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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-14387
United Rentals, Inc.
Commission File Number 1-13663
United Rentals (North America), Inc.
(Exact Names of Registrants as Specified in Their Charters)
Delaware 06-1522496
Delaware 06-1493538
State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization Identification Nos.)
Five Greenwich Office Park,
Greenwich, Connecticut 06830
(Address of Principal Executive Offices) (Zip code)
Registrants' telephone number, including area code: (203) 622-3131
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on
Which Registered
Common Stock, $.01 par value, of United Rentals, Inc. New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 12, 2001, there were 69,799,819 shares of United Rentals, Inc.
common stock outstanding. The aggregate market value of such common stock held
by non-affiliates of the registrant at March 12, 2001 was approximately $800.0
million. Such aggregate market value was calculated by using the closing price
of such common stock as of such date on the New York Stock Exchange of $18.67.
There is no market for the common stock of United Rentals (North America),
Inc., all outstanding shares of which are owned by United Rentals, Inc.
Documents incorporated by reference: Certain sections of the Proxy
Statement of United Rentals, Inc. to be filed pursuant to Regulation 14A under
the Securities Exchange Act of 1934 within 120 days of the registrant's fiscal
year are incorporated by reference into Part III of this Form 10-K.
This combined Form 10-K is separately filed by (i) United Rentals, Inc. and
(ii) United Rentals (North America), Inc. (which is a wholly owned subsidiary
of United Rentals, Inc.). United Rentals (North America), Inc. meets the
conditions set forth in general instruction (I)(1) (a) and (b) of Form 10-K and
is therefore filing this form with the reduced disclosure format permitted by
such instruction.
FORM 10-K REPORT INDEX
10-K Part
and Item No. Page No.
- ------------ --------
PART I
Item 1 Business.................................................................. 1
Item 2 Properties................................................................ 7
Item 3 Legal Proceedings......................................................... 8
Item 4 Submission of Matters to a Vote of Security Holders....................... 8
PART II
Item 5 Market for the Registrant's Common Equity and Related Stockholder Matters. 8
Item 6 Selected Financial Data................................................... 10
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 11
Item 7A Quantitative and Qualitative Disclosures About Market Risk................ 25
Item 8 Financial Statements and Supplementary Data............................... 27
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................ 75
PART III
Item 10 Directors and Executive Officers of the Registrant........................ 75
Item 11 Executive and Director Compensation....................................... 75
Item 12 Security Ownership of Certain Beneficial Owners and Management............ 75
Item 13 Certain Relationships and Related Transactions............................ 75
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......... 75
Certain statements contained in this Report are forward-looking in nature.
Such statements can be identified by the use of forward-looking terminology
such as "believes," "expects," "may," "will," "should," "on-track" 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
Item 7--"Management's Discussion and Analysis of Financial Condition and Result
of Operations--Factors that May Influence Future Results and Accuracy of
Forward-Looking Statements." 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.
PART I
Unless otherwise indicated, the information under Items 1 and 2 is as of
March 1, 2001.
Item 1. Business
General
United Rentals is the largest equipment rental company in North America
with 755 locations in 47 states, seven Canadian provinces and Mexico. We offer
for rent over 600 different types of equipment to more than 1.2 million
customers, including construction and industrial companies, manufacturers,
utilities, municipalities, homeowners and others. During 2000, we completed
more than 8.4 million rental transactions.
We have the largest fleet of rental equipment in the world, with over
500,000 units having an original purchase price of approximately $3.4 billion.
Our fleet includes:
. light to heavy construction and industrial equipment, such as aerial
lifts, backhoes, skid-steer loaders, forklifts, earth moving equipment,
material handling equipment, compressors, pumps and generators;
. traffic control equipment, such as barricades, cones, warning lights,
message boards and pavement marking systems;
. trench safety equipment for below ground work, such as trench shields,
aluminum hydraulic shoring systems, slide rails, crossing plates,
construction lasers, and line testing equipment;
. special event equipment used for sporting, corporate and other large
events, such as light towers, air conditioning units, portable power
units, electrical cable, temporary kitchens and tents; and
. general tools and equipment, such as power washers, water pumps,
heaters and hand tools.
In addition to renting equipment, we sell used rental equipment, act as a
dealer for new equipment, and sell related merchandise, parts and service.
Competitive Advantages
We believe that we benefit from the following competitive advantages:
Large and Diverse Rental Fleet. We have the largest and most comprehensive
equipment rental fleet in the industry, which helps us to:
. attract customers by providing "one-stop" shopping;
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. serve a diverse customer base and reduce our dependence on any
particular customer or group of customers; and
. serve customers that require assurance that substantial quantities of
different types of equipment will be available on a continuing basis.
Operating Efficiencies. We generally group our branches into clusters of 10
to 30 locations that are in the same geographic area. Our information
technology systems allow each branch to access all available equipment within a
cluster. We believe that our cluster strategy produces significant operating
efficiencies by enabling us to: (1) market equipment within a cluster through
multiple branches, (2) cross-market equipment specialties of different branches
within each cluster, and (3) reduce costs by centralizing common functions such
as payroll, accounts payable and credit and collection into 26 credit offices
and three service centers. In 2000, approximately 10.7% of our rental revenue
was attributable to equipment sharing among branches.
Geographic Diversity. We have branches in 47 states, seven Canadian
provinces and Mexico. We believe that our geographic diversity reduces the
impact that fluctuations in regional economic conditions have on our overall
financial performance. Our geographic diversity and large network of branch
locations also give us the ability to better serve National Account customers,
better serve customers that operate at multiple locations, and access used
equipment re-sale markets across the country.
Customer Diversity. Our customer base is highly diversified and ranges from
Fortune 500 companies to small companies and homeowners. We estimate that our
top ten customers accounted for approximately 2% of our revenues during 2000.
Strong and Motivated Branch Management. Each of our branches has a full-time
branch manager who is supervised by one of our 66 district managers and nine
regional vice presidents. We believe that our managers are among the most
knowledgeable and experienced in the industry, and we empower them--within
budgetary guidelines--to make day-to-day decisions concerning staffing,
pricing, equipment purchasing and other branch matters. Management closely
tracks branch, district and region performance with extensive systems and
controls, including performance benchmarks and detailed monthly operating
reviews. We promote equipment sharing among branches through our incentive
compensation program, which links the compensation of branch personnel to their
branch's financial performance and return on assets.
Significant Purchasing Power. We purchase large amounts of equipment and
other items, which enables us to negotiate favorable terms with our vendors.
Our purchasing power is further increased by our ongoing efforts to narrow our
vendor base. For example, we reduced the number of our primary equipment
suppliers from 111 to 28 in 2000. This allowed us to lower our equipment
purchase costs by approximately $150 million in 2000 and should enable us to
save additional amounts in 2001. We expect to realize additional savings by
similarly consolidating our merchandise suppliers and negotiating more
favorable warranty terms with key vendors.
National Account Program. Our National Account sales force is dedicated to
establishing and expanding relationships with larger companies, particularly
those with a national or multi-regional presence. We offer our National Account
customers the benefits of a consistent level of service across North America
and a single point of contact for all their equipment needs. Our National
Account team currently includes 39 professionals. We currently have over 1,300
National Account customers, including more than 700 new accounts added in 2000.
Our revenues from National Account customers increased to approximately $244.8
million in 2000 from $89.1 million in the prior year.
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Information Technology Systems. Our information technology systems
facilitate rapid and informed decision making and permit us to respond quickly
to changing market conditions. Our systems provide management with a wide range
of operating and financial data, enable our branches to manage a wealth of
information, such as customer requirements, equipment availability, and
maintenance histories, and give our customers online access to their accounts.
Our systems also enable branch personnel to search for needed equipment
throughout a geographic region, determine its closest location and arrange for
delivery to a customer's work site. We have an in-house team of approximately
100 information technology specialists that supports our systems and extends
them to new locations. We also have a subsidiary that is the leading provider
of proprietary software to the equipment rental industry for use in managing
and operating multiple branch locations. Our software includes the
Rentalman(TM) system developed by this subsidiary.
Risk Management and Safety Programs. We place great emphasis on risk
reduction and safety and believe that we have one of the most comprehensive
risk management and safety programs in the industry. Our risk management
department is staffed by 43 experienced professionals and is responsible for
implementing our safety programs and procedures, developing our employee and
customer training programs, and managing any claims against us. Our insurance
and claims costs were approximately 48% below the national average for
comparable industries in 2000, resulting in significant cost savings.
Industry Background
Industry Size and Growth. The U.S. equipment rental industry has grown from
about $6 billion in annual rental revenues in 1990 to over $25 billion in 2000,
representing a compound annual growth rate of approximately 14.5%. This
information is based on data reported by Manfredi & Associates, Inc. In
addition to reflecting general economic growth, we believe that the growth in
the equipment rental industry is being driven by the following trends:
Recognition of Advantages of Renting. Equipment users are increasingly
recognizing the many advantages that equipment rental may offer compared
with ownership. They recognize that by renting they can:
. avoid the large capital investment required for equipment
purchases;
. access a broad selection of equipment and select the equipment
best suited for each particular job;
. reduce storage and maintenance costs; and
. access the latest technology without investing in new equipment.
Outsourcing. Although growth in the equipment rental industry has to
date been largely driven by an increase in rentals by the construction
industry, we believe that the cost and other advantages of renting,
together with the general trend toward the corporate outsourcing of
non-core competencies, are increasingly leading industrial companies,
municipalities, government agencies, utilities and others to rent
equipment.
Corporate Background
We began operations in October 1997 and have grown through a combination of
internal growth, acquisitions and the opening of new rental locations. In
September 1998, we merged with U.S. Rentals, Inc. At the time of the merger,
U.S. Rentals was the second largest equipment rental company in the United
States based on 1997 rental revenues.
3
Products and Services
We offer for rent a wide variety of equipment to customers that include
construction and industrial companies, manufacturers, utilities,
municipalities, homeowners and others. We also sell used equipment, act as a
dealer for many types of new equipment, and sell related merchandise, parts and
service. In addition, we have a subsidiary that develops and markets software
for use by equipment rental companies in managing and operating multiple branch
locations.
For financial information concerning our foreign and domestic operations,
see Note 14 of the Notes to Consolidated Financial Statements included
elsewhere in this report.
Equipment Rental
We offer for rent over 600 different types of equipment on a daily, weekly
or monthly basis. The types of equipment that we offer include light to heavy
construction and industrial equipment; traffic control equipment; trench safety
equipment; equipment for sporting, corporate and other special events; and
general tools and equipment.
We believe that our equipment rental fleet is the largest in the world and
one of the newest and best maintained. As of March 1, 2001, our fleet included
over 500,000 units and had an original purchase price of approximately $3.4
billion and a weighted average age of approximately 26 months. We estimate that
each of the following categories accounted for 10% or more of our equipment
rental revenues in 2000: (i) aerial lift equipment (approximately 24%), (ii)
earth moving equipment (approximately 13%) and (iii) forklifts (approximately
10%).
