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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
United Rentals, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
06-1522496
(I.R.S. Employer Identification No.)
Four Greenwich Office Park
Greenwich, Connecticut 06830
(203) 622-3131
(Address of Principal Executive Offices)
1997 Performance Award Plan of U.S. Rentals, Inc.(assumed by the Registrant in
connection with the merger between the Registrant and U.S. Rentals)
(Full Title of Plan)
Bradley S. Jacobs
Four Greenwich Office Park
Greenwich, Connecticut 06830
(Name and Address of Agent For Service)
(203) 622-3131
(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, Esq. Stephen M. Besen, Esq.
Ehrenreich Eilenberg Krause & Zivian LLP Weil, Gotshal & Manges LLP
11 East 44th Street 767 Fifth Avenue
New York, NY 10017 New York, NY 10153
(212) 986-9700 (212) 310-8000
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CALCULATION OF REGISTRATION FEE
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Proposed
Proposed Maximum
Maximum Aggregate
Title of Securities to Amount to be Offering Price Offering Price Amount of
be Registered Registered(1) Per Share (2) (2) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, par
value $0.01 per
share 2,798,225 $21.92 $61,337,092 $17,052
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</TABLE>
(1) In connection with our merger with U.S. Rentals in September 1998, we
assumed certain options that had been granted under the U.S. Rentals, Inc. 1997
Performance Award Plan. This registration statement covers (i) one-third of the
number of shares underlying each of these options (1,337,680 shares in the
aggregate) plus (ii) the additional shares underlying those options that are
held by persons that were either former directors of U.S. Rentals who are not
directors of United Rentals or employees of U.S. Rentals who entered into an
employment agreement with us as of the closing date of the merger and who prior
to the date of this registration statement died, became disabled or were
terminated without "good cause" or resigned for "good reason" (13,634 shares in
the aggregate) plus (iii) the additional shares underlying those options that
are held by William F. Berry (1,446,911 shares).
(2) Calculated solely for the purpose of determining the registration fee
based upon the average of the assumed offering prices of the shares determined
pursuant to Rules 457(h). The assumed offering price for the shares, which are
purchasable upon the exercise of outstanding options, is the exercise price
provided for in the relevant option.
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PART I
INFORMATION REQUIRED IN THE SECTION 10(A) PROSPECTUS
EXPLANATORY NOTE
----------------
As permitted by the rules of the Securities and Exchange Commission, this
Registration Statement omits the information specified in Part I of Form S-8.
The documents containing the information specified in Part I will be delivered
to the participant in the plans covered by this Registration Statement as
required by Rule 428(b) promulgated under the Securities Act of 1933, as
amended. Such documents are not being filed with the Securities and Exchange
Commission as part of this Registration Statement or as prospectuses or
prospectus supplements pursuant to Rule 424 of such Act.
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PART II
INFORMATION REQUIRED IN THE REGISTRANTATION STATEMENT
ITEM 3. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Securities and Exchange Commission
(the "Commission") by the Registrant, United Rentals, Inc., a Delaware
corporation (the "Company"), pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), are incorporated by reference in this registration
statement:
. 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 (only Item 2);
. Current Report on Form 8-K dated December 24, 1998 (only the financial
statements included therein that are identified under Item 5 in this
registration statement);
. Current Report on Form 8-K dated February 17, 1999;
. Registration Statement on Form 8-A dated November 27, 1997 (filed on
December 3, 1997) and Registration Statement on Form 8-A dated August
6, 1998; and
Our financial statements beginning on page F-1 and the information under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of Operations" of the prospectus are included as part of this registration
statement.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a post-effective
amendment which indicates that all shares of Common Stock offered hereby have
been sold or which deregisters all then remaining unsold, shall be deemed to be
incorporated by reference in this registration statement and to be a part hereof
from the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this registration statement to the
extent that a statement contained herein or in any other subsequently filed
document which also is incorporated or deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this registration statement.
ITEM 4. DESCRIPTION OF SECURITIES.
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Not Applicable.
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL.
The validity of the shares of Common Stock registered hereby have been
passed upon for the Company by Ehrenreich Eilenberg Krause & Zivian LLP.
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 registration statement by reference:
the consolidated financial statements of United Rentals, Inc. as of December 31,
1998 and 1997 and for each of the three years in the period ended December 31,
1998, included herein;
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; and
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.
These financial statements are, and audited financial statements to be included
in subsequently filed documents will be, included herein or incorporated herein
by reference in reliance upon the reports of Ernst & Young LLP pertaining to
such financial statements (to the extent covered by consents filed with the
Securities and Exchange Commission), given on their authority 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.
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, have been audited
by KPMG 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 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
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the periods indicated, given upon the authority of such firm as experts in
accounting and auditing.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation (the "Certificate") of the Company
provides that a director will not be personally liable to the Company 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 the Company will be eliminated or limited to the fullest extent permitted by
the Delaware Law as amended.
The Company, 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 the Company. 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. The Company has
entered into indemnification agreements with its directors and officers. In
general, these agreements require the Company 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 the Company or guaranteed any obligations of
the Company, 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 the Company, 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 the Company due to willful misconduct in the performance of his duties
to the Company (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, the Company 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.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED.
Not applicable.
ITEM 8. EXHIBITS.
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4.1........ Amended and Restated Certificate of Incorporation of
the Registrant dated August 5, 1998 (incorporated by
reference to Exhibit 3.1 to the Registrant's Report on
Form 10-Q for the quarterly period ended June 30, 1998)
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4.2........ Certificate of Amendment to the Registrant's
Certificate of Incorporation dated September 29, 1998
(incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form S-3 , No.
333-70151)
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4.3........ Form of Certificate of Designation for Series A
Perpetual Convertible Preferred Stock (incorporated by
reference to Exhibit 4(k) to the Registrant's
Registration Statement on Form S-3, No. 333-64463)
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4.4........ By-laws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Registrant's Report on Form 10-Q for
the quarterly period ended June 30, 1998)
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4.5........ U.S. Rentals, Inc. 1997 Performance Award Plan
(incorporated by reference to Exhibit 10.4 to the
Registration Statement of U.S. Rentals, Inc, on Form S-
1 , No. 333-17783)
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4.6........ Letter from the Registrant to Optionholders under the
U.S. Rentals, Inc. 1997 Performance Award Plan, dated
September 29, 1998
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5.1........ Opinion of Ehrenreich Eilenberg Krause & Zivian LLP
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23.1....... Consent of Ehrenreich Eilenberg Krause & Zivian LLP
(included in Exhibit 5.1)
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23.2....... Consent of Ernst & Young LLP
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23.3....... Consent of PricewaterhouseCoopers LLP
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23.4....... Consent of KPMG LLP
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23.5....... Consent of Battaglia, Andrews & Moag, P.C.
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23.6....... Consent of BDO Seidman LLP
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ITEM 9. UNDERTAKINGS
(a) The undersigned 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;
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(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;
(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 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 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in the 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 foregoing provisions, 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 expenses 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 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 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.
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EXPLANATORY NOTE
The Prospectus that is being filed with this Registration Statement has
been prepared in accordance with the requirements of General Instruction C to
Form S-8 and Part I of Form S-3, and may be used for reofferings of shares of
Common Stock of the Company identified in such Prospectus that constitute
"control securities" (within the meaning of such General Instruction C).
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PROSPECTUS
UNITED RENTALS, INC.
Common Stock
------------------
The selling security holders identified in this prospectus may sell, from
time to time, up to 2,532,093 shares of our common stock. These shares may be
acquired pursuant to options that were granted under the U.S. Rentals, Inc. 1997
Performance Award Plan, and that we assumed when we merged with U.S. Rentals in
September 1998.
The selling security holders may sell shares:
. through the New York Stock Exchange, in the over-the-counter market,
in privately negotiated transactions or otherwise;
. directly to purchasers or through agents, brokers, dealers or
underwriters; and
. at market prices prevailing at the time of sale, at prices related to
such prevailing market prices, or at negotiated prices.
Our common stock is traded on the New York Stock Exchange under the symbol
"URI."
