EXHIBIT 23(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 and related Prospectus for registering shares
of its Common Stock, and to the inclusion herein or the incorporation by
reference herein of our report dated November 17, 1998, with respect to the
consolidated financial statements of United Rentals, Inc. included in the
Company's Current Report on Form 8-K dated December 15, 1998; our report dated
January 23, 1998, with respect to the financial statements of Mission Valley
Rentals, Inc. included in the Company's Current Report on Form 8-K/A dated
February 4, 1998; our report dated June 24, 1998, with respect to the financial
statements of Power Rental Co., Inc. included in the Company's Current Report on
Form 8-K/A dated July 21, 1998 and in the Company's Current Report on Form 8-K
dated December 24, 1998; and (i) our report dated April 20, 1998, except for
Note 10, as to which the date is April 22, 1998, with respect to the combined
financial statements of Valley Rentals, Inc., (ii) our report dated January 23,
1998, with respect to the financial statements of J&J Rental Services, Inc.,
(iii) our report dated January 19, 1998, with respect to the financial
statements of Bronco Hi-Lift, Inc., (iv) our report dated April 22, 1998, with
respect to the financial statements of Pro Rentals, Inc., (v) our report dated
April 15, 1998, with respect to the combined financial statements of Able
Equipment Rental, Inc., (vi) our report dated April 21, 1998, with respect to
the combined financial statements of Channel Equipment Holding, Inc., (vii) our
report dated April 22, 1998, with respect to the financial statements of ASC
Equipment Company, Inc. and (viii) our report dated July 17, 1998, with respect
to the combined financial statements of Adco Equipment, Inc. included in the
Company's Current Report on Form 8-K dated December 24, 1998, filed with the
Securities and Exchange Commission.
ERNST & YOUNG LLP
MetroPark, New Jersey
February 1, 1999
<PAGE>
Exhibit 23(c)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of United Rentals, Inc. of our report dated
November 17, 1998 relating to the financial statements of United Rentals, Inc.;
to the incorporation by reference in the Prospectus of our report dated November
17, 1998 relating to the financial statements of United Rentals, Inc.; and to
the use of our report dated January 28, 1998 relating to the financial
statements of U.S. Rentals, Inc., which appear in such Prospectus. We also
consent to the references to us under the heading "Experts" in such Prospectus.
PRICEWATERHOUSECOOPERS LLP
Sacramento, California
February 1, 1999
<PAGE>
Exhibit 23(d)
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
A & A Tool Rentals & Sales, Inc.:
We consent to the incorporation by reference in the Registration Statement on
Form S-3 of United Rentals, Inc. for the registration of up to 9,200,000 shares
of its common stock, of our report dated November 20, 1997, with respect to the
consolidated balance sheets of A & A Tool Rentals & Sales, Inc. and subsidiary
as of October 19, 1997 and October 31, 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the period
from November 1, 1996 to October 19, 1997 and for the years ended October 31,
1996 and 1995, which report appears in the Form 8-K of United Rentals, Inc.
dated December 24, 1998. We also consent to the reference to our firm under the
heading "Experts" in the Registration Statement.
KPMG LLP
Sacramento, California
February 2, 1999
<PAGE>
Exhibit 23(e)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement on Form S-3 and the related Prospectus of United
Rentals, Inc. (the "Company"), for the registration of up to 9,200,000 shares of
its common stock and to the incorporation by reference therein of our report
dated January 21, 1998 with respect to the financial statements of MERCER
Equipment Company, included in the Company's Report on Form 8-K dated December
24, 1998.
Webster Duke & Co. PA
February 1, 1999
<PAGE>
Exhibit 23(f)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 21, 1998, accompanying the
combined financial statements of Coran Enterprises, Inc., dba A-1 Rents, and
Monterey Bay Equipment Rental, Inc., appearing in the United Rentals, Inc.
Report on Form 8-K dated December 24, 1998, which are incorporated by reference
in this Registration Statement on Form S-3. We consent to the incorporation
by reference in the Registration Statement and Prospectus of the aforementioned
report and to the use of our name as it appears under the caption "Experts."
Grant Thorton LLP
San Jose, California
February 1, 1999
<PAGE>
Exhibit 23(g)
CONSENT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS
THE BNR GROUP OF COMPANIES:
We consent to the incorporation by reference in the Registration Statement
for the registration of 9,200,000 common shares on Form S-3 of United Rentals,
Inc. of our report dated February 3, 1998, with respect to the combined
financial statements of BNR Group of Companies as of March 31, 1997 and 1996 and
for the years ended March 31, 1997 and 1996 which report appears in the Form 8-
K/A of United Rentals, Inc. dated February 4, 1998. We also consent to the
reference to our firm under the heading "Experts" in the Registration Statement.
KPMG LLP
Waterloo, Canada
February 1, 1999
<PAGE>
Exhibit 23(h)
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' CONSENT
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 and the related Prospectus of United Rentals,
Inc. (the Company), and to the incorporation by reference therein of our report
dated January 22, 1998 with respect to the financial statements of Access
Rentals, Inc., and Subsidiary and Affiliate, included in the Company's Report on
Form 8-K/A dated February 4, 1998.