We vary our equipment mix from branch to branch in response to local market
conditions and customer requirements. Most of our branches offer a general mix
of equipment, while some specialize in specific equipment categories such as
aerial work platforms and traffic control equipment.
Used Equipment Sales
In order to maintain a modern fleet and optimize our equipment mix, we
routinely sell used rental equipment and invest in new equipment. We have
generally been able to achieve favorable prices due to our comprehensive
maintenance program and our national sales force that can access many resale
markets across North America.
We principally sell used equipment through our sales force and our web site
(www.unitedrentals.com) which includes an online database of used equipment
available for sale. We also sell our used equipment to used equipment dealers
and through public auctions. In addition, we sometimes trade in used equipment
to our vendors when we buy new equipment.
New Equipment Sales
We are a dealer for many leading equipment manufacturers. These include
Genie Industries, Inc., JLG Industries, Inc., and SkyJack, Inc. (aerial lifts);
Multiquip, Inc. (compaction equipment, generators, pumps and concrete
equipment); Bomag and Wacker (compaction equipment); Sullair Corporation
(compressors); Omniquip International (forklifts, skid-steer loaders and
mini-excavators); Terex Corporation (off-road dump trucks and telehandlers);
and Honda USA (pumps and generators). Typically, dealership agreements do not
have a specific term and may be terminated at any time. The type of new
equipment that we sell varies by location.
4
Related Merchandise, Parts and Other Services
At most of our locations, we sell equipment parts and a variety of supplies
and merchandise that may be used with our rental equipment, such as saw blades,
fasteners, drill bits, hard hats, gloves and other safety equipment. At some of
our branches, we also offer repair and maintenance services for equipment that
is owned by our customers.
Our Rentalman(TM) Software
We have a subsidiary that develops and markets software for use by
equipment rental companies in managing and operating multiple branch locations.
Seven of the ten largest equipment rental companies, including United Rentals,
use the Rentalman(TM) software package developed by our subsidiary.
Customers
Our customer base is highly diversified and ranges from Fortune 500
companies to small businesses and homeowners. We estimate that no single
customer accounted for more than 0.5% of our revenues during 2000 and that our
top 10 customers accounted for approximately 2% of our revenues in 2000.
Our customer base varies by branch and is determined by several factors,
including the equipment mix and marketing focus of the particular branch and
the business composition of the local economy. Our customers include:
. construction companies that use equipment for building and renovating
commercial buildings, warehouses, industrial and manufacturing plants,
office parks, airports, residential developments and other facilities;
. industrial companies--such as manufacturers, chemical companies, paper
mills, railroads, ship builders, and utilities--that use equipment for
plant maintenance, upgrades, expansion and construction;
. municipalities that require equipment for a variety of purposes such as
traffic control and highway construction and maintenance;
. sponsors of sporting, corporate, entertainment and other large special
events--including events such as the Super Bowl, the U. S. Open Golf
Championship, the NASCAR Brickyard 400, the PGA Championship, the Ryder
Cup, concerts and charity events; and
. homeowners and other individuals that use equipment for projects that
range from simple repairs to major renovations.
Sales and Marketing
We market our products and services through multiple channels as described
below.
Sales Force. As of March 1, 2001, we had a total of 2,495 salespeople,
including 1,314 store-based customer service representatives and 1,181
field-based salespeople. Our sales force calls on existing and potential
customers and assists our customers in planning for their equipment needs.
National Account Program. Our National Account sales force is dedicated to
establishing and expanding relationships with large customers, particularly
those with a national or multi-regional presence. The National Account team
closely coordinates its efforts with the local sales force in each area. Our
National Account team currently includes 39 sales professionals.
5
E-Rental Store(TM). Our customers can rent or buy equipment online 24 hours
a day seven days a week at our E-Rental Store(TM), which is part of our web
site. Our customers can also use our URdata(TM) application to access
up-to-the-minute reports on their business activity with us.
Advertising. We promote our business through local and national advertising
in various media, including trade publications, yellow pages, the Internet, and
direct mail. We also regularly participate in industry trade shows and
conferences and sponsor a variety of local promotional events.
Suppliers
We have been making ongoing efforts to narrow our vendor base in order to
further increase our purchasing power. We estimate that our largest supplier
accounted for approximately 24% of our equipment purchases in 2000, and that
our top 10 largest suppliers accounted for approximately 73% of our equipment
purchases during that period.
Information Technology Systems
We have advanced information technology systems which facilitate rapid and
informed decision making and enable us to respond quickly to changing market
conditions. Each branch is equipped with one or more workstations that are
electronically linked to our other locations and to our AS/400 system located
at our data center. All rental transactions are entered at these workstations
and processed on a real-time basis. Personnel at each location are able to
access the system 24 hours a day in order to determine equipment availability,
monitor business activity on a real-time basis, and obtain a wide range of
operating and financial data.
Our information technology systems and our web site are supported by our
in-house group of approximately 100 information technology specialists. This
group trains our personnel at the branch location; upgrades and customizes our
systems; provides hardware and technology support; operates a support desk to
assist branch personnel in the day-to-day use of the systems; extends the
systems to newly acquired locations; and manages our web site.
Competition
The equipment rental industry is highly fragmented and competitive. Our
competitors primarily include small, independent businesses with one or two
rental locations; regional competitors which operate in one or more states;
public companies or divisions of public companies; and equipment vendors and
dealers who both sell and rent equipment directly to customers. We believe
that, in general, large companies enjoy significant competitive advantages
compared to smaller operators, including greater purchasing power, a lower cost
of capital, the ability to provide customers with a broader range of equipment
and services and with newer and better maintained equipment, and greater
flexibility to transfer equipment among locations in response to customer
demand. For additional information, see "Competitive Advantages".
Environmental and Safety Regulations
There are numerous federal, state and local laws and regulations governing
environmental protection and occupational health and safety. Under these laws,
an owner or lessee of real estate may be liable on a no-fault basis 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. Activities that are or may be affected by these laws include our
use of hazardous materials to clean and maintain equipment and
6
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 locations, and at times we must remove or
upgrade tanks to comply with applicable laws. We have acquired or lease certain
locations which have or may have been contaminated by leakage from underground
tanks or other sources, and we are in the process of assessing the nature of
the required remediation. Based on the conditions currently known to us, we
believe that any unreserved environmental remediation and compliance costs
required with respect to those conditions will not have a material adverse
effect on our business. However, we cannot be certain that we will not identify
adverse environmental conditions that are not currently known to us, that all
potential releases from underground storage tanks removed in the past have been
identified, or that environmental and safety requirements will not become more
stringent or be interpreted and applied more stringently in the future. If we
are required to incur environmental compliance or remediation costs that are
not currently anticipated by us, our business could be adversely affected
depending on the magnitude of the cost.
Employees
As of March 1, 2001, we had 14,795 employees. Of these employees, 4,163 are
salaried personnel and 10,632 are hourly personnel. Collective bargaining
agreements relating to 65 separate locations cover approximately 827 of our
employees.
Item 2. Properties
We currently operate 755 branch locations. Of these locations, 676 are in
the United States, 78 are in Canada and one is in Mexico. The number of
locations in each state or province is shown below.
United States
.Alabama (12) .Louisiana (8) .Oklahoma (7)
.Alaska (4) .Maine (2) .Oregon (26)
.Arizona (22) .Maryland (19) .Pennsylvania (18)
.Arkansas (3) .Massachusetts (11) .Rhode Island (2)
.California (102) .Michigan (6) .South Carolina (11)
.Colorado (17) .Minnesota (15) .South Dakota (9)
.Connecticut (11) .Mississippi (1) .Tennessee (9)
.Delaware (5) .Missouri (11) .Texas (58)
.Florida (38) .Montana (1) .Utah (11)
.Georgia (20) .Nebraska (8) .Virginia (12)
.Idaho (2) .Nevada (16) .Washington (33)
.Illinois (17) .New Hampshire (2) .Wisconsin (9)
.Indiana (12) .New Jersey (9) .Wyoming (2)
.Iowa (12) .New Mexico (5)
.Kansas (5) .New York (19)
.Kentucky (7) .North Carolina (24)
.North Dakota (10)
.Ohio (13)
Canada Mexico
.Alberta (2) .Nuevo Leon (1)
.British Columbia (16)
.Manitoba (2)
.Newfoundland (9)
.Ontario (35)
.Quebec (12)
.Saskatchewan (2)
7
Our branch locations generally include facilities for displaying equipment
and, depending on the location, may include separate equipment service areas
and storage areas.
We own 98 of our rental locations and lease the other locations. Our leases
provide for varying terms and include 24 leases that are on a month-to-month
basis and 42 leases that provide for a remaining term of less than one year and
do not provide a renewal option. We are currently negotiating renewals for most
of the leases that provide for a remaining term of less than one year.
We maintain a fleet of approximately 13,440 vehicles that is used for
delivery, maintenance and sales functions. We own a portion of this fleet and
lease a portion.
Our corporate headquarters are located in Greenwich, Connecticut, where we
occupy approximately 28,000 square feet under (1) a lease for approximately
12,000 square feet that extends until 2003 and (2) a lease for approximately
16,000 square feet that extends until 2004 (subject to extension rights).
Item 3. Legal Proceedings
The Company is party to various litigation matters, in most cases involving
ordinary and routine claims incidental to our business. The Company cannot
estimate with certainty its ultimate legal and financial liability with respect
to such pending litigation matters. However, the Company believes, based on its
examination of such matters, that the Company's ultimate liability will not
have a material adverse effect on its financial position, results of operations
or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 2000, no matter was submitted to a vote of the
security holders of the Company.
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
Price Range of Common Stock
The Company's Common Stock trades on the New York Stock Exchange under the
symbol "URI." The following table sets forth, for the periods indicated, the
high and low sales prices for the Common Stock, as reported by the New York
Stock Exchange.
High Low
------ ------
1999:
First Quarter.. $35.69 $26.13
Second Quarter. 33.25 25.13
Third Quarter.. 31.00 21.75
Fourth Quarter. 21.94 14.31
2000:
First Quarter.. $21.25 $13.75
Second Quarter. 19.69 13.25
Third Quarter.. 24.13 17.38
Fourth Quarter. 24.31 12.00
As of March 12, 2001, there were approximately 246 holders of record of the
Common Stock. The Company believes that the number of beneficial owners is
substantially greater than the number of record holders, because a large
portion of the Common Stock is held of record in broker "street names."
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Dividend Policy
The Company intends to retain all earnings for the foreseeable future for
use in the operation and expansion of its business and, accordingly, the
Company currently has no plans to pay dividends on its Common Stock. The
payment of any future dividends will be determined by the Board of Directors in
light of conditions then existing, including the Company's earnings, financial
condition and capital requirements, restrictions in financing agreements,
business conditions and other factors. Under the terms of certain agreements
governing the Company's outstanding indebtedness, the Company is prohibited or
restricted from paying dividends on its Common Stock. In addition, under
Delaware law, the Company is prohibited from paying any dividends unless it has
capital surplus or net profits available for this purpose. See Item
7--"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Certain Information Concerning the Credit Facility and Other
Indebtedness."