INVESTING IN OUR SECURITIES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is March 8, 1999
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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 the heading "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 SEC after
the date of this prospectus 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 (only Item 2);
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. Current Report on Form 8-K dated December 24, 1998 (only the financial
statements included therein that are identified under the caption
"Experts" in the prospectus included as part of this registration
statement);
. Current Report on Form 8-K dated February 17, 1999; and
. Registration Statement on Form 8-A dated November 27, 1997 (filed on
December 3, 1997) 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.
UNITED RENTALS, INC.
We are the largest equipment rental company in North America. We offer for
rent a wide variety of equipment (on a daily, weekly, or monthly basis) and
serve customers that include construction industry participants, industrial
companies, homeowners and others. We also sell used equipment, act as a dealer
for certain new equipment, and sell related merchandise and parts.
Our executive offices are located at Four Greenwich Office Park, Greenwich,
Connecticut 06830. Our telephone number is (203) 622-3131.
RISK FACTORS
In addition to the other information in this document, you should carefully
consider the following factors before making an investment.
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.
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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, the acquisition of 95 additional companies
(through March 3, 1999), and a merger in September 1998 with U.S. Rentals,
Inc. 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 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.
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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 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 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.
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
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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 $0.5 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 such 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
affect 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.
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
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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.
USE OF PROCEEDS
The shares covered by this prospectus are being offered by certain selling
security holders and not by our company. Consequently, we will not receive any
proceeds from the sale of these shares. However, we may receive the proceeds
from the exercise of certain stock options as described below.
The shares that may be sold under this prospectus consist of shares that
the selling security holders may acquire in the future pursuant to certain stock
options that have been granted to them. In order for a selling security holder
to acquire any such shares, the selling security holder will be required to pay
to us the exercise price specified in the relevant option. We intend to use any
proceeds that we receive from the exercise of such options for working capital
and our general corporate purposes.
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<PAGE>
SELLING SECURITY HOLDERS
The selling security holders identified in this prospectus may sell, from
time to time, up to 2,532,093 shares of our common stock. These shares underly
options that were granted pursuant to the U.S. Rentals, Inc. 1997 Performance
Award Plan, and that we assumed when we merged with U.S. Rentals in September
1998.
The selling security holders that may sell shares pursuant to this
prospectus are the officers and directors of our company that are identified in
the table below. The table shows the number of shares that each selling security
holder may sell pursuant to this prospectus. If a selling security holder
transfers any of the shares shown in the table, the transferee will be
considered a selling security holder for purposes of this prospectus, provided
that (1) the transfer was a private placement and (2) the transferee is
identified in a supplement to this prospectus.
<TABLE>
<CAPTION>
---------------------------------------------------------
SHARES ISSUABLE UNDER
NAME AND POSITION EXISTING OPTIONS (1)
----------------- ---------------------
---------------------------------------------------------
<S> <C>
William F. Berry
President and Director 2,170,366
---------------------------------------------------------
John S. McKinney
Vice President, Finance and
Director 361,727
---------------------------------------------------------
</TABLE>
____________________
(1) The selling security holders own (or have the right to acquire)
additional securities of our company which are not covered by this prospectus:
(i) William F. Berry (100 outstanding shares and 575,000 shares that may be
acquired upon exercise of options that are not currently exercisable); and (ii)
John S. McKinney (3,000 outstanding shares, 723,455 shares that may be acquired
upon the exercise of options that are currently exercisable, and 337,500 shares
that may be acquired upon exercise of options that are not currently
exercisable).
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PLAN OF DISTRIBUTION
The selling security holders may sell shares:
through the New York Stock Exchange, in the over-the-counter market, in
privately negotiated transactions or otherwise;
directly to purchasers or through agents, brokers, dealers or underwriters; and
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices.
If a selling security holder sells shares through agents, brokers, dealers
or underwriters, such agents, brokers, dealers or underwriters may receive
compensation in the form of discounts, commissions or concessions. Such
compensation may be greater than customary compensation.
To the extent required, we will use our best efforts to file one or more
supplements to this prospectus to describe any material information with respect
to the plan of distribution not previously disclosed in this prospectus or any
material change to such information.
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 and has
completed 101 acquisitions (through March 3, 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 98 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.
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Results of Operations
Years ended December 31, 1998 and 1997
Revenues. Total revenues for 1998 were $1,220.3 million, representing an
increase of 149.1% over total revenues in 1997 of $489.8 million. The Company's
revenues in 1998 and 1997 were attributable to: (i) equipment rental ($895.5
million, or 73.4% of revenues, in 1998 compared to $388.2 million, or 79.2% of
revenues, in 1997), (ii) sales of rental equipment ($119.6 million, or 9.8% of
revenues, in 1998 compared to $41.4 million, or 8.5% of revenues, in 1997) and
(iii) sales of new equipment, merchandise and other revenues ($205.2 million,
or 16.8% of revenues, in 1998 compared to $60.3 million, or 12.3% of revenues,
in 1997).
The 149.1% increase in total revenues in 1998 reflected (i) increased
revenues at locations open more than one year (which accounted for
approximately 36.2 percentage points) and (ii) new rental locations acquired
through acquisitions and the opening of start-up locations (which accounted for
approximately 112.9 percentage points). The increase in revenues at locations
open more than one year primarily reflected (a) an increase in the volume of
rental transactions, (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 the sale of used equipment in order to maintain the quality of
the Company's rental fleet.
Gross Profit. Gross profit increased to $423.4 million in 1998 from $149.3
million in 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 1998 and 1997 was: (i) equipment rental (36.3% in 1998 and
30.0% in 1997), (ii) sales of rental equipment (44.7% in 1998 and 50.6% in
1997) and (iii) sales of new equipment, merchandise and other revenues (22.0%
in 1998 and 19.6% in 1997). The increase in the gross profit margin from rental
revenues in 1998 was primarily attributable to greater equipment utilization
rates and to economies of scale. The decrease in the gross profit margin from
the sales of rental equipment in 1998 primarily reflected (i) a shift in mix
towards more late-model used equipment, which generally generates lower gross
profit margins than somewhat older equipment, and (ii) the sale of certain
equipment items which were acquired through acquisitions and which were not in
optimal condition for sale due to age, usage or other factors. The increase in
the gross profit margin from sales of new equipment, merchandise and other
revenue in 1998 primarily reflected the benefits of greater purchasing power
and a shift in the sales mix to higher margin items.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") were $195.6 million, or 16.0% of total
revenues, during 1998 and $70.8 million, or 14.5% of total revenues, during
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
1998 of $47.2 million ($33.2 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) $8.2 million for employee severance and related matters, (iv) $2.1
million for the write down of the computer systems acquired through the U.S.
Rentals Merger and one of the other acquisitions accounted for as a pooling-of-
interests and (v) $3.9 million in other expenses.
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Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $35.2 million, or 2.9% of total revenues, in 1998 and $13.4
million, or 2.7% of total revenues, in 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 1997 were impacted by $20.3 million of expenses for "termination cost 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.
Interest Expense. Interest expense increased to $64.2 million in 1998 from
$11.8 million in 1997. This increase primarily reflected the fact that the
Company's indebtedness significantly increased in 1998, primarily to fund
acquisitions.
Preferred Dividends of a Subsidiary Trust. During 1998, preferred dividends
of a subsidiary trust of United Rentals were $7.9 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 $4.9 million in 1998 compared with
$2.0 million in 1997. The increase in other income in 1998 primarily reflected
gain realized in 1998 from the disposition of certain business lines that were
acquired as part of acquisitions but did not fit with the Company's strategy.
Income Taxes. Income taxes increased to $43.5 million, or an effective rate
of 55.6%, in 1998 from $29.5 million, or an effective rate of 84.5%, in 1997.
During 1998, the Company's high effective tax rate reflected (i) the non-
deductibility of $7.4 million for income tax purposes 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 of $7.5 million 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 1998 and an extraordinary charge of
$2.5 million ($1.5 million net of taxes) in 1997. This 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. This
charge in 1997 was 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
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<PAGE>
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. 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 cost 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
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recognize deferred tax liabilities of U.S. Rentals and (ii) the non-
deductibility of $7.5 million 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 $2.5
million ($1.5 million net of taxes) during 1997. This charge was incurred by
U.S. Rentals in connection with the prepayment of certain debt.