Battaglia, Andrews & Moag, P.C.
Batavia, New York
February 1, 1999
<PAGE>
Exhibit 23(i)
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement of United Rentals, Inc., (the
"Company") on Form S-3, of our report dated April 22, 1998, relating to the
financial statements of West Main Rentals and Sales, Incorporated, which appear
in the Company's Report on Form 8-K dated December 24, 1998. We also consent to
the reference to our Firm under the heading "Experts" in the Prospectus.
Moss Adams LLP
Eugene, Oregon
February 1, 1999
<PAGE>
Exhibit 23(j)
CONSENT OF INDEPENDENT AUDITORS
Equipment Supply Co., Inc. and Affiliates
Burlington, New Jersey
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement of United Rentals, Inc., (the
"Company") on Form S-3, of our report dated June 19, 1998, except for Notes 9
and 15 which are as of July 10, 1998, relating to the combined financial
statements of Equipment Supply Co., Inc. and Affiliates, which appear in the
Company's Reports on Form 8-K dated July 21, 1998 and December 24, 1998. We also
consent to the reference to us under the caption "Experts" in the Prospectus.
BDO Seidman LLP
Philadelphia, Pennsylvania
February 1, 1999
<PAGE>
Exhibit 23(k)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of United Rentals,
Inc., to register up to 9,200,000 shares of its common stock, of our reports
dated March 6, 1998 and October 28, 1998, on our audits of the financial
statements of McClinch Equipment Services, Inc. as of December 31, 1997 and
August 31, 1998 and for the year ended December 31, 1997 and of our reports
dated March 25, 1998 and October 28, 1998 on our audits of the consolidated
financial statements of McClinch, Inc. and Subsidiaries as of January 31, 1998
and August 31, 1998 and for the year ended January 31, 1998 which reports
appear in the Form 8-K of United Rentals, Inc. dated December 24, 1998. We also
consent to the reference to our firm under the caption "Experts" in the
Registration Statement.
PricewaterhouseCoopers LLP
Stamford, Connecticut
February 2, 1999
<PAGE>
EXHIBIT 23(l)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts"
in Form S-3 to the Registration Statement of United Rentals, Inc. and to the
incorporation by reference therein of our report dated March 12, 1998, except
for Note 8 as to which the date is July 28, 1998, with respect to the financial
statements of Lift Systems, Inc.
Altschuler, Melvoin and Glasser LLP
Chicago, Illinois
February 1, 1999
<PAGE>
EXHIBIT 23(m)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of United Rentals,
Inc. (the "Company") for the registration of up to 9,200,000 shares of its
common stock, of our report dated July 27, 1998 relating to the financial
statements of Reitzel Rentals Ltd. included in the Company's report on Form 8-K
dated December 24, 1998. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
Kitchener, Ontario
February 1, 1999
<PAGE>
EXHIBIT 23(n)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-3 and the related Prospectus of United Rentals,
Inc. (the "Company"), and to the incorporation by reference therein of our
report dated July 23, 1998 with respect to the combined financial statements of
Grand Valley Equipment Co., Inc. and Kubota of Grand Rapids, Inc., included in
the Company's Report on Form 8-K dated December 24, 1998.
Beene Garter LLP
February 1, 1999
Grand Rapids, Michigan
<PAGE>
EXHIBIT 23(o)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement on Form S-3 and the related Prospectus of United
Rentals, Inc. (the "Company") for the registration of up to 9,200,000 shares of
its common stock and to the incorporation by reference therein of our report
dated April 21, 1998 with respect to the financial statements of Paul E.
Carlson, Inc. (d/b/a Carlson Equipment Company), included in the Company's
Report on Form 8-K dated December 24, 1998.
McGladrey & Pullen LLP
St. Paul, Minnesota
February 2, 1999
<PAGE>
EXHIBIT 23(p)
INDEPENDENT AUDITOR'S CONSENT
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement on Form S-3 and the related Prospectus of United
Rentals, Inc. (the "Company") and to the incorporation by reference therein of
our report dated February 26, 1998 with respect to the financial statements of
Industrial Lift, Inc., included in the Company's Report on Form 8-K dated
December 24, 1998.
Schalleur & Surgent LLC
February 1, 1999
<PAGE>
EXHIBIT 23(q)
CONSENT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS
PERCO GROUP LTD
We consent to the incorporation by reference in the Registration Statement on
Form S-3 of United Rentals, Inc. of our report dated February 2, 1998, except as
to note 14 which is as of May 22, 1998, with respect to the consolidated
financial statements of Perco Group Ltd as of December 31, 1997 and for the year
then ended which report appears in the Form 8-K of United Rentals, Inc. dated
December 24, 1998. We also consent to the reference to our firm under the
heading "Experts" in the Registration Statement.
KPMG LLP
Montreal, Canada
February 1, 1999