Sales of Unregistered Securities During the Fourth Quarter of 2000
Set forth below is a listing of all sales by the Company of unregistered
equity securities during the fourth quarter of 2000. Unless otherwise
indicated, (i) such sales were exempt from registration under the Securities
Act of 1933, as amended (the "Act"), pursuant to Section 4(2) of the Act, as
they were transactions not involving a public offering and (ii) the sales were
made by the Company without the assistance of any underwriters.
1. In November 2000, the Company issued 2,459 shares of Common Stock to an
executive officer pursuant to an employment agreement.
2. In December 2000, the Company issued 761,905 shares of Common Stock as
partial consideration for an acquisition.
9
Item 6. Selected Financial Data
The data presented below with respect to the Company should be read in
conjunction with the Consolidated Financial Statements and related Notes
thereto of the Company included elsewhere in this Report and Item
7--"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
During the periods presented below, the Company completed certain
acquisitions that were accounted for as poolings-of-interests (including a
merger in September 1998 with U.S. Rentals) and others that were accounted for
as purchases. The selected financial data presented below has been restated for
all periods presented to include the accounts of the businesses acquired in
transactions accounted for as poolings-of-interests (excluding one such
transaction which was not material) as if the Company and these businesses
acquired were combined for all periods presented. The accounts of businesses
acquired in transactions accounted for as purchases are included from their
respective acquisition dates. In view of the fact that the Company's operating
results for the periods presented below were impacted by acquisitions that were
accounted for as purchases, the Company believes that its results of operations
for the years presented are not directly comparable. See Note 3 of the Notes to
the Consolidated Financial Statements of the Company included elsewhere in this
Report.
Year Ended December 31,
------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- ---------- ---------- ----------
(dollars in thousands, except per share data)
Income statement data:
Total revenues........................................................... $354,478 $489,838 $1,220,282 $2,233,628 $2,918,861
Total cost of revenues................................................... 241,445 340,546 796,834 1,408,710 1,830,291
-------- -------- ---------- ---------- ----------
Gross profit............................................................. 113,033 149,292 423,448 824,918 1,088,570
Selling, general and administrative expenses............................. 54,721 70,835 195,620 352,595 454,330
Merger-related expenses.................................................. 47,178
Non-rental depreciation and amortization................................. 9,387 13,424 35,248 62,867 86,301
Termination cost of deferred compensation agreements..................... 20,290
-------- -------- ---------- ---------- ----------
Operating income......................................................... 48,925 44,743 145,402 409,456 547,939
Interest expense......................................................... 11,278 11,847 64,157 139,828 228,779
Preferred dividends of a subsidiary trust................................ 7,854 19,500 19,500
Other (income) expense, net.............................................. (499) (2,021) (4,906) 8,321 (1,836)
-------- -------- ---------- ---------- ----------
Income before provision for income taxes and extraordinary items......... 38,146 34,917 78,297 241,807 301,496
Provision for income taxes............................................... 420 29,508 43,499 99,141 125,121
-------- -------- ---------- ---------- ----------
Income before extraordinary items........................................ 37,726 5,409 34,798 142,666 176,375
Extraordinary items, net (1)............................................. 1,511 21,337
-------- -------- ---------- ---------- ----------
Net income............................................................... $ 37,726 $ 3,898 $ 13,461 $ 142,666 $ 176,375
======== ======== ========== ========== ==========
Pro forma provision for income taxes before extraordinary items (2)...... $ 15,487 $ 14,176 $ 44,386
Pro forma income before extraordinary items (2).......................... 22,659 20,741 33,911
Basic earnings before extraordinary items per share...................... $ 1.67 $ 0.12 $ 0.53 $ 2.00 $ 2.48
Diluted earnings before extraordinary items per share.................... $ 1.67 $ 0.11 $ 0.48 $ 1.53 $ 1.89
Basic earnings per share (3)............................................. $ 1.67 $ 0.08 $ 0.20 $ 2.00 $ 2.48
Diluted earnings per share (3)........................................... $ 1.67 $ 0.08 $ 0.18 $ 1.53 $ 1.89
Other financial data:
EBITDA (4)............................................................... $123,606 $160,554 $ 403,738 $ 761,230 $ 962,371
Depreciation and amortization............................................ 74,681 95,521 211,158 343,508 414,432
Dividends on common stock................................................
December 31,
------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- ---------- ---------- ----------
(dollars in thousands)
Balance sheet data:
Cash and cash equivalents................................................ $ 2,906 $ 72,411 $ 20,410 $ 23,811 $ 34,384
Rental equipment, net.................................................... 235,055 461,026 1,143,006 1,659,733 1,732,835
Total assets............................................................. 381,228 826,010 2,634,663 4,497,738 5,123,933
Total debt............................................................... 214,337 264,573 1,314,574 2,266,148 2,675,367
Company-obligated mandatorily redeemable convertible preferred securities
of a subsidiary trust................................................... 300,000 300,000 300,000
Stockholders' equity..................................................... 105,420 446,388 726,230 1,397,486 1,545,943
10
- --------
(1) The Company recorded an extraordinary item (net of income taxes) of $1.5
million in 1997 and an extraordinary item (net of income taxes) of $21.3
million in 1998. Such charge in 1997 resulted from the prepayment of
certain debt by U.S. Rentals. Such charge in 1998 resulted from the early
extinguishment of certain debt and primarily reflected prepayment penalties
on certain debt of U.S. Rentals.
(2) U.S. Rentals was taxed as a Subchapter S Corporation until its initial
public offering in February 1997, and another company acquired in a
pooling-of-interests transaction was taxed as a Subchapter S Corporation
until being acquired by the Company in 1998. In general, the income or loss
of a Subchapter S Corporation is passed through to its owners rather than
being subjected to taxes at the entity level. Pro forma provision for
income taxes before extraordinary items and pro forma income before
extraordinary items reflect a provision for income taxes as if all such
companies were liable for federal and state income taxes as taxable
corporate entities for all periods presented.
(3) The Company's earnings during 1997 were impacted by $20.3 million of
expenses relating to the termination of certain deferred compensation
expenses in connection with U.S. Rentals' initial public offering, a $7.5
million charge to recognize deferred tax liabilities of U.S. Rentals and an
extraordinary item (net of income taxes) of $1.5 million. The Company's
earnings during 1998 were impacted by merger-related expenses of $47.2
million ($33.2 million net of taxes), a $4.8 million charge to recognize
deferred tax liabilities of a company acquired in a pooling-of-interests
transaction and an extraordinary item (net of income taxes) of $21.3
million. The Company's earnings during 1999 were impacted by $18.2 million
($10.8 million net of taxes) of expenses incurred related to a terminated
tender offer. Excluding such amounts, (i) basic earnings per share for the
years ended 1997, 1998 and 1999 would have been $0.70, $1.10 and $2.15,
respectively, and (ii) diluted earnings per share for the years ended 1997,
1998 and 1999 would have been $0.66, $1.00 and $1.65, respectively.
(4) EBITDA is defined as net income (excluding (i) non-operating income and
expense, (ii) a $20.3 million non-recurring charge incurred by U.S. Rentals
in 1997 arising from the termination of deferred compensation agreements
with certain executives, (iii) $47.2 million in merger-related expenses in
1998 related to the three acquisitions accounted for as
poolings-of-interests, including the merger with U.S. Rentals, and (iv)
$8.3 million of expenses that are included in selling, general and
administrative expenses for 1999 and which related to a terminated tender
offer), plus interest expense, income taxes and depreciation and
amortization. EBITDA data is presented to provide additional information
concerning the Company's ability to meet its future debt service
obligations and capital expenditure and working capital requirements.
However, EBITDA is not a measure of financial performance under generally
accepted accounting principles. Accordingly, EBITDA should not be
considered an alternative to net income or cash flows as indicators of the
Company's operating performance or liquidity.
Item 7. 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 included elsewhere
in this Report. Certain of the statements contained in such discussion are
forward looking in nature. Such statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "on-track" 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 these factors are discussed below
under "--Factors that May Influence Future Results and Accuracy of
Forward-Looking Statements." 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.
11
Introduction
The Company commenced equipment rental operations in October 1997 and has
completed 245 acquisitions (through March 1, 2001), 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 Notes to the Consolidated Financial Statements
of the Company included elsewhere in this Report.
The other 242 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 2000, 1999 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.
United Rentals, Inc. ("Holdings") is principally a holding company and
primarily conducts its operations through its wholly owned subsidiary, United
Rentals (North America), Inc. ("URI"), and subsidiaries of URI.
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 equipment, and (iv) the sale of related
merchandise and parts and other revenue.
Cost of operations consists primarily of depreciation costs associated with
rental equipment, the cost of repairing and maintaining rental equipment, the
cost of rental equipment and equipment and other merchandise 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 primarily 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, (ii) the amortization of deferred financing costs and
(iii) the amortization of intangible assets. The Company's intangible assets
include non-compete agreements and goodwill, which represents the excess of the
purchase price of acquired companies over the estimated fair market value of
the net assets acquired.
12
Results of Operations
Years Ended December 31, 2000 and 1999
Revenues. Total revenues for 2000 were $2,918.9 million, representing an
increase of 30.7% over total revenues of $2,233.6 million in 1999. The
Company's revenues in 2000 and 1999 were attributable to: (i) equipment rental
($2,056.7 million, or 70.5% of revenues, in 2000 compared to $1,581.0 million,
or 70.8% of revenues, in 1999), (ii) sales of rental equipment ($347.7 million,
or 11.9% of revenues, in 2000 compared to $235.7 million, or 10.6% of revenues,
in 1999) and (iii) sales of equipment and merchandise and other revenues
($514.5 million, or 17.6% of revenues, in 2000 compared to $416.9 million, or
18.7% of revenues, in 1999).
The 30.7% increase in total revenues in 2000 reflected (i) increased
revenues at locations open more than one year (which accounted for
approximately 12.9 percentage points) and (ii) the net effect of new rental
locations acquired through acquisitions and the opening of start-up locations
partially offset by locations sold or closed (which accounted for approximately
17.8 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) an increase in the sale of related merchandise and parts
which was driven by the increase in equipment rental and sales transactions and
(c) an increase in the sale of used equipment.
Gross Profit. Gross profit increased to $1,088.6 million in 2000 from
$824.9 million in 1999. 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 2000 and 1999 was: (i) equipment rental
(39.9% in 2000 and 39.4% in 1999), (ii) sales of rental equipment (40.1% in
2000 and 42.0% in 1999) and (iii) sales of equipment and merchandise and other
revenues (24.9% in 2000 and 24.6% in 1999). The increase in the gross profit
margin from rental revenues in 2000 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 2000 reflected the
sale of more late-model used equipment which generally generates lower gross
profit margins than older equipment.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") were $454.3 million, or 15.6% of total
revenues, during 2000 and $352.6 million, or 15.8% of total revenues, during
1999. SG&A in 1999 included an $8.3 million charge primarily due to
professional fees incurred in connection with a terminated tender offer.