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."
In March 1999, the Company sold 2,290,000 shares of Common Stock in a public
offering. The closing of this transaction is expected to occur on March 8, 1999.
The net proceeds from this offering are estimated to be $64.8 million, after
deducting underwriting discounts and estimated offering expenses. The Company
expects to use such net proceeds to repay a portion of the outstanding
indebtedness under its revolving credit facility.
During 1998, the Company (i) generated cash from operations of
approximately $216.1 million, (ii) generated cash from the sale of rental
equipment of approximately $119.6 million and (iii) had net cash from financing
activities of approximately $1,082.1 million. The Company used cash during this
period principally to (i) pay consideration for acquisitions (approximately
$911.8 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 $479.5 million) and (iv)
purchase other property and equipment (approximately $84.6 million). These cash
expenditures were the principal reason for the decrease in cash at December 31,
1998 compared with December 31, 1997.
In September 1998, United Rentals (North America), Inc. ("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's principal existing sources of cash are cash generated from
operations and borrowings available under the Credit Facility.
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<PAGE>
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 following items at December 31, 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 December 31, 1998
compared with December 31, 1997 primarily reflects (i) an increase in prepaid
expenses relating to the Company's operations and (ii) certain direct costs
relating to potential acquisitions that were capitalized.
The Company-obligated manditorily redeemable convertible preferred
securities of a subsidiary trust at December 31, 1998, reflects the issuance of
Trust Preferred Securities in August 1998 as described under "--Certain
Information Concerning Preferred Securities."
The increase in stockholders' equity at December 31, 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)
and (ii) the issuance of an aggregate of 2,188,255 shares of common stock and
warrants during the year ended December 31, 1998, primarily as consideration
for acquisitions.
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 ($683.6 million available as of February 26, 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 $0.5 million.
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<PAGE>
Based upon the terms of the Company's currently outstanding indebtedness,
the Company is scheduled to repay approximately $14.3 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.
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 February 26, 1999, the amount of indebtedness outstanding under the
Credit Facility was $77.5 million (not including undrawn outstanding letters of
credit in the amount of $1.4 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).
15
<PAGE>
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.
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.
16
<PAGE>
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.
Certain Information Concerning Preferred Securities
Trust Preferred Securities
In August 1998, a subsidiary trust (the "Trust") of United Rentals, Inc.
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 United Rentals,
Inc. which resulted in United Rentals, Inc. receiving all of the proceeds from
the sale of the Trust Preferred Securities. United Rentals, Inc. 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 United Rentals, Inc. at a conversion price equivalent to
$43.63 per share.
Series A Perpetual Convertible Preferred Stock
In January 1999, United Rentals, Inc. 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.
United Rentals, Inc. contributed such net proceeds to URI.
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.
17
<PAGE>
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.
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
For the year ended December 31, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in primary
financial statements. SFAS No. 130 requires the Company's foreign currency
translation adjustments to be included in other comprehensive income. The
adoption of SFAS No. 130 had no impact on the Company's net income or
shareholders' equity.
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". SFAS No. 131
establishes a new method by which companies will report operating segment
information. This method is based on the manner in which management organizes
the segments within a company for making operating decisions and assessing
performance. SFAS No. 131 also establishes standards for related disclosures
about products and services, geographic areas and major customers. The Company
had included the required disclosures in the notes to the financial statements.
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.
18
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the shares of common stock that may be
offered pursuant to this prospectus will be passed upon for us by Weil, Gotshal
& Manges LLP, New York, New York, and Ehrenreich Eilenberg Krause & Zivian 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,
1998 and 1997 and for each of the three years in the period ended December 31,
1998, included herein;
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; and
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.
These financial statements are, and audited financial statements to be included
in subsequently filed documents will be, included herein or incorporated herein
by reference in reliance upon the reports of Ernst & Young LLP pertaining to
such financial statements (to the extent covered by consents filed with the
Securities and Exchange Commission) given on their authority 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.
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, have been audited
by KPMG 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 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.
19
<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, 1998 and 1997 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1998. 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, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
MetroPark, New Jersey
February 17, 1999,
except for Note 17, as
to which the date is
February 26, 1999
F-1
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
--------------------
1998 1997
---------- --------
(In thousands,
except share data)
<S> <C> <C>
Assets
Cash and cash equivalents................................. $ 20,410 $ 72,411
Accounts receivable, net of allowance for doubtful
accounts of $41,201 and $11,085 at 1998 and 1997,
respectively............................................. 233,282 82,592
Inventory................................................. 70,994 21,778
Prepaid expenses and other assets......................... 59,395 16,287
Rental equipment, net..................................... 1,143,006 461,026
Property and equipment, net............................... 185,511 98,268
Intangible assets, net of accumulated amortization of
$14,520 and $568 at 1998 and 1997, respectively.......... 922,065 73,648
---------- --------
$2,634,663 $826,010
========== ========
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable........................................ $ 121,940 $ 41,392
Debt.................................................... 1,314,574 264,573
Deferred taxes.......................................... 43,560 24,395
Accrued expenses and other liabilities.................. 128,359 49,262
---------- --------
Total liabilities..................................... 1,608,433 379,622
Commitments and contingencies
Company-obligated manditorily 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, 68,427,999
shares issued and outstanding in 1998 and 56,239,375 in
1997................................................... 684 562
Additional paid-in capital.............................. 689,018 401,758
Retained earnings....................................... 36,809 44,068
Accumulated other comprehensive income.................. (281)
---------- --------
Total stockholders' equity............................ 726,230 446,388
---------- --------
$2,634,663 $826,010
========== ========
</TABLE>
See accompanying notes.
F-2
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------
1998 1997 1996
-------------- ------------- -------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Revenues:
Equipment rentals.............. $ 895,466 $388,181 $ 295,308
Sales of rental equipment...... 119,620 41,406 25,518
Sales of new equipment,
merchandise and other
revenues...................... 205,196 60,251 33,652
-------------- ------------- -------------
Total revenues.................. 1,220,282 489,838 354,478
Cost of revenues:
Cost of equipment rentals,
excluding depreciation........ 394,750 189,578 138,018
Depreciation of rental
equipment..................... 175,910 82,097 65,294
Cost of rental equipment
sales......................... 66,136 20,455 10,570
Cost of new equipment and
merchandise sales and other
operating costs............... 160,038 48,416 27,563
-------------- ------------- -------------
Total cost of revenues.......... 796,834 340,546 241,445
-------------- ------------- -------------
Gross profit.................... 423,448 149,292 113,033
Selling, general and
administrative expenses........ 195,620 70,835 54,721
Merger-related expenses......... 47,178
Non-rental depreciation and
amortization................... 35,248 13,424 9,387
Termination cost of deferred
compensation agreements........ 20,290
-------------- ------------- -------------
Operating income................ 145,402 44,743 48,925
Interest expense................ 64,157 11,847 11,278
Preferred dividends of a
subsidiary trust............... 7,854
Other (income) expense, net..... (4,906) (2,021) (499)
-------------- ------------- -------------
Income before provision for
income taxes and extraordinary
items.......................... 78,297 34,917 38,146
Provision for income taxes...... 43,499 29,508 420
-------------- ------------- -------------
Income before extraordinary
items.......................... 34,798 5,409 37,726
Extraordinary items, net of tax
benefit of $14,255 in 1998 and
$995 in 1997................... 21,337 1,511
-------------- ------------- -------------
Net income...................... $ 13,461 $ 3,898 $ 37,726
============== ============= =============
Basic earnings before
extraordinary items per share.. $ 0.53 $ 0.12 $ 1.67
============== ============= =============
Diluted earnings before
extraordinary items per share.. $ 0.48 $ 0.11 $ 1.67
============== ============= =============
Basic earnings per share........ $ 0.20 $ 0.08 $ 1.67
============== ============= =============
Diluted earnings per share...... $ 0.18 $ 0.08 $ 1.67
============== ============= =============
Unaudited pro forma data (Note
9):
Historical income before income
taxes and extraordinary
items......................... $ 78,297 $ 34,917 $ 38,146
Pro forma income tax expense... 44,386 14,176 15,487
-------------- ------------- -------------
Pro forma income before
extraordinary items........... $ 33,911 $ 20,741 $ 22,659
============== ============= =============
Pro forma basic income before
extraordinary items per
share......................... $ 0.51 $ 0.44 $ 1.00
============== ============= =============
Pro forma diluted income before
extraordinary items per
share......................... $ 0.46 $ 0.42 $ 1.00
============== ============= =============
</TABLE>
See accompanying notes.
F-3
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------
Accumulated
Additional Other
Number Paid-in Retained Comprehensive Comprehensive
of Shares Amount Capital Earnings Income Income
---------- ------ ---------- -------- ------------- -------------
(In thousands, except share amounts)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................... 22,661,994 $227 $ 13,383 $ 90,719
Subchapter S
distributions of a
pooled entity........ (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)
Subchapter S
distributions of a
pooled entity........ (2,843)
Net income............ 3,898
---------- ---- -------- -------- ------- -----
Balance, December 31,
1997................... 56,239,375 562 401,758 44,068
Comprehensive income:
Net income........... 13,461 $13,461
Other comprehensive
income:
Foreign currency
translation
adjustments....... (281) $(281)
-------
Comprehensive income.. $13,180
=======
Issuance of common
stock and warrants... 10,813,255 108 267,214
Conversion of
convertible notes.... 30,947 461
Cancellation of common
stock................ (137,600) (1) 1
Reclassification of
Subchapter S
accumulated earnings
to paid-in-capital... 18,979 (18,979)
Pooling-of-interests.. 1,456,997 15 (14) 1,795
Exercise of common
stock options........ 25,025 619
Subchapter S
distributions of a
pooled entity........ (3,536)
---------- ---- -------- -------- -----
Balance, December 31,
1998................... 68,427,999 $684 $689,018 $ 36,809 $(281)
========== ==== ======== ======== =====
</TABLE>
See accompanying notes.
F-4
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------
1998 1997 1996
----------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income.................................. $ 13,461 $ 3,898 $ 37,726
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 211,158 95,521 74,681
Amortization of original issue discount and
deferred financing fees................... 1,153
Gain on sale of rental equipment........... (53,484) (20,951) (14,948)
Gain on sales of businesses................ (4,189)
Write down of assets held for sale......... 4,040
Non-cash interest, net..................... 201
Extraordinary items........................ 35,592 2,506
Deferred taxes............................. 27,345 25,075
Changes in operating assets and liabilities:
Accounts receivable........................ (53,368) (19,837) (8,271)
Inventory.................................. (6,392) (3,785) (1,148)
Prepaid expenses and other assets.......... (3,526) (9,821) (2,219)
Accounts payable........................... 39,251 11,704 (7,966)
Accrued expenses and other liabilities..... 5,088 8,618 8,116
----------- --------- ---------
Net cash provided by operating activities.. 216,129 93,129 85,971
----------- --------- ---------
Cash Flows From Investing Activities:
Purchases of rental equipment............... (479,534) (268,548) (116,021)
Purchases of property and equipment......... (84,617) (53,653) (27,269)
Proceeds from sales of rental equipment..... 119,620 41,406 25,518
Proceeds from sales of businesses........... 10,640
Collection of notes receivable.............. 122 2,537
Purchase of other companies................. (911,837) (115,528) (15,033)
Payment of contingent purchase price........ (3,956)
In-process acquisition costs................ (241) (129)
----------- --------- ---------
Net cash used in investing activities...... (1,349,925) (396,330) (130,268)
----------- --------- ---------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock, net
of issuance costs.......................... 207,005 340,738
Proceeds from debt.......................... 2,363,637 308,858 131,053
Payments on debt............................ (1,785,667) (271,418) (50,713)
Proceeds from sale-leaseback................ 35,000
Proceeds from the issuance of redeemable
convertible preferred securities........... 300,000
Payment of financing costs.................. (34,982) (1,631) (230)
Proceeds from the exercise of common stock
options.................................... 619
Subchapter S distributions of a pooled
entity..................................... (3,536) (2,843) (36,530)
Purchase of treasury stock.................. (105)
Cash retained by Predecessor in connection
with Recapitalization...................... (998)
----------- --------- ---------
Net cash provided by financing activities.. 1,082,076 372,706 43,475
Effect of foreign exchange rates............ (281)
----------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................ (52,001) 69,505 (822)
Cash and cash equivalents at beginning of
year....................................... 72,411 2,906 3,728
----------- --------- ---------
Cash and cash equivalents at end of year.... $ 20,410 $ 72,411 $ 2,906
=========== ========= =========
</TABLE>
See accompanying notes.
F-5
<PAGE>
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------
1998 1997 1996
---------- -------- -------
(In thousands)
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest........................... $ 43,157 $ 13,090 $13,766
Cash paid for taxes.............................. $ 10,224 $ 11,487 $ 399
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
During the year ended December 31, 1998,
convertible notes in the original principal
amount of $500 were converted into 31 shares of
common stock
The Company acquired the net assets and assumed
certain liabilities of other companies as
follows:
Assets, net of cash acquired.................... $1,501,467 $162,954 $15,033
Liabilities assumed............................. (518,861) (43,301)
Less:
Amounts paid in common stock and warrants....... (60,304) (3,825)
Amounts paid through issuance of debt........... (10,465) (300)
---------- -------- -------
Net cash paid.................................... $ 911,837 $115,528 $15,033
========== ======== =======
</TABLE>
See accompanying notes.
F-6
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
1. Organization and Basis of Presentation
United Rentals, Inc. is principally a holding company ("Holdings") and
conducts its operations primarily 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
10. 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. As a result
of the reorganization, Holdings' primary asset is its sole ownership of all
issued and outstanding shares of common stock of URI. URI'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 in the United States, Canada and Mexico. The Company also
engages in related activities such as selling 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 retroactive effect for
the reorganization for all periods presented. All significant intercompany
accounts and transactions have been eliminated. The accompanying consolidated
financial statements for the years ended December 31, 1997 and 1996 include the
accounts of certain acquisitions completed in 1998 that were accounted for as
poolings-of-interests, as described in 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 $0.5 or less is expensed at
the time of purchase. Ordinary maintenance and repair costs are charged to
operations as incurred.
F-7
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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 values of the Credit Facility, other lines of
credit, the Term Loan and the demand note to stockholder are determined using
current interest rates for similar instruments as of December 31, 1998 and 1997
and approximate the carrying value of these financial instruments due to the
fact that the underlying instruments include provisions to adjust interest
rates to approximate fair market value. The estimated fair value of the
Company's other financial instruments at December 31, 1998 and 1997 are based
upon available market information and are as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
--------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Redeemable convertible
preferred securities... $300,000 $289,128
Senior subordinated
notes.................. 700,153 705,425
Seller notes............ 10,465 10,465
Other debt.............. 27,456 27,456 $6,360 $6,360
</TABLE>
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.
F-8
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Advertising Expense
The Company advertises primarily through trade publications and yellow
pages. Advertising costs are expensed as incurred and totaled $13,540, $6,866
and $4,487 for the years ended December 31, 1998, 1997 and 1996, 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.
U.S. Rentals, Inc. ("U.S. Rentals") (prior to February 20, 1997) and Rental
Tools and Equipment Co. ("Rental Tools") (prior to August 24, 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 Accounting Principles Board ("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 of
Financial Accounting Standards ("SFAS") No. 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.
F-9
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Related Party Transactions
As disclosed in these financial statements, the Company has participated in
certain transactions with related parties. 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
a deductible of $500). Insured losses subject to this deductible 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.
Impact of Recently Issued Accounting Standards
For the year ended December 31, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income". SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in primary
financial statements. SFAS No. 130 requires the Company's foreign currency
translation adjustments to be included in other comprehensive income. The
adoption of SFAS No. 130 had no impact on the Company's net income or
shareholders' equity.