Excluding this charge, SG&A as a percentage of revenues was 15.4% in 1999.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $86.3 million, or 3.0% of total revenues, in 2000 and $62.9
million, or 2.8% of total revenues, in 1999.
Interest Expense. Interest expense increased to $228.8 million in 2000 from
$139.8 million in 1999. This increase primarily reflected (i) an increase in
the Company's indebtedness, principally to fund acquisitions, and (ii) an
increase in the interest rates applicable to the Company's variable rate debt.
Preferred Dividends of a Subsidiary Trust. During 2000 and 1999, preferred
dividends of a subsidiary trust of Holdings were $19.5 million.
Other (Income) Expense. Other income was $1.8 million in 2000 compared to
$8.3 million of other expense in 1999. The other expense in 1999 was
attributable to a $9.9 million charge that principally related to fees paid by
the Company for a $2.0 billion financing commitment that was subsequently
cancelled upon termination of a tender offer made by the Company in 1999.
13
Income Taxes. Income taxes increased to $125.1 million, or an effective
rate of 41.5%, in 2000 from $99.1 million, or an effective rate of 41.0%, in
1999.
Years ended December 31, 1999 and 1998
Revenues. Total revenues for 1999 were $2,233.6 million, representing an
increase of 83.0% over total revenues in 1998 of $1,220.3 million. The
Company's revenues in 1999 and 1998 were attributable to: (i) equipment rental
($1,581.0 million, or 70.8% of revenues, in 1999 compared to $895.5 million, or
73.4% of revenues, in 1998), (ii) sales of rental equipment ($235.7 million, or
10.6% of revenues, in 1999 compared to $119.6 million, or 9.8% of revenues, in
1998) and (iii) sales of equipment and merchandise and other revenues ($416.9
million, or 18.6% of revenues, in 1999 compared to $205.2 million, or 16.8% of
revenues, in 1998).
The 83.0% increase in total revenues in 1999 reflected (i) increased
revenues at locations open more than one year (which accounted for
approximately 21.2 percentage points) and (ii) new rental locations acquired
through acquisitions and the opening of start-up locations (which accounted for
approximately 61.8 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.
Gross Profit. Gross profit increased to $824.9 million in 1999 from $423.4
million in 1998. 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 1999 and 1998 was: (i) equipment rental (39.4% in 1999 and
36.3% in 1998), (ii) sales of rental equipment (42.0% in 1999 and 44.7% in
1998) and (iii) sales of equipment and merchandise and other revenues (24.6% in
1999 and 22.0% in 1998). The increase in the gross profit margin from rental
revenues in 1999 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 1999 primarily reflected a shift in mix
towards the sale of more late-model used equipment which generally generates
lower gross profit margins than older equipment. The increase in the gross
profit margin from sales of equipment and merchandise and other revenue in 1999
primarily reflected the benefits of greater purchasing power.
Selling, General and Administrative Expenses. SG&A was $352.6 million, or
15.8% of total revenues, during 1999 and $195.6 million, or 16.0% of total
revenues, during 1998. SG&A in 1999 includes an $8.3 million charge primarily
due to professional fees incurred in connection with a terminated tender offer.
Excluding this charge, SG&A as a percentage of revenues decreased to 15.4% in
1999, primarily due to certain economies of scale relating to the increase in
revenues described above.
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 and 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.
Non-rental Depreciation and Amortization. Non-rental depreciation and
amortization was $62.9 million, or 2.8% of total revenues, in 1999 and $35.2
million, or 2.9% of total revenues, in 1998.
14
Interest Expense. Interest expense increased to $139.8 million in 1999 from
$64.2 million in 1998. This increase primarily reflected the fact that the
Company's indebtedness significantly increased in 1999, primarily to fund
acquisitions.
Preferred Dividends of a Subsidiary Trust. Preferred dividends of a
subsidiary trust of Holdings were $19.5 million in 1999 compared with $7.9
million in 1998.
Other (Income) Expense. Other expense was $8.3 million in 1999 compared
with other income of $4.9 million in 1998. The increase in other expense in
1999 primarily reflected a $9.9 million charge that principally related to fees
paid by the Company for a $2.0 billion financing commitment that was
subsequently cancelled upon termination of a tender offer.
Income Taxes. Income taxes increased to $99.1 million, or an effective rate
of 41.0%, in 1999 from $43.5 million, or an effective rate of 55.6%, in 1998.
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.
Extraordinary Item. The Company recorded an extraordinary charge of $35.6
million ($21.3 million net of taxes) in 1998. This charge was incurred in
connection with the early extinguishment of certain debt and primarily
reflected prepayment penalties on certain debt of U.S. Rentals.
Liquidity and Capital Resources
Financing Transactions in 2000
Set forth below is certain information concerning certain financing
transactions entered into by the Company during 2000.
Term Loan D. URI obtained a $200.0 million term loan from a group of
financial institutions. For additional information concerning this loan, see
"--Certain Information Concerning the Credit Facility and Other
Indebtedness--Term Loan D."
Receivables Securitization. In December 2000, the Company obtained $100.0
million through the securitization of certain of its accounts receivable. For
additional information concerning this transaction, see "--Certain Information
Concerning the Credit Facility and Other Indebtedness--Certain Other Secured
Debt."
Sale and Lease-Back Transactions. In 2000, the Company received an
aggregate of $218.8 million of proceeds from equipment sale and lease-back
transactions. For additional information concerning these transactions, see
"--Certain Information Concerning Operating Leases."
Sources and Uses of Cash
During 2000, the Company (i) generated cash from operations of
approximately $512.7 million, (ii) generated cash from the sale of rental
equipment of approximately $347.7 million and (iii) generated cash from
financing activities of approximately $468.1 million. The Company used cash
during this period principally to (i) pay consideration for acquisitions
(approximately $347.3 million), (ii) purchase rental equipment (approximately
$808.2 million), (iii) purchase other property and equipment (approximately
$153.8 million) and (iv) purchase and retire the Company's Common Stock
(approximately $31.0 million).
15
Certain Balance Sheet Changes
The Company's asset and liability accounts were all higher at December 31,
2000 than at December 31, 1999, other than accrued expenses and other
liabilities which was lower. The general increase in the Company's asset and
liability accounts primarily reflected the acquisitions and the equipment
purchases made by the Company in 2000. The decrease in accrued expenses and
other liabilities primarily reflected the refund of certain income tax
payments.
The decrease in additional paid-in capital at December 31, 2000 compared
with December 31, 1999, primarily reflected the purchase and retirement of
Common Stock offset in part by the issuance of Common Stock in connection with
an acquisition.
Cash Requirements Related to Operations
The Company's principal existing sources of cash are borrowings available
under its revolving credit facility ($407.1 million available as of March 6,
2001), cash generated from operations and cash generated from the sale of used
equipment. For additional information concerning the Company's credit facility
(the "Credit Facility"), see "--Certain Information Concerning the Credit
Facility and Other Indebtedness--Credit Facility."
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 items offered for sale and (iii) debt service. The Company plans to
fund such cash requirements relating to its existing operations from its
existing sources of cash described above.
The Company estimates that equipment expenditures over the next 12 months
will be approximately $400 million for the existing operations of the Company.
These expenditures are comprised of approximately (i) $150 million of
expenditures in order to replace rental equipment sold, (ii) $200 million of
discretionary expenditures to increase the size of the Company's rental fleet
and (iii) $50 million of expenditures for the purchase of non-rental equipment.
The Company expects that it will fund such expenditures from a combination of
approximately $100 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.
While emphasizing internal growth, the Company may also continue to expand
through a disciplined acquisition program. The Company expects to pay for
future acquisitions using cash, capital stock, notes and/or assumption of
indebtedness. To the extent that the Company's existing sources of cash
described above 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.
Based upon the terms of the Company's currently outstanding indebtedness,
the Company is scheduled to repay debt principal of approximately $33.8 million
during 2001.
Certain Measures to Reduce Cash Requirements
The Company, in response to softening economic conditions, has been
focusing on measures to cut costs and reduce cash outlays. Some of the
principal initiatives are discussed below.
Reduce equipment purchases and supplement new equipment with used
equipment. The Company, as described above, has budgeted $400 million for
rental and other equipment expenditures over the next 12 months. This reflects
a significant reduction from the $962 million that was expended in 2000.
16
The Company believes that it may have the opportunity to purchase
late-model used equipment at attractive prices. Accordingly, while continuing
to purchase new equipment, the Company will also selectively purchase
late-model used equipment. The Company estimates that over the next 12 months
used equipment will account for 15-20% of its total equipment purchases.
The Company plans to reduce the rate at which it invests in new equipment
in 2001, which will cause the weighted average age of its fleet to increase
from approximately 26 months to approximately 32 months. The Company believes
that, because of the young age of its fleet, the Company's operations will not
be adversely affected by this six month increase in average age. The Company
also plans to reduce the rate at which it sells its used rental equipment in
2001 and, as a result, revenues from the sale of rental equipment are expected
to be 70-75% lower in 2001 than in 2000.
Close or Consolidate Under-Performing Branches. The Company is in the
process of reviewing under-performing branches and expects that, over the next
several months, a number of locations will be closed or consolidated with
existing locations.
Continue to Consolidate Suppliers. The Company reduced the number of its
primary equipment suppliers from 111 to 28 in 2000. This allowed the Company to
lower its purchase costs by approximately $150 million in 2000 and should
enable the Company to save additional amounts in 2001. The Company is currently
in the process of similarly consolidating its merchandise suppliers.
Other Cost-Cutting Measures. The Company is seeking to reduce costs in a
number of other ways, including reducing administrative expenses, consolidating
credit and collection centers, and streamlining advertising.
Certain Projected Charges
Branch Consolidation
The Company, as described above, expects that over the next several months
a number of underperforming locations will be closed or consolidated with other
locations. The Company estimates that, as a result, it will incur a pre-tax
charge in 2001 in the range of $20 million to $40 million, primarily relating
to employee severance and vacating facilities.
Debt Refinancing
The Company is currently negotiating with various lenders to replace its
existing credit facility and term loans. If this refinancing is completed, the
Company estimates that it would record a pretax extraordinary charge in 2001 in
the range of $16 million to $27 million, primarily relating to the write-off of
financing fees.
Relationship Between Holdings and URI
Holdings is principally a holding company and primarily conducts its
operations through its wholly owned subsidiary URI and subsidiaries of URI.
Holdings provides certain services to URI in connection with its operations.
These services principally include: (i) senior management services, (ii)
finance related services and support, (iii) information technology systems and
support and (iv) acquisition related services. In addition, Holdings leases
certain equipment and real property that are made available for use by URI and
its subsidiaries. URI has made, and expects to continue to make, certain
payments to Holdings in respect of the services provided by Holdings to the
Company. The expenses relating to URI's payments to Holdings are reflected on
URI's financial statements as selling, general and administrative expenses. In
addition, although not legally obligated to do so, URI has in the past,
17
and expects that it will in the future, make distributions to Holdings to,
among other things, enable Holdings to pay dividends on the Trust Preferred
Securities (as described under "--Certain Information Concerning Preferred
Securities").