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 1998
presentation.
3. Acquisitions
During the year ended December 31, 1998, the Company completed 84
acquisitions. Three of such acquisitions were accounted for as poolings-of-
interests (the "Pooling Transactions") and 81 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. This
transaction was accounted for as a pooling-of-interests and, accordingly, the
1997 and 1996 consolidated financial statements were previously restated to
include the accounts of Rental Tools.
F-10
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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"). This 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 but have been combined
beginning July 1, 1998.
On September 29, 1998, a merger (the "Merger") of United Rentals, Inc. and
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 1997 and 1996 consolidated financial statements
were previously restated to include the accounts of U.S. Rentals.
The table below shows the separate revenue and net income (loss) of the
Company prior to the above mergers ("United"), U.S. Rentals and Rental Tools
for periods prior to combination:
<TABLE>
<CAPTION>
U.S. Rental
United Rentals Tools Combined
-------- -------- ------- --------
<S> <C> <C> <C> <C>
For the 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)
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
</TABLE>
Acquisitions Accounted for as Purchases
The acquisitions completed during the years ended December 31, 1998, 1997
and 1996 include 81, 15 and 2 acquisitions, respectively, 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.
In January 1998 the Company purchased the outstanding stock and certain
assets of (i) Access Rentals, Inc. and Affiliate, (ii) the BNR Group of
Companies and (iii) Mission Valley Rentals, Inc. The aggregate initial
consideration paid by the Company for these three acquisitions that were
accounted for as purchases was $88,674 and consisted of approximately $81,433
in cash and 370,231 shares of common stock and warrants to purchase an
aggregate of 30,000 shares of the Company's common stock. In addition, the
Company repaid or assumed outstanding indebtedness of these three companies
acquired in the aggregate amount of $64,011.
Also during 1998, the Company purchased the outstanding stock and certain
assets of (i) Power Rental Co., Inc., in June (ii) Equipment Supply Co., Inc.
and Affiliates in June and (iii) McClinch Inc. and Subsidiaries and McClinch
Equipment Services, Inc. in September. The aggregate initial consideration paid
by the Company for these three acquisitions that were accounted for as
purchases was $298,401 and consisted of approximately $277,969 in cash and
496,063 shares of
F-11
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
common stock. In addition, the Company repaid or assumed outstanding
indebtedness of these three companies acquired in the aggregate amount of
$155,414.
The aggregate initial consideration paid by the Company for other 1998
acquisitions that were accounted for as purchases was $550,437 and consisted of
approximately $507,326 in cash and 1,083,997 shares of common stock, and seller
notes of $10,465. In addition, the Company repaid or assumed outstanding
indebtedness of the other companies acquired in 1998 in the aggregate amount of
$211,837.
In October 1997, the Company purchased the outstanding stock of (i) A&A
Tool Rentals and Sales, Inc., (ii) Bronco High-Lift, Inc., (iii) Coran
Enterprises, Inc., (iv) J&J Rental Services, Inc., (v) Mercer Equipment Company
and (vi) Rent-It Center, Inc. The aggregate consideration paid for these
acquisitions was $56,965 in cash with the exception of two 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 were 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, the Company repaid
or assumed outstanding indebtedness of the 1997 companies acquired in the
aggregate amount of $43,301.
The aggregate initial consideration paid by the Company for other 1997
acquisitions was $66,820 in cash.
The aggregate initial consideration paid by the Company for the 1996
acquisitions was $15,033 in cash.
The Company has agreed, through December 31, 1998 in connection with 14
acquisitions to pay to former owners additional amounts based upon specified
future revenues and/or new store openings. Such amounts are limited (i) in the
case of 13 of the acquisitions, to a specified maximum amount which varies from
$300 to $10,000 (with the average being $1,786) and (ii) in the case of one
acquisition, to an amount based upon the performance of a single store.
The purchase prices for all acquisitions accounted for as purchases 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.
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,
1998 and 1997 as though each acquisition described above was made on January 1,
for each of the periods.
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Revenues.............................................. $1,550,744 $1,306,406
Net income............................................ 51,963 53,264
Basic earnings per share.............................. $ 0.76 $ 0.78
========== ==========
Diluted earnings per share............................ $ 0.69 $ 0.75
========== ==========
</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.
F-12
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Merger-Related Expenses and Extraordinary Items
The results of operations for the year ended December 31, 1998, include
pre-tax expenses related to the three Pooling Transactions totaling
approximately $47,200 ($33,200 after-tax), consisting of (i) $18,500 for
investment banking, legal, accounting services and other merger costs, (ii)
$14,500 of expenses relating to the closing of duplicate facilities, (iii)
$8,200 for employee severance and related matters, (iv) $2,100 for the write
down of computer systems acquired through the U.S. Rentals merger and one of
the other acquisitions accounted for as a pooling-of-interests and (v) $3,900
in other expenses.
The Company recorded pre-tax extraordinary items of $35,592 ($21,337 after-
tax) in 1998 and $2,506 ($1,511 after tax) in 1997. The charge in 1998 related
to the early extinguishment of debt primarily related to the Merger with U.S.
Rentals. The charge in 1997 resulted from the prepayment of certain debt by
U.S. Rentals.
4. Related Party Transactions
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-
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 and $3,420 for the years ended December 31, 1997 and 1996,
respectively, and the accompanying financial statements include principal
adjustments in notes receivable and other income in the amounts of $146 and
$572 for the years ended December 31, 1997 and 1996, respectively. The
accompanying financial statements include related party interest expense of
$1,311, $1,245 and $3,078 for the years ended December 31, 1998, 1997 and 1996
respectively (See Note 8 for related party note to stockholder).
5. Rental Equipment
Rental equipment consists of the following:
<TABLE>
<CAPTION>
December 31
---------------------
1998 1997
---------- ---------
<S> <C> <C>
Rental equipment...................................... $1,490,572 $ 718,960
Less accumulated depreciation......................... (347,566) (257,934)
---------- ---------
Rental equipment, net................................. $1,143,006 $ 461,026
========== =========
</TABLE>
6. Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31
------------------
1998 1997
-------- --------
<S> <C> <C>
Land..................................................... $ 36,855 $ 24,102
Buildings................................................ 61,851 34,474
Transportation equipment................................. 81,168 52,407
Machinery and equipment.................................. 21,545 7,751
Furniture and fixtures................................... 26,820 9,521
Leasehold improvements................................... 18,578 17,846
-------- --------
246,817 146,101
Less accumulated depreciation and amortization........... (61,306) (47,833)
-------- --------
Property and equipment, net.............................. $185,511 $ 98,268
======== ========
</TABLE>
F-13
<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
----------------
1998 1997
-------- -------
<S> <C> <C>
Accrued profit sharing.................................... $ 31,536 $12,844
Accrued insurance......................................... 20,553 11,665
Accrued interest.......................................... 21,934 924
Other..................................................... 54,336 23,829
-------- -------
$128,359 $49,262
======== =======
</TABLE>
8. Debt
Debt and note payable to related party consists of the following:
<TABLE>
<CAPTION>
December 31
-------------------
1998 1997
---------- --------
<S> <C> <C>
Credit Facility, interest payable at 6.25% at December
31, 1998.............................................. $ 305,000
Term Loan, interest payable at 7.25% at December 31,
1998.................................................. 250,000
Senior Subordinated Notes, interest payable semi-
annually, (9 1/2% at December 31, 1998)............... 200,000
Senior Subordinated Notes, interest payable semi-
annually, (8.80% at December 31, 1998)................ 200,153
Senior Subordinated Notes, interest payable semi-
annually, (9 1/4% at December 31, 1998)............... 300,000
Seller notes, interest payable at various rates ranging
from 6.5% to 8.5% at December 31, 1998, due through
2003.................................................. 10,465
Other debt, interest payable at various rates ranging
from 6.1% to 10.6% at December 31, 1998 and 1997, due
through 2005.......................................... 27,456 $ 6,360
Demand note to stockholder, interest payable monthly at
a rate indexed to the Company's revolving line of
credit (7.0% and 5.90% at December 31, 1998 and 1997,
respectively)......................................... 21,500 17,000
U.S. Rentals' revolving line of credit, interest
payable monthly at various rates ranging from 6.03% to
6.34% at December 31, 1997............................ 203,000
Rental Tools' revolving line of credit, interest
payable monthly at various rates ranging from 7.58% to
8.50% at December 31, 1997............................ 38,213
---------- --------
$1,314,574 $264,573
========== ========
</TABLE>
Credit Facility. The Credit Facility enables URI to borrow up to $762,500 on
a revolving basis and permits a Canadian subsidiary of URI (the "Canadian
Subsidiary") to directly borrow up to $40,000 under the Credit Facility
(provided that the aggregate borrowings of URI and the Canadian Subsidiary do
not exceed $762,500). Up to $25,000 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
F-14
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
continuing through June 30, 2003, by an amount equal to $19,100. 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. 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' $762,500 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 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.