The Trust Preferred Securities are the obligation of a subsidiary trust of
Holdings and are not the obligation of URI. As a result, the dividends payable
on these securities are reflected as an expense on the consolidated financial
statements of Holdings, but are not reflected as an expense on the consolidated
financial statements of URI.
Certain Information Concerning the Credit Facility and Other Indebtedness
Credit Facility. URI has a credit facility (the "Credit Facility") which
enables URI to borrow up to $827.5 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 $827.5 million). Up to $50.0
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
$20.7 million. The Credit Facility terminates on September 26, 2003, at which
time all outstanding indebtedness is due. As of March 6, 2001, there was $414.0
million of indebtedness outstanding under the Credit Facility (not including
undrawn outstanding letters of credit in the amount of $6.4 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 1.200% to 1.875%
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 1.200%
to 1.875% 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 1.200% to 1.875% 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' $827.5 million aggregate lending commitment under
the Credit Facility (which fee may be reduced to 0.300% for periods during
which the Company maintains a specified funded debt to cash flow ratio).
The obligations of URI under the Credit Facility are (i) secured by
substantially all of its assets, the stock of its United States subsidiaries
and a portion of the stock of URI's Canadian subsidiaries and (ii) guaranteed
by Holdings and secured by the stock of URI. The obligations of the Canadian
Subsidiary under the Credit Facility are guaranteed by URI and secured by
substantially all of the assets of the Canadian Subsidiary and the stock of the
subsidiaries of the Canadian Subsidiary.
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 provides that failure by
18
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 B. In July 1998, URI obtained a $250.0 million term loan (the
"Term Loan B") from a group of financial institutions. The Term Loan B matures
on June 30, 2005. Prior to maturity, quarterly installments of principal in the
amount of $0.6 million are due on the last day of each calendar quarter,
commencing September 30, 1999. The amount due at maturity is $235.6 million.
The Term Loan B accrues interest, at the Company's option, at either (a) the
Base Rate (as defined with respect to the Credit Facility) plus a margin of
0.375% per annum, or (b) the Eurodollar Rate (as defined with respect to the
Credit Facility for borrowings by URI) plus a margin of 2.25% per annum. If at
any time an event of default exists, the interest rate applicable to the Term
Loan B will increase by 2% per annum. The Term Loan B is secured pari passu
with the Credit Facility, Term Loan C and Term Loan D (described below). The
agreement governing the Term Loan B contains restrictive covenants
substantially similar to those provided under the Credit Facility.
Term Loan C. In July 1999, URI obtained a $750.0 million term loan (the
"Term Loan C") from a group of financial institutions. The Term Loan C matures
in June 2006. Prior to maturity, quarterly installments of principal in the
amount of $1.9 million are due on the last day of each calendar quarter,
commencing September 30, 2000. The amount due at maturity is $706.3 million.
The Term Loan C accrues interest, at URI's option, at either (a) the Base Rate
(as defined with respect to the Credit Facility) plus a margin of 0.625% per
annum, or (b) the Eurodollar Rate (as defined with respect to the Credit
Facility for borrowings by URI) plus a margin of 2.5% per annum. If at any time
an event of default exists, the interest rate applicable to the Term Loan C
will increase by 2% per annum. The Term Loan C is secured pari passu with the
Credit Facility, Term Loan B and Term Loan D. The agreement governing the Term
Loan C contains restrictive covenants substantially similar to those provided
under the Credit Facility.
Term Loan D. In June 2000, URI obtained a $100.0 million term loan from a
financial institution (the "Term Loan D"). In October 2000, URI obtained an
additional $100.0 million under the existing Term Loan D. The Term Loan D
matures in June 2006. Prior to maturity, quarterly installments of principal
are due on the last day of each calendar quarter, in the amount of $0.25
million on September 30, 2000 and in the amount of $0.5 million commencing
December 31, 2000 to maturity. The amount due at maturity is $188.5 million.
The Term Loan D accrues interest, at URI's option, at either (a) the Base Rate
(as defined above with respect to the Credit Facility) plus a margin of 0.625%
per annum, or (b) the Eurodollar Rate (as defined above with respect to the
Credit Facility) plus a margin of 2.5% per annum. If at any time an event of
default exists, the interest rate applicable to the Term Loan D will increase
by 2% per annum. The Term Loan D is secured pari passu with the Credit
Facility, Term Loan B and Term Loan C. The agreement governing the Term Loan D
contains restrictive covenants substantially similar to those provided under
the Credit Facility.
Receivables Securitization. In December 2000, the Company obtained $100.0
million through the securitization of certain of its accounts receivable. In
the securitization, the Company transferred $203.0 million of its accounts
receivable to a special purpose subsidiary (the "SPV") which in turn pledged
those receivables to secure $100.0 million of borrowings that the SPV incurred
to finance its acquisition of those receivables from the Company. These
borrowings accrue interest at Credit Lyonnais' blended commercial paper rate
plus a margin of 0.75% per annum. These borrowings are an obligation of the SPV
and not of Holdings or URI, and the lenders' recourse in respect of the
borrowings is generally limited to collections that the SPV receives on the
receivables. Collections on the receivables are used to service the borrowings.
Subject to certain conditions, collections from the receivables may also be
used by the SPV from time to time until December 2003 to acquire additional
accounts receivables from the Company that the SPV will pledge to the lenders
to secure the borrowings.
9 1/2% Senior Subordinated Notes. In May 1998, URI issued $200.0 million
aggregate principal amount of 9 1/2% senior subordinated notes (the "9 1/2%
Notes"), which are due June 1, 2008. The
19
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 100.0% 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 $205.0 million
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 104.4% in 2003 to 100.0% in 2006 and
thereafter. In addition, on or prior to August 15, 2001, URI may, at its
option, use the proceeds of a public equity offering to redeem up to 35% of the
outstanding 8.80% Notes, at a redemption price of 108.8%. The indenture
governing the 8.80% Notes contains restrictions substantially similar to those
applicable to the 9 1/2% Notes.
9 1/4% Senior Subordinated Notes. In December 1998, URI issued $300.0
million 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 100.0% 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.
9% Senior Subordinated Notes. In March 1999, URI sold $250.0 million
aggregate principal amount of 9% senior subordinated notes, (the "9% Notes")
which are due on April 1, 2009. The 9% Notes are unsecured. URI may, at its
option, redeem the 9% Notes on or after April 1, 2004 at specified redemption
prices which range from 104.5% in 2004 to 100.0% in 2007 and thereafter. In
addition, on or prior to April 1, 2002, URI may, at its option, use the
proceeds of a public equity offering to redeem up to 35% of the outstanding 9%
Notes, at a redemption price of 109.0%. The indenture governing the 9% Notes
contains restrictions substantially similar to those applicable to the 9 1/2%
Notes.
Other Debt. In addition to the debt described above, the Company had
approximately $94.1 million of other debt outstanding as of December 31, 2000.
Certain Information Concerning Operating Leases
The Company, from time to time, has entered into operating leases pursuant
to which it leases, as lessee, equipment or real estate. Certain of these
leases were entered into as part of sale and lease-back transactions, where the
Company sells its equipment and then enters into an operating lease that
provides for the Company to lease the equipment for a specified period. Sale
and lease-back transactions in 2000 generated gross proceeds of $218.8 million
and gave rise to $12.5 million of recognized gain and $4.0 million of deferred
gain. For information concerning the lease payment obligations under the
Company's operating leases, see Note 13 of the Notes to the Consolidated
Financial Statements included elsewhere in this Report.
20
Certain Information Concerning Preferred Securities
Trust Preferred Securities
In August 1998, a subsidiary trust (the "Trust") of Holdings sold $300.0
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 $290.0 million. The Trust used such proceeds to
purchase convertible subordinated debentures from Holdings which resulted in
Holdings receiving all of the proceeds from the sale of the Trust Preferred
Securities. Holdings in turn contributed the net proceeds from the sale of the
Trust Preferred Securities to its wholly owned subsidiary URI. The Trust
Preferred Securities are convertible into common stock of Holdings at a
conversion price equivalent to $43.63 per share.
Other Preferred Securities
In January 1999, Holdings sold 300,000 shares of its Series A Preferred.
The outstanding shares of Series A Preferred are convertible into an aggregate
of 12,000,000 shares of Holdings common stock, subject to adjustment
(equivalent to a conversion price of $25 per share based upon the liquidation
preference of $1,000 per share of Series A Preferred).
In September 1999, Holdings sold 150,000 shares of its Series B Preferred.
The outstanding shares of Series B Preferred are convertible into an aggregate
of 5,000,000 shares of Holdings common stock, subject to adjustment (equivalent
to a conversion price of $30 per share based upon the liquidation preference of
$1,000 per share of Series B Preferred).
Fluctuations in Operating Results
The Company expects that its revenues and operating results may fluctuate
from quarter to quarter or over the longer term. Certain of the general factors
that may cause such fluctuations are discussed under "--Factors that May
Influence Future Results and Accuracy of Forward Looking
Statements--Fluctuations of Operating Results." In addition, information
concerning certain projected charges that may impact quarterly results over the
near term is set forth under "--Certain Projected Charges."
The Company is continually involved in the investigation and evaluation of
potential acquisitions. In accordance with accounting principles generally
accepted in the United States, the Company capitalizes certain direct
out-of-pocket expenditures (such as legal and accounting fees) relating to
potential or pending acquisitions. Indirect acquisition costs, such as
executive salaries, general corporate overhead, public affairs and other
corporate services, are expensed as incurred. The Company's policy is to charge
against earnings any capitalized expenditures relating to any potential or
pending acquisition that the Company determines will not be consummated. There
can be no assurance that the Company in future periods will not be required to
incur a charge against earnings in accordance with such policy, which charge,
depending upon the magnitude thereof, could adversely affect the Company's
results of operations.
The Company will be required to incur significant start-up expenses in
connection with establishing each start-up location. Such expenses may include,
among others, pre-opening expenses related to setting up the facility, and
expenses in connection with training employees, installing information systems
and marketing. The Company expects that, in general, start-up locations will
initially operate at a loss or at less than normalized profit levels.
Consequently, the opening of a start-up location may negatively impact the
Company's margins until the location achieves normalized profitability.
21
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.
Seasonality
The Company's business is seasonal with demand for the Company's rental
equipment tending to be lower in the winter months. The seasonality of the
Company's business has been heightened by the Company's acquisition of
businesses that specialize in renting traffic control equipment. These
businesses tend to generate most of their revenues and profits in the second
and third quarters of the year, slow down during the fourth quarter and operate
at a loss during the first quarter.
Inflation
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.