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 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.
The revolving lines of credit of U.S. Rentals and Rental Tools were repaid
and terminated at the time of acquisition by the Company.
Term Loan. URI obtained a $250,000 term loan (the "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 are due on
the last day of each calendar quarter, commencing September 30, 1999. The
amount due at maturity is $235,625. 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.
F-15
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9 1/2% Senior Subordinated Notes. URI issued $200,000 aggregate principal
amount of 9 1/2% senior subordinated notes, (the "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. URI issued $205,000 aggregate principal
amount of 8.80% senior subordinated notes, (the "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. URI issued $300,000 aggregate principal
amount of 9 1/4% senior subordinated notes, the ("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.
Maturities of the Company's debt for each of the next five years at
December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999................................ $ 35,827
2000................................ 11,521
2001................................ 11,154
2002................................ 5,486
2003................................ 310,299
Thereafter.......................... 940,287
</TABLE>
F-16
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Income Taxes
The provision for historical federal and state income taxes is as follows:
<TABLE>
<CAPTION>
Year ended December 31
--------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Historical:
Domestic federal:
Current....................................... $ 14,291 $ 3,765
Deferred...................................... 21,047 14,276
Deferred tax recorded upon Recapitalization... 6,141
-------- -------- ------
35,338 24,182
Domestic state:
Current....................................... 1,067 668 $ 420
Deferred...................................... 7,020 3,279
Deferred tax recorded upon Recapitalization... 1,379
-------- -------- ------
8,087 5,326 420
-------- -------- ------
43,425 29,508 420
Foreign federal:
Current....................................... 519
Deferred...................................... (492)
-------- -------- ------
27
Foreign provincial:
Current....................................... 277
Deferred...................................... (230)
-------- -------- ------
74
-------- -------- ------
$ 43,499 $ 29,508 $ 420
======== ======== ======
</TABLE>
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
----------------
1998 1997
------- -------
<S> <C> <C>
Computed tax rate at statutory tax rate................... $27,404 $12,221
State income taxes, net of federal tax benefit............ 4,177 1,716
Cumulative deferred taxes recorded upon Recapitalization.. 7,520
Loss prior to Recapitalization excluded from taxable
income................................................... 7,543
Non-deductible expenses................................... 7,400
Provision for deferred taxes of Subchapter S Corporation
at time of pooling....................................... 4,750
Other..................................................... (232) 508
------- -------
$43,499 $29,508
======= =======
</TABLE>
F-17
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of deferred income tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
December 31
-------------------
1998 1997
--------- --------
<S> <C> <C>
Property and equipment............................... $(115,355) $(36,290)
Intangibles.......................................... (7,044) (633)
Reserves............................................. 28,468 11,291
Net operating loss carryforward...................... 38,102 314
Other................................................ 12,269 923
--------- --------
$ (43,560) $(24,395)
========= ========
</TABLE>
U.S. Rentals was taxed as a Subchapter S Corporation until its initial
public offering in February 1997, and Rental Tools was taxed as a Subchapter S
Corporation until 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. 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 Company has net operating loss carryforwards ("NOL's") of $90,000 for
federal income tax purposes that expire through 2018.
10. 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.
11. Company-Obligated Mandatorily Redeemable Convertible Preferred Securities
of a Subsidiary Trust
A subsidiary trust (the "Trust") of Holdings issued and sold in a private
offering (the "Preferred Securities Offering") $300,000 of 30 year, 6 1/2%
Convertible Quarterly Income Preferred Securities (the "Preferred Securities").
The net proceeds from the Preferred Securities Offering were approximately
$290,000. The Trust used the proceeds from the Preferred Securities Offering to
purchase 6 1/2% convertible subordinated debentures due 2028, the
("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. The Preferred
Securities are non-voting securities, carry a liquidation value of $50 per
security and are
F-18
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
convertible into the Company's common stock at an initial rate of 1.146 shares
per security (equivalent to an initial conversion price of $43.63 per share).
They are convertible at any time at the holders' option and are redeemable, at
the Company's option, after three years, subject to certain conditions.
Holders of the Preferred Securities are entitled to preferential cumulative
cash distributions from the Trust at an annual rate of 6 1/2% of the
liquidation value, accruing from the original issue date and payable quarterly
in arrears beginning February 1, 1999. The distribution rate and dates
correspond to the interest rate and payments dates on the Debentures. Holdings
may defer interest payments on the Debentures for up to twenty consecutive
quarters, but not beyond the maturity date of the Debentures. If interest
payments on the Debentures are deferred, so are the payments on the Preferred
Securities. Under this circumstance, Holdings will be prohibited from paying
dividends on any of its capital stock or making payments with respect to its
debt that rank pari passu with or junior to the Debentures.
Holdings has executed a guarantee with regard to payment of the Preferred
Securities to the extent that the Trust has sufficient funds to make the
required payments.
12. Capital Stock
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 from
75,000,000 to 500,000,000.
As of December 31, 1998 there are outstanding warrants to purchase an
aggregate of 6,539,329 shares of common stock. The weighted average exercise
price of the warrants is $10.18 per share. All warrants are currently
exercisable and may be exercised at any time through 2008.
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, 1998, the
Company's Board of Directors had not designated any shares.
1997 Stock Option Plan. The Company's 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 Internal Revenue 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 December 31, 1998 and 1997, options to purchase an aggregate of 4,859,875
shares and 904,583 shares of common stock, respectively, were outstanding under
this plan. The exercise price of each option, the period during which each
option may be exercised and other terms and conditions of each option are
determined by the Board of Directors (or by a committee appointed by the Board
of Directors).
F-19
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1998 Stock Option Plan. The Company's 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 Internal
Revenue Code. All officers and directors of the Company 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 December 31, 1998, options to purchase an
aggregate of 3,980,000 shares of common stock were outstanding pursuant to this
plan to executive officers and directors. The exercise price of each option,
the period during which each option may be exercised and other terms and
conditions of each option are determined by the Board of Directors (or by a
committee appointed by the Board of Directors).
1998 Supplemental Stock Option Plan. The Company 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 the Company
or its subsidiaries. As of December 31, 1998, options to purchase an aggregate
of 1,194,400 shares were outstanding pursuant to this plan. The exercise price
of each option, the period during which each option may be exercised and other
terms and conditions of each option are determined by the Board of Directors
(or by a committee appointed by the Board of Directors).
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. Options to purchase an
aggregate of 3,921,116 shares of common stock were outstanding at December 31,
1997. The options vest ratably over periods ranging from five to ten years and
expire in 2007. 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 the Company's common stock.
A summary of the transactions within the Company's stock option plans
follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Shares Price
---------- --------
<S> <C> <C>
Outstanding at January 1, 1997..........................
Granted............................................... 4,825,699 $19.52
Exercised.............................................
Canceled..............................................
----------
Outstanding at December 31, 1997........................ 4,825,699 19.52
Granted............................................... 9,453,718 19.78
Exercised............................................. (43,313) 20.78
Canceled.............................................. (191,290) 22.94
----------
Outstanding at December 31, 1998........................ 14,044,814 $19.60
========== ======
Exercisable at December 31, 1998........................ 4,787,474 $20.64
========== ======
</TABLE>
F-20
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Amount Contractual Exercise Amount Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
- ------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$10.00 - $15.00.......... 4,561,791 9.6 years $12.31 295,775 $12.10
15.01 - 20.00.......... 180,844 9.2 years 19.32 87,347 19.28
20.01 - 25.00.......... 8,028,836 8.8 years 21.61 4,309,992 21.06
25.01 - 30.00.......... 295,276 9.4 years 26.10 52,127 26.13
30.01 - 50.00.......... 978,067 9.5 years 35.19 42,233 33.50
---------- ---------
14,044,814 9.1 years 19.60 4,787,474 20.64
========== =========
</TABLE>
The Company applies APB 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 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 average of 4.6% in 1998 and ranging from 5.8% to 6.61% in 1997, a
volatility factor for the market price of the Company's common stock of 85% in
1998 and 32% in 1997 and a weighted-average expected life of options of
approximately three years in 1998 and three to five years in 1997, the
Company's net income (loss), basic earnings (loss) per share and diluted
earnings (loss) per share would have been $(13,372), $(0.20) and $(0.20),
respectively for the year ended December 31, 1998 and, after giving affect to
the Recapitalization, would have been $17,055, $0.37 and $0.35, respectively
for the year ended December 31, 1997. 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, 1998 there are 6,539,329 shares of common stock reserved
for the exercise of warrants, 15,687,244 shares of common stock reserved for
issuance pursuant to options granted, and that may be granted in the future,
under the Company's stock option plans, 6,875,580 shares of common stock
reserved for the issuance of outstanding preferred securities of a subsidiary
trust and 86,961 shares of common stock reserved for the conversion of
convertible debt.
F-21
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Earnings Per Share
The following table sets forth the computation of historical basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Numerator:
Income before extraordinary items........ $ 34,798 $ 5,409 $ 37,726
========== ========== ==========
Denominator:
Denominator for basic earnings per share-
weighted-average shares................. 66,225,492 46,660,955 22,654,599
Effect of dilutive securities:
Employee stock options.................. 2,641,194 743,597
Warrants................................ 4,208,434 1,644,445
---------- ---------- ----------
Denominator for dilutive earnings per
share- adjusted weighted-average
shares.................................. 73,075,120 49,048,997 22,654,599
========== ========== ==========
Earnings per equivalent share-basic:
Income before extraordinary items........ $ 0.53 $ 0.12 $ 1.67
Extraordinary items, net................. 0.33 0.04
---------- ---------- ----------
Net income............................... $ 0.20 $ 0.08 $ 1.67
========== ========== ==========
Earnings per equivalent share-diluted:
Income before extraordinary items........ $ 0.48 $ 0.11 $ 1.67
Extraordinary items, net................. 0.30 0.03
---------- ---------- ----------
Net income............................... $ 0.18 $ 0.08 $ 1.67
========== ========== ==========
</TABLE>
14. 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, 1998:
<TABLE>
<CAPTION>
Rental
and Other
Real Estate Equipment
Leases Leases
----------- ---------
<S> <C> <C>
1999...................................................... $ 17,516 $11,380
2000...................................................... 15,713 8,846
2001...................................................... 14,028 5,538
2002...................................................... 12,808 3,452
2003...................................................... 9,711 3,014
Thereafter................................................ 32,269 2,794
-------- -------
$102,045 $35,024
======== =======
</TABLE>
The Company was the seller-lessee in a sales-leaseback transaction during
1998 where it sold rental equipment for proceeds of $35,000. The Company will
lease back the rental equipment over a five year period beginning December
1998 and recognized a deferred gain on the sale of approximately $600. The
future payments under the lease are included in the table above.
F-22
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Rent expense under non-cancelable operating leases totaled $20,501, $6,367
and $4,151 for the years ended December 31, 1998, 1997 and 1996, respectively.
Employee Benefit Plans
The Company currently sponsors one defined contribution 401(k) retirement
plan which is subject to the provisions of ERISA. Under the plan, the Company
matches a minimum of 50% of the participants contributions up to a specified
amount. Company contributions to the plan were $1,001, $358 and $316 for the
years ended December 31, 1998, 1997 and 1996, 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 $16,168 and $9,563 at December 31, 1998 and
1997, 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-23
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. Segment Information
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information". SFAS No. 131
establishes a new method by which companies will report operating segment
information. This method is based upon the manner in which management organizes
the segments within a company for making operating decisions and assessing
performance. SFAS No. 131 also establishes standards for related disclosures
about products and services, geographic areas and major customers.
The Company operates in one industry segment consisting of the rental and
sales of equipment and related merchandise and parts. The Company's operations
are managed as one segment, or strategic unit, because it offers similar
products and services in similar markets and the factors determining strategic
decisions are comparable for all products and services.
The Company operates in the United States, Canada and Mexico. Revenues are
attributable to countries based upon the location of the customers. Geographic
area information for the years ended December 31, 1998, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Revenues from external customers
Domestic......................................... $1,166,471 $489,838 $354,478
Foreign.......................................... 53,811
---------- -------- --------
Total revenues from external customers............ $1,220,282 $489,838 $354,478
========== ======== ========
Rental equipment, net
Domestic......................................... $1,089,132 $461,026 $235,055
Foreign.......................................... 53,874
---------- -------- --------
Total consolidated rental equipment, net.......... $1,143,006 $461,026 $235,055
========== ======== ========
Property and equipment, net
Domestic......................................... $ 179,777 $ 98,268 $ 56,443
Foreign.......................................... 5,734
---------- -------- --------
Total consolidated property and equipment, net.... $ 185,511 $ 98,268 $ 56,443
========== ======== ========
Intangible assets, net
Domestic......................................... $ 867,090 $ 73,648 $ 1,035
Foreign.......................................... 54,975
---------- -------- --------
Total consolidated intangible assets, net......... $ 922,065 $ 73,648 $ 1,035
========== ======== ========
</TABLE>
F-24
<PAGE>
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. 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, 1998:
Total revenues...................... $171,141 $254,047 $379,074 $416,020
Gross profit........................ 47,911 87,422 138,717 149,398
Income (loss) before extraordinary
item............................... 6,704 19,976 (10,156) 18,274
Extraordinary item.................. 21,337
Net income (loss)................... 6,704 19,976 (31,493) 18,274
Basic earnings (loss) before
extraordinary item per share....... $ 0.11 $ 0.30 $ (0.15) $ 0.26
Diluted earnings (loss) before
extraordinary item per share....... 0.11 0.27 (0.13) 0.24
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
Basic earnings (loss) before
extraordinary item per share....... $ (0.58) $ 0.17 $ 0.24 $ 0.21
Diluted earnings (loss) before
extraordinary item per share....... (0.56) 0.16 0.23 0.20
</TABLE>
The data relating to the first and second quarters of 1998 above differ
from the amounts as shown in the Company's Form 10-Q filings for the periods
ended March 31, 1998 and June 30, 1998, respectively, because of the mergers
with U.S. Rentals and Rental Tools. These mergers were accounted for as
poolings-of-interests. Thus the Company's financial statements for the quarters
prior to the mergers were restated to include the accounts of U.S. Rentals and
Rental Tools.
17. Subsequent Events
Subsequent to December 31, 1998 and through February 26, 1999, the Company
completed the acquisitions of 11 equipment rental companies and the aggregate
consideration paid by the Company for the acquisitions was $53,803 and
consisted of approximately $49,408 in cash and $4,395 in seller notes. The
Company funded the cash consideration for these acquisitions with cash on hand
and borrowings under the Credit Facility.
In January 1999, the Company sold 300,000 shares of its Series A Perpetual
Convertible Preferred Stock ("Series A Preferred"). The net proceeds from the
sale of the Series A Preferred were approximately $287.0 million. The Series A
Preferred is convertible into 12,000,000 shares of the Company's common stock
at $25 per share.
F-25
<PAGE>
SIGNATURES
Pursuant to the requirements of Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8, and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Greenwich, Connecticut, on the 5th day of March, 1999.