Impact of Recently Issued Accounting Standards
In June 1999, the Financial Accounting Standards Board (''FASB") issued
Statement of Financial Accounting Standards (''SFAS") No. 137, "Accounting for
Derivative Instruments and Hedging Activities--Deferral of the Effective Date
of FASB Statement No. 133". This standard delays the effective date of SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", for one
year, to fiscal years beginning after June 15, 2000. SFAS No. 133 establishes a
new model for accounting for derivatives and hedging activities. The adoption
of SFAS No. 133 on January 1, 2001 is not expected to have a material effect on
the Company's consolidated financial position or results of operations.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities". This standard amends
SFAS No. 133 and addresses a limited number of issues causing implementation
difficulties. The Company will adopt SFAS No. 138 on January 1, 2001 and it is
not expected to have a material effect on the Company's consolidated financial
position or results of operations.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities--a
replacement of FASB Statement No. 125". This standard revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures. This standard is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001 and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000.
The adoption of SFAS No. 140 is not expected to have a material effect on the
Company's consolidated financial position or results of operations.
Factors that May Influence Future Results and Accuracy of Forward-Looking
Statements
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
22
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:
. the recent slow-down of the economy worsens or continues over the
long-term;
. an increase in interest rates; or
. adverse weather conditions which may temporarily affect a particular
region.
In addition, demand for our traffic control equipment may not reach
projected levels in the event that funding for highway and other construction
projects under government programs, such as the Transportation Equity Act for
the 21st Century ("TEA-21"), does not reach expected levels.
Fluctuations of Operating Results
We expect that our revenues and operating results may fluctuate from
quarter to quarter or over the longer term due to a number of factors,
including:
. seasonal rental patterns of our customers--with rental activity tending
to be lower in the winter;
. our recent acquisitions of businesses that specialize in renting
traffic control equipment, which tend to operate at a loss during the
first quarter;
. the timing of expenditures for new equipment and the disposition of
used equipment;
. changes in demand for our equipment or the prices therefor due to
changes in economic conditions, competition or other factors;
. changes in the interest rates applicable to our floating rate debt;
. if we determine that a potential acquisition will not be consummated,
the need to charge against earnings any expenditures relating to such
transaction (such as financing commitment fees, merger and acquisition
advisory fees and professional fees) previously capitalized; and
. the possible need, from time to time, to take other write-offs or
special charges due to a variety of occurrences, such as store
consolidations or closings or the refinancing of existing indebtedness.
Dependence on Additional Capital
We may require additional capital for, among other purposes, purchasing
rental equipment, completing acquisitions, and establishing new rental
locations. 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 business
could be adversely affected.
Certain Risks Relating to Acquisitions
The making of acquisitions entails certain risks, including:
. acquired companies could have unrecorded liabilities that we fail to
discover during our due diligence investigations;
23
. we may have difficulty in assimilating the operations and personnel of
the acquired company with our existing operations;
. we may lose key employees of the acquired company; and
. we may have difficulty maintaining uniform standards, controls,
procedures and policies.
Dependence on Management
We are highly dependent upon our senior management team. Consequently, our
business could be adversely affected in the event that we lose the services of
any member of senior management. Furthermore, if we lose the services of
certain members of senior management, it is an event of default under the
agreements governing our credit facility and certain of our other indebtedness,
unless we appoint replacement officers satisfactory to the lenders within 30
days. We do not maintain "key man" life insurance with respect to members of
senior management.
Competition
The equipment rental industry is highly fragmented and competitive. Our
competitors primarily include small, independent businesses with one or two
rental locations; regional competitors which operate in one or more states;
public companies or divisions of public companies; and equipment vendors and
dealers who both sell and rent equipment directly to customers. We may in the
future encounter increased competition from our existing competitors or from
new companies. In addition, certain equipment manufacturers may commence (or
increase their existing efforts relating to) renting and selling equipment
directly to our customers.
Liability and Insurance
We are exposed to various possible claims relating to our business. These
include claims relating to (1) personal injury or death caused by equipment
rented or sold by us, (2) motor vehicle accidents involving our delivery and
service personnel and (3) employment related claims. We carry a broad range of
insurance for the protection of our assets and operations. However, such
insurance may not fully protect us for a number of reasons, including:
. our coverage is subject to a deductible of $1.0 million and limited to
a maximum of $98 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,
24
(1) the costs of removal or remediation of hazardous or toxic substances
located on, in, or emanating from, the real estate, as well as related costs of
investigation and property damage and substantial penalties, and (2)
environmental contamination at facilities where its waste is or has been
disposed. These laws often impose liability whether or not the owner or lessee
knew of the presence of the hazardous or toxic substances and whether or not
the owner or lessee was responsible for these substances. Our activities that
are or may be affected by these laws include our use of hazardous materials to
clean and maintain equipment and our disposal of solid and hazardous waste and
wastewater from equipment washing. We also dispense petroleum products from
underground and above-ground storage tanks located at certain rental locations,
and at times we must remove or upgrade tanks to comply with applicable laws.
Furthermore, we have acquired or lease certain locations which have or may have
been contaminated by leakage from underground tanks or other sources and are in
the process of assessing the nature of the required remediation. Based on the
conditions currently known to us, we believe that any unreserved environmental
remediation and compliance costs required with respect to those conditions will
not have a material adverse effect on our business. However, we cannot be
certain that we will not identify adverse environmental conditions that are not
currently known to us, that all potential releases from underground storage
tanks removed in the past have been identified, or that environmental and
safety requirements will not become more stringent or be interpreted and
applied more stringently in the future. If we are required to incur
environmental compliance or remediation costs that are not currently
anticipated by us, our business could be adversely affected depending on the
magnitude of the cost.
Risks Related to International Operations
Our operations outside the United States are subject to risks normally
associated with international operations. These include the need to convert
currencies, which could result in a gain or loss depending on fluctuations in
exchange rates, and the need to comply with foreign laws.
Dependence on Information Technology Systems
Our ability to monitor and control our operations depends to a large extent
on the proper functioning of our information technology systems. Any disruption
in these systems or the failure of these systems to operate as expected could,
depending on the magnitude and duration of the problem, adversely affect our
business.
Labor Matters
Certain of our employees are represented by unions and covered by
collective bargaining agreements. If we should experience a prolonged labor
dispute involving a significant number of our employees, our business could be
adversely affected.
Restrictive Covenants
The agreements governing our existing long-term indebtedness contain, and
future agreements governing our long-term indebtedness may also contain,
certain restrictive financial and operating covenants which affect, and in many
respects significantly limit or prohibit, among other things, our ability to
incur indebtedness, make prepayments of certain indebtedness, make investments,
create liens, make acquisitions, sell assets and engage in mergers and
consolidations. These covenants may significantly limit our operating and
financial flexibility.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk primarily consists of (1) interest rate risk
associated with our variable rate debt and (2) foreign currency exchange rate
risk primarily associated with our Canadian operations.
25
Interest Rate Risk. The Company periodically utilizes interest rate swap
agreements to manage and mitigate its exposure to changes in interest rates. At
December 31, 2000, the Company had interest rate protection in the form of swap
agreements with an aggregate notional amount of $200.0 million. The effect of
these agreements is to limit the interest rate exposure to 8.75% on $200.0
million of Term Loan B.
All borrowings under our $827.5 million Credit Facility bear interest at a
variable rate of interest. The outstanding indebtedness under the Credit
Facility was $337.0 million as of December 31, 2000. Our other variable rate
debt primarily consists of a $246.9 million Term Loan B, a $748.1 million Term
Loan C, a $198.1 Term Loan D and $100.0 million of receivables securitization
described earlier. The weighted average interest rates applicable to our
variable rate debt as of December 31, 2000 were (i) 7.8% for the Credit
Facility, (ii) 8.80% for the Term Loan B, (iii) 9.26% for the Term Loan C, (iv)
9.18% for the Term Loan D and (v) 7.44% for the receivables securitization
described earlier. Based upon the amount of variable debt that we had
outstanding as of December 31, 2000 (approximately $1.63 billion in the
aggregate), our net income would decrease by approximately $9.5 million for
each one percentage point increase in the interest rates applicable to our
variable rate debt. The amount of our variable rate indebtedness may fluctuate
significantly as a result of changes in the amount of indebtedness outstanding
under the Credit Facility from time to time. For additional information
concerning the terms of our variable rate debt, see Note 7 of the Notes to the
Consolidated Financial Statements included elsewhere herein.
Currency Exchange Risk. The functional currency for our Canadian operations
is the Canadian dollar. As a result, our future earnings could be affected by
fluctuations in the exchange rate between the U.S. and Canadian dollars. Based
upon the current level of our Canadian operations, a 10% change in this
exchange rate would not have a material impact on our earnings. In addition,
the Company periodically enters into foreign exchange contracts to hedge its
transaction exposures. At December 31, 2000, the Company had no outstanding
foreign exchange contracts. The Company does not engage in purchasing forward
exchange contracts for speculative purposes.
26
Item 8. Financial Statements and Supplementary Data
INDEX TO FINANCIAL STATEMENTS
Page
----
(1) Consolidated Financial Statements:
Report of Independent Auditors........................................................... 28
United Rentals, Inc. Consolidated Balance Sheets--December 31, 2000 and 1999............. 29
United Rentals, Inc. Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998....................................................... 30
United Rentals, Inc. Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2000, 1999 and 1998....................................................... 31
United Rentals, Inc. Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998....................................................... 32
Notes to Consolidated Financial Statements............................................... 34
Report of Independent Auditors........................................................... 55
United Rentals (North America), Inc. Consolidated Balance Sheets--December 31, 2000
and 1999............................................................................... 56
United Rentals (North America), Inc. Consolidated Statements of Operations for the years
ended December 31, 2000, 1999 and 1998................................................. 57
United Rentals (North America), Inc. Consolidated Statements of Stockholder's Equity for
the years ended December 31, 2000, 1999 and 1998....................................... 58
United Rentals (North America), Inc. Consolidated Statements of Cash Flows for the years
ended December 31, 2000, 1999 and 1998................................................. 59
Notes to Consolidated Financial Statements............................................... 60
(2) Financial Statement Schedules:
Report of Independent Auditors on Financial Statement Schedules.......................... 69
Schedule I Condensed Financial Information of the Registrant............................. 70
Schedule II Valuation and Qualifying Accounts............................................ 74
Schedules other than those listed are omitted as they are not applicable or
the required or equivalent information has been included in the financial
statements or notes thereto.
27
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, 2000 and 1999 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 2000. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of United Rentals, Inc. at December 31, 2000 and 1999, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey
February 23, 2001
28
UNITED RENTALS, INC.
CONSOLIDATED BALANCE SHEETS
December 31
----------------------
2000 1999
---------- ----------
(In thousands, except
share data)
Assets
Cash and cash equivalents.............................................. $ 34,384 $ 23,811
Accounts receivable, net of allowance for doubtful accounts of $55,624
and $58,376 at 2000 and 1999, respectively........................... 469,594 434,985
Inventory.............................................................. 133,380 129,473
Prepaid expenses and other assets...................................... 104,493 81,457
Rental equipment, net.................................................. 1,732,835 1,659,733
Property and equipment, net............................................ 422,239 304,907
Intangible assets, net of accumulated amortization of $108,066 and
$51,231 at 2000 and 1999, respectively............................... 2,227,008 1,863,372
---------- ----------
$5,123,933 $4,497,738
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable.................................................... $ 260,155 $ 242,946
Debt................................................................ 2,675,367 2,266,148
Deferred taxes...................................................... 206,243 81,229
Accrued expenses and other liabilities.............................. 136,225 209,929
---------- ----------
Total liabilities............................................... 3,277,990 2,800,252
Commitments and contingencies
Company-obligated manditorily redeemable convertible preferred
securities of a subsidiary trust..................................... 300,000 300,000
Stockholders' equity:
Preferred stock--$.01 par value, 5,000,000 shares authorized:
Series A perpetual convertible preferred stock--$300,000
liquidation preference, 300,000 shares issued and outstanding
in 2000 and 1999................................................ 3 3
Series B perpetual convertible preferred stock--$150,000
liquidation preference, 150,000 shares issued and outstanding
in 2000 and 1999................................................ 2 2
Common stock--$.01 par value, 500,000,000 shares authorized,
71,065,707 shares issued and outstanding in 2000 and
72,051,095 shares issued and outstanding in 1999.................. 711 721
Additional paid-in capital.......................................... 1,196,324 1,216,968
Retained earnings................................................... 355,850 179,475
Accumulated other comprehensive (loss) income....................... (6,947) 317
---------- ----------
Total stockholders' equity...................................... 1,545,943 1,397,486
---------- ----------
$5,123,933 $4,497,738
========== ==========
See accompanying notes.
29
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31
----------------------------------------
2000 1999 1998
---------- ---------- ----------
(in thousands, except per share amounts)
Revenues:
Equipment rentals............................................. $2,056,683 $1,581,026 $ 895,466
Sales of rental equipment..................................... 347,678 235,678 119,620
Sales of equipment and merchandise and other revenues......... 514,500 416,924 205,196
---------- ---------- ----------
Total revenues................................................. 2,918,861 2,233,628 1,220,282
Cost of revenues:
Cost of equipment rentals, excluding depreciation............. 907,477 676,972 394,750
Depreciation of rental equipment.............................. 328,131 280,641 175,910
Cost of rental equipment sales................................ 208,182 136,678 66,136
Cost of equipment and merchandise sales and other
operating costs............................................. 386,501 314,419 160,038
---------- ---------- ----------
Total cost of revenues......................................... 1,830,291 1,408,710 796,834
---------- ---------- ----------
Gross profit................................................... 1,088,570 824,918 423,448
Selling, general and administrative expenses................... 454,330 352,595 195,620
Merger-related expenses........................................ 47,178
Non-rental depreciation and amortization....................... 86,301 62,867 35,248
---------- ---------- ----------
Operating income............................................... 547,939 409,456 145,402
Interest expense............................................... 228,779 139,828 64,157
Preferred dividends of a subsidiary trust...................... 19,500 19,500 7,854
Other (income) expense, net.................................... (1,836) 8,321 (4,906)
---------- ---------- ----------
Income before provision for income taxes and extraordinary item 301,496 241,807 78,297
Provision for income taxes..................................... 125,121 99,141 43,499
---------- ---------- ----------
Income before extraordinary item............................... 176,375 142,666 34,798
Extraordinary item, net of tax benefit of $14,255.............. 21,337
---------- ---------- ----------
Net income..................................................... $ 176,375 $ 142,666 $ 13,461
========== ========== ==========
Earnings per share--basic:
Income before extraordinary item.............................. $ 2.48 $ 2.00 $ 0.53
Extraordinary item, net....................................... 0.33
---------- ---------- ----------
Net income.................................................... $ 2.48 $ 2.00 $ 0.20
========== ========== ==========
Earnings per share--diluted:
Income before extraordinary item.............................. $ 1.89 $ 1.53 $ 0.48
Extraordinary item, net....................................... 0.30
---------- ---------- ----------
Net income.................................................... $ 1.89 $ 1.53 $ 0.18
========== ========== ==========
See accompanying notes.
30
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Series A Series B
Perpetual Perpetual
Convertible Convertible
Preferred Stock Preferred Stock Common Stock
--------------- --------------- ------------------
Number Number Number Additional Compre-
of of of Paid-in Retained hensive
Shares Amount Shares Amount Shares Amount Capital Earnings Income
------- ------ ------- ------ ---------- ----- ---------- -------- --------
(In thousands, except share amounts)
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)
--------
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
Comprehensive income:
Net income...................... 142,666 $142,666
Other comprehensive income:
Foreign currency translation
adjustments................... 598
--------
Comprehensive income............. $143,264
========
Issuance of Series A perpetual
convertible preferred stock..... 300,000 $3 286,997
Issuance of Series B perpetual
convertible preferred stock..... 150,000 $2 143,798
Issuance of common stock......... 2,291,568 23 64,678
Exercise of common stock
options......................... 1,331,528 14 32,477
------- ------ ------- ------ ---------- ----- ---------- --------
Balance, December 31, 1999......... 300,000 3 150,000 2 72,051,095 721 1,216,968 179,475
Comprehensive income:
Net income...................... 176,375 $176,375
Other comprehensive income:
Foreign currency translation
adjustments................... (7,264)
--------
Comprehensive income............. $169,111
========
Issuance of common stock......... 773,320 8 9,867
Exercise of common stock
options......................... 26,307 421
Shares repurchased and retired... (1,785,015) (18) (30,932)
------- ------ ------- ------ ---------- ----- ---------- --------
Balance, December 31, 2000......... 300,000 $3 150,000 $2 71,065,707 $711 $1,196,324 $355,850
======= ====== ======= ====== ========== ===== ========== ========
Accumulated
Other
Comprehensive
(Loss) Income
------------
Balance, December 31, 1997.........
Comprehensive income:
Net income......................
Other comprehensive income:
Foreign currency translation
adjustments................... $ (281)
Comprehensive income.............
Issuance of common stock and
warrants........................
Conversion of convertible notes..
Cancellation of common stock.....
Reclassification of Subchapter S
accumulated earnings to paid-
in-capital......................
Pooling-of-interests.............
Exercise of common stock
options.........................
Subchapter S distributions of a
pooled entity...................
------------
Balance, December 31, 1998......... (281)
Comprehensive income:
Net income......................
Other comprehensive income:
Foreign currency translation
adjustments................... 598
Comprehensive income.............
Issuance of Series A perpetual
convertible preferred stock.....
Issuance of Series B perpetual
convertible preferred stock.....
Issuance of common stock.........
Exercise of common stock
options.........................
------------
Balance, December 31, 1999......... 317
Comprehensive income:
Net income......................
Other comprehensive income:
Foreign currency translation
adjustments................... (7,264)
Comprehensive income.............
Issuance of common stock.........
Exercise of common stock
options.........................
Shares repurchased and retired...
------------
Balance, December 31, 2000......... $(6,947)
============
See accompanying notes.
31
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
------------------------------------
2000 1999 1998
--------- ----------- -----------
(In thousands)
Cash Flows From Operating Activities:
Net income....................................................................... $ 176,375 $ 142,666 $ 13,461
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 414,432 343,508 212,311
Gain on sales of rental equipment.............................................. (139,496) (99,000) (53,484)
Gain on sales of businesses.................................................... (4,084) (1,842) (4,189)
Write down of assets held for sale............................................. 4,040
Extraordinary item............................................................. 35,592
Deferred taxes................................................................. 109,280 41,820 27,345
Changes in operating assets and liabilities:
Accounts receivable............................................................ 8,613 (93,716) (53,368)
Inventory...................................................................... 69,706 (6,544) (6,392)
Prepaid expenses and other assets.............................................. (29,848) 7,257 (3,526)
Accounts payable............................................................... (16,091) 64,453 39,251
Accrued expenses and other liabilities......................................... (76,166) 22,758 5,088
--------- ----------- -----------
Net cash provided by operating activities..................................... 512,721 421,360 216,129
--------- ----------- -----------
Cash Flows From Investing Activities:
Purchases of rental equipment.................................................... (808,204) (718,112) (479,534)
Purchases of property and equipment.............................................. (153,770) (123,649) (84,617)
Proceeds from sales of rental equipment.......................................... 347,678 235,678 119,620
Proceeds from sales of businesses................................................ 19,246 6,521 10,640
Purchases of other companies..................................................... (347,337) (986,790) (911,837)
Payments of contingent purchase price............................................ (16,266) (8,216) (3,956)
In-process acquisition costs..................................................... (4,285) (1,002) (241)
--------- ----------- -----------
Net cash used in investing activities......................................... (962,938) (1,595,570) (1,349,925)
--------- ----------- -----------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock, net of issuance costs.................... 64,701 207,005
Proceeds from the issuance of Series A Preferred, net of issuance costs.......... 287,000
Proceeds from the issuance of Series B Preferred, net of issuance costs.......... 143,800
Proceeds from debt............................................................... 456,202 1,083,616 1,263,637
Payments on debt................................................................. (134,599) (497,650) (685,667)
Proceeds from sale-leaseback..................................................... 193,478 88,000 35,000
Proceeds from the issuance of redeemable convertible preferred securities........ 300,000
Payments of financing costs...................................................... (16,408) (19,443) (34,982)
Proceeds from the exercise of common stock options............................... 331 26,989 619
Subchapter S distributions of a pooled entity.................................... (3,536)
Shares repurchased and retired................................................... (30,950)
--------- ----------- -----------
Net cash provided by financing activities..................................... 468,054 1,177,013 1,082,076
Effect of foreign exchange rates................................................. (7,264) 598 (281)
--------- ----------- -----------
Net increase (decrease) in cash and cash equivalents............................. 10,573 3,401 (52,001)
Cash and cash equivalents at beginning of year................................... 23,811 20,410 72,411
--------- ----------- -----------
Cash and cash equivalents at end of year......................................... $ 34,384 $ 23,811 $ 20,410
========= =========== ===========
See accompanying notes.
32
UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
Year Ended December 31
----------------------------------
2000 1999 1998
--------- ---------- ----------
(In thousands)
Supplemental disclosure of cash flow information:
Cash paid for interest...................................................... $ 248,763 $ 124,285 $ 43,157
Cash paid for taxes, net of refunds......................................... $ 23,746 $ 17,509 $ 10,224
Supplemental schedule of non-cash investing and financing activities
The Company acquired the net assets and assumed certain liabilities of other
companies as follows:
Assets, net of cash acquired.............................................. $ 565,114 $1,468,567 $1,501,467
Liabilities assumed....................................................... (142,277) (472,382) (518,861)
Less:
Amounts paid in common stock and warrants................................ (10,000) (60,304)
Amounts paid through issuance of debt.................................... (65,500) (9,395) (10,465)
--------- ---------- ----------
Net cash paid............................................................... $ 347,337 $ 986,790 $ 911,837
========= ========== ==========
See accompanying notes.