United Rentals, Inc.
By: /s/ Michael J. Nolan
--------------------------
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 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.
Bradley S. Jacobs
/s/ Bradley S. Jacobs
---------------------------
Bradley S. Jacobs
Chairman, Chief Executive Officer and Director (Principal Executive
Officer)
March 5, 1999
Wayland R. Hicks
/s/ Wayland R. Hicks
---------------------------
Wayland R. Hicks, Director
March 5, 1999
S-1
<PAGE>
John N. Milne
/s/ John N. Milne
--------------------
John N. Milne, Director
March 5, 1999
William F. Berry
/s/ William F. Berry
--------------------
William F. Berry, Director
March 5, 1999
John S. McKinney
/s/ John S. McKinney
--------------------
John S. McKinney, Director
March 5, 1999
Leon D. Black
/s/ Leon D. Black
--------------------
Leon D. Black, Director
March 5, 1999
S-2
<PAGE>
Richard D. Colburn
/s/ Richard D. Colburn
-----------------------
Richard D. Colburn, Director
March 5, 1999
Ronald M. DeFeo
/s/ Ronald M. DeFeo
-----------------------
Ronald M. DeFeo, Director
March 5, 1999
Michael S. Gross
/s/ Michael S. Gross
-----------------------
Michael S. Gross, Director
March 5, 1999
Richard J. Heckmann
/s/ Richard J. Heckmann
-----------------------
Richard J. Heckmann, Director
March 5, 1999
Gerald Tsai, Jr.
/s/ Gerald Tsai, Jr.
-----------------------
Gerald Tsai, Jr., Director
March 5, 1999
S-3
<PAGE>
Christian M. Weyer
/s/ Christian M. Weyer
-----------------------
Christian M. Weyer, Director
March 5, 1999
Michael J. Nolan
/s/ Michael J. Nolan
-----------------------
Michael J. Nolan, Chief Financial Officer
(principal financial officer)
March 5, 1999
John S. McKinney
/s/ John S. McKinney
-----------------------
John S. McKinney, Vice President, Finance
(principal accounting officer)
March 5, 1999
S-4
<PAGE>
EXHIBIT 4.6
UNITED RENTALS, INC.
Four Greenwich Office Park
Greenwich, Connecticut 06830
September 29, 1998
Optionholders under the
U.S. Rentals, Inc. 1997
Performance Award Plan
Dear Optionholder:
We are pleased to inform you that pursuant to the Amended and Restated
Agreement and Plan of Merger, dated as of August 31, 1998 (the "Merger
Agreement"), among U.S. Rentals, Inc. ("USR"), United Rentals, Inc. ("URI") and
UR Acquisition Corporation, a wholly-owned subsidiary of URI ("Merger Sub"),
Merger Sub has been merged with and into USR and USR has become a wholly-owned
subsidiary of URI (the "Merger"). Pursuant to the Merger Agreement, on
September 29, 1998 (the effective date of the Merger; the "Effective Date") each
outstanding share of common stock of USR ("USR Common Stock") was converted into
the right to receive 0.9625 of a share of common stock of URI ("URI Common
Stock").
Pursuant to the Merger Agreement, each option to purchase shares of USR
Common Stock (each, an "Option") outstanding and held by you at the Effective
Date under USR's 1997 Performance Award Plan (the "USR Plan") has been assumed
by URI. As of the Effective Date, all references to USR in the USR Plan are
deemed to refer to URI. Each Option assumed by URI will be exercisable upon the
same terms and conditions (including, without limitation, expiration date,
vesting and exercise provisions) as were applicable to the Option immediately
prior to the Effective Date under the USR Plan, except that (i) each Option will
be exercisable for that whole number of shares of URI Common Stock (rounded up
to the nearest whole share) equal to (a) the number of shares of USR Common
Stock subject to such Option, multiplied by (b) 0.9625; and (ii) the exercise
price per share of URI Common Stock will be an amount equal to (x) the exercise
price per share of USR Common Stock subject to such Option in effect immediately
prior to the Effective Date, divided by (y) 0.9625 (rounded down to the nearest
full cent); subject, in each case, to certain exceptions applicable to any
Options subject to Section 421 of the Internal Revenue Code.
Please note that the shares underlying your Options are not registered
under the Securities Act of 1933 (the "Act") and, accordingly, may not be sold
or otherwise transferred except pursuant to an effective registration statement
under the Act or the availability of an applicable exemption from such
registration requirements. Reference is made to the Merger Agreement for the
terms of certain agreements of URI relating to the filing of registration
statements under the Act with respect to such shares.
If you have any questions relating to your Options, please do not hesitate
to contact Michael J. Nolan, Chief Financial Officer of URI, at (203) 622-3131.
Very truly yours,
Michael J. Nolan
Chief Financial Officer
<PAGE>
EXHIBIT 5.1
[Letterhead of Ehrenreich Eilenberg Krause & Zivian LLP]
March 8, 1998
United Rentals, Inc.
Four Greenwich Office Park
Greenwich, Connecticut 06830
Re: Registration Statement on Form S-8
Relating to 2,798,225 Shares of Common Stock
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Gentlemen:
You have requested our opinion in connection with the above-referenced
registration statement (the "Registration Statement") relating to up to
2,798,225 shares of Common Stock, par value $.01 per share, of United Rentals,
Inc. (the "Company") that may from time to time be sold by the Company upon
exercise of options that have been granted pursuant to the stock option plan
referenced in the Registration Statement (the "Plan"). Such shares are referred
to as the "Option Shares."
We have reviewed copies of the Amended and Restated Certificate of
Incorporation of the Company (including amendments thereto), the By-laws of
the Company, the Registration Statement and exhibits thereto and have examined
such corporate documents and records and other certificates, and have made
such investigations of law, as we have deemed necessary in order to render the
opinion hereafter set forth. As to certain questions of fact material to our
opinion, we have relied upon the certificate of an officer of the Company and
upon certificates of public officials.
Based upon and subject to the foregoing, we are of the opinion that the
Option Shares, when issued and paid for in accordance with the terms of the
Plan, and any applicable agreement governing the issuance of such shares,
will be duly authorized, validly issued, fully paid and non-assessable.
We hereby consent to the reference to us under the caption "Interests of
Named Experts and Counsel" in the Registration Statement and to the use of this
opinion as an exhibit to the Registration Statement. In giving this consent,
we do not hereby admit that we come within the category of persons whose consent
is required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
Ehrenreich Eilenberg Krause & Zivian LLP
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-8 No. 333-XXXXX) filed on March 8 under the
Securities Act of 1933 and related Prospectus for registering shares pertaining
to the 1997 Performance Award Plan of U.S. Rentals, Inc. (assumed by the
Registrant in connection with the merger between the Registrant and U.S.
Rentals) and to the inclusion herein or the incorporation by reference herein of
our report dated February 17, 1999, except for Note 17, as to Which the date is
February 26, 1999, with respect to the consolidated financial statements of
United Rentals, Inc. as of December 31, 1998 and 1997 and for each of the three
years in the period ended December 31, 1998; and 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;
and 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 31, 1998 and 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
March 8, 1999
<PAGE>
Exhibit 23.3
CONSENT OF INDEPENDENT OF ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-8 of United Rentals,
Inc. for the registration of up to 2,798,225 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. We also consent to
the reference to our firm under the caption "Experts".
PricewaterhouseCoopers LLP
Stamford, Connecticut
March 8, 1999
<PAGE>
Exhibit 23.4
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 up to 2,798,225 shares of its common stock on Form S-8
dated March 5, 1999 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 which report appears in the Form 8-K/A
of United Rentals, Inc. dated February 4, 1998.
KPMG LLP
Waterloo, Canada
March 8, 1999
<PAGE>
Exhibit 23.5
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' CONSENT
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-8 and the related Prospectus of United Rentals,
Inc. (the Company), for the registration of up to 2,798,225 shares of its
common stock 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
March 8, 1999
<PAGE>
Exhibit 23.6
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"), 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
March 8, 1999