33
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. 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
9. 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. Therefore, 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 year ended December 31, 1998 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 and is net of a
reserve for obsolescence and shrinkage of $15.5 million and $16.8 million at
December 31, 2000 and 1999, respectively. 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 using the straight-line method. The range of
estimated useful lives for rental equipment is two to ten years. Rental
equipment is depreciated to a salvage value of zero to ten percent of cost.
Ordinary repair and maintenance costs are charged to operations as incurred.
34
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 estimated
useful lives for property and equipment is two to thirty-nine years. Ordinary
repair and maintenance 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 fair value of
identifiable net assets of businesses acquired and non-compete agreements. The
non-compete agreements are being amortized on a straight-line basis for a
period ranging from three to eight years. The remaining intangible assets 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, the
Company 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.
Derivative Financial Instruments
Derivative financial instruments, which are periodically used by the
Company in the management of its interest rate and foreign currency exposures,
are accounted for on an accrual basis. Income and expense are recorded in the
same category as that arising from the related asset or liability. The fair
value of these agreements are not recognized in the financial statements.
Derivative financial instruments are not used for trading purposes.
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, Term Loan B,
Term Loan C, Term Loan D, receivables securitization and certain other debt are
determined using current interest rates for similar instruments as of December
31, 2000 and 1999 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, 2000 and
1999 are based upon available market information and are as follows:
2000 1999
-------------------------- --------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
--------------- ---------- --------------- ----------
(In thousands)
Redeemable convertible preferred
securities.................... $300,000 $133,125 $300,000 $192,375
Senior subordinated notes....... 951,153 702,500 950,653 906,400
Other debt...................... 94,086 94,086 73,745 73,745
Revenue Recognition
Revenue related to the sale of equipment and merchandise is recognized at
the time of delivery to, or pick-up by, the customer. Revenue related to rental
equipment is recognized over the contract term.
35
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 $23.8 million,
$19.0 million and $13.5 million for the years ended December 31, 2000, 1999 and
1998, 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.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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.
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 one million dollars). 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
In June 1999, the Financial Accounting Standards Board ("FASB'') issued
Statement of Financial Accounting Standards ("SFAS'') No. 137, "Accounting for
Derivative Instruments and Hedging
36
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Activities--Deferral of the Effective Date of FASB Statement No. 133". This
standard delays the effective date of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", for one year, to fiscal years beginning
after June 15, 2000. SFAS No. 133 establishes a new model for accounting for
derivatives and hedging activities. The adoption of SFAS No. 133 on January 1,
2001 is not expected to have a material effect on the Company's consolidated
financial position or results of operations.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities". This standard amends
SFAS No. 133 and addresses a limited number of issues causing implementation
difficulties. The Company will adopt SFAS No. 138 on January 1, 2001 and it is
not expected to have a material effect on the Company's consolidated financial
position or results of operations.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities--a
replacement of FASB Statement No. 125". This standard revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures. This standard is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001 and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000.
The adoption of SFAS No. 140 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 2000
presentation.
3. Acquisitions
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.
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.
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.
37
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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:
U.S. Rental
United Rentals Tools Combined
-------- -------- ------- --------
(In thousands)
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)
Acquisitions Accounted for as Purchases
The acquisitions completed during the years ended December 31, 2000, 1999
and 1998 include 53, 102 and 81 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.
During 2000, the Company purchased the outstanding stock and certain assets
of (i) Liddell Brothers Inc., in February, (ii) Safety Lites Sales and Leasing,
Inc., in March, (iii) Durante Equipment Corp., Inc., in June, (iv) Horizon High
Reach, Inc., in September, and (v) Wiese Planning & Engineering Inc., in
December. The aggregate initial consideration paid for these five acquisitions
that were accounted for as purchases was approximately $153.1 million and
consisted of $83.8 million in cash and 761,905 shares of common stock and $59.3
million in seller notes. In addition, the Company repaid or assumed outstanding
indebtedness of these companies acquired in the aggregate amount of
approximately $5.5 million.
The aggregate initial consideration paid by the Company for other 2000
acquisitions that were accounted for as purchases was $210.2 million and
consisted of approximately $184.6 million in cash and $6.2 million in seller
notes. In addition, the Company repaid or assumed outstanding indebtedness of
the companies acquired in the other 2000 acquisitions in the aggregate amount
of $77.5 million.
During 1999, the Company purchased the outstanding stock and certain assets
of (i) National Equipment Finance Company, in June, (ii) Mi-Jack Products, Inc.
and related entities, in May, (iii) Elmen Rent All, Inc., in June (iv) Forte,
Inc., in March, and (v) Arayco, Inc. in June. The aggregate initial
consideration paid for these five acquisitions that were accounted for as
purchases was approximately $275.4 million and consisted of $270.4 million in
cash and $5.0 million in seller notes. In addition, the Company repaid or
assumed outstanding indebtedness of these companies acquired in the aggregate
amount of approximately $99.8 million.
The aggregate initial consideration paid by the Company for other 1999
acquisitions accounted for as purchases was $663.6 million and consisted of
approximately $659.2 million in cash and $4.4 million in seller notes. In
addition, the Company repaid or assumed outstanding indebtedness of the
companies acquired in the other 1999 acquisitions in the aggregate amount of
approximately $239.3 million.
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 $88.7 million and consisted of approximately
$81.4 million in cash and 370,231
38
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $64.0 million.
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 $298.4 million and consisted of approximately $278.0 million in
cash and 496,063 shares of common stock. In addition, the Company repaid or
assumed outstanding indebtedness of these three companies acquired in the
aggregate amount of $155.4 million.
The aggregate initial consideration paid by the Company for other 1998
acquisitions that were accounted for as purchases was $550.4 million and
consisted of approximately $507.3 million in cash and 1,083,997 shares of
common stock, and seller notes of $10.5 million. In addition, the Company
repaid or assumed outstanding indebtedness of the other companies acquired in
1998 in the aggregate amount of $211.8 million.
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.
The following table summarizes, on an unaudited pro forma basis, the
combined results of operations of the Company for the years ended December 31,
2000 and 1999 as though each acquisition described above was made on January 1,
for each of the periods.
2000 1999
---------- ----------
(In thousands, except
per share data)
Revenues.................. $3,095,872 $2,956,543
Net income................ 182,342 154,084
Basic earnings per share.. $ 2.54 $ 2.14
========== ==========
Diluted earnings per share $ 1.94 $ 1.64
========== ==========
The unaudited pro forma results are based upon certain assumptions and
estimates which are subject to change. These results are not necessarily
indicative of the actual results of operations that might have occurred, nor
are they necessarily indicative of expected results in the future.
Merger-Related Expenses, Extraordinary Item and Other Costs
The results of operations for the year ended December 31, 1999 include
pre-tax expenses related to a terminated tender offer totaling approximately
$18.2 million ($10.8 million after tax), primarily consisting of $8.3 million
in professional fees recorded in selling, general and administrative expense
and $9.9 million in financing commitment fees recorded in other (income)
expense, net.
The results of operations for the year ended December 31, 1998, include
pre-tax expenses related to three acquisitions accounted for as
poolings-of-interests totaling approximately $47.2 million
39
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
($33.2 million after-tax), consisting of (i) $18.5 million for investment
banking, legal, accounting services and other merger costs, (ii) $14.5 million
of expenses relating to the closing of duplicate facilities, (iii) $8.2 million
for employee severance and related matters, (iv) $2.1 million 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) $3.9
million in other expenses.
The Company recorded a pre-tax extraordinary item of $35.6 million ($21.3
million after-tax) in 1998. The charge related to the early extinguishment of
debt primarily related to the Merger with U.S. Rentals.
4. Rental Equipment
Rental equipment consists of the following:
December 31
-----------------------
2000 1999
---------- ----------
(In thousands)
Rental equipment............. $2,281,994 $2,098,624
Less accumulated depreciation (549,159) (438,891)
---------- ----------
Rental equipment, net........ $1,732,835 $1,659,733
---------- ----------
5. Property and Equipment
Property and equipment consist of the following:
December 31
--------------------
2000 1999
--------- --------
(In thousands)
Land.......................................... $ 53,612 $ 50,143
Buildings..................................... 104,925 91,934
Transportation equipment...................... 228,265 139,944
Machinery and equipment....................... 36,587 31,484
Furniture and fixtures........................ 56,109 46,507
Leasehold improvements........................ 48,952 26,387
--------- --------
528,450 386,399
Less accumulated depreciation and amortization (106,211) (81,492)
--------- --------
Property and equipment, net................... $ 422,239 $304,907
========= ========
6. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
December 31
-----------------
2000 1999
-------- --------
(In thousands)
Accrued profit sharing $ 39,485 $ 39,052
Accrued insurance..... 15,428 22,738
Accrued interest...... 36,993 37,477
Other................. 44,319 110,662
-------- --------
$136,225 $209,929
======== ========
40
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Debt
Debt consists of the following:
December 31
---------------------
2000 1999
---------- ----------
(In thousands)
Credit Facility, interest payable at a weighted average rate
of 7.8% and 6.9% at December 31, 2000 and 1999,
respectively.............................................. $ 337,000 $ 243,000
Term Loan B, interest payable at 8.89% and 8.71% at
December 31, 2000 and 1999, respectively.................. 246,875 248,750
Term Loan C, interest payable at 9.26% and 8.96% at
December 31, 2000 and 1999, respectively.................. 748,125 750,000
Term Loan D, interest payable at a weighted average rate of
9.18% at December 31, 2000................................ 198,128
Senior Subordinated Notes, interest payable semi-annually,
(9 1/2% at December 31, 2000 and 1999).................... 200,000 200,000
Senior Subordinated Notes, interest payable semi-annually,
(8.80% at December 31, 2000 and 1999)..................... 201,153 200,653
Senior Subordinated Notes, interest payable semi-annually,
(9 1/4% at December 31, 2000 and 1999).................... 300,000 300,000
Senior Subordinated Notes, interest payable semi-annually,
(9% at December 31, 2000 and 1999)........................ 250,000 250,000
Receivables securitization, interest payable at 7.44% at
December 31, 2000......................................... 100,000
Other debt, interest payable at various rates ranging from
4% to 11% and 6% to 12.3% at December 31, 2000 and
1999, respectively, due through 2007...................... 94,086 73,745
---------- ----------
$2,675,367 $2,266,148
========== ==========
Credit Facility. The Company has a credit facility (the "Credit Facility")
which enables URI to borrow up to $827.5 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 $827.5
million). Up to $50.0 million ($1.4 million outstanding at December 31, 2000)
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 $20.7
million. The Credit Facility terminates on September 26, 2003, at which time
all outstanding indebtedness is due.
Borrowings by URI under the Credit Facility accrue interest at URI's
option, at either (a) the Base Rate (which is equal to the greater of (i) the
Federal Funds Rate plus 0.5% or (ii) Bank of America's reference rate) or (b)
the Eurodollar Rate (which for borrowings by URI is equal to Bank of America's
reserve adjusted eurodollar rate) plus a margin ranging from 1.200% to 1.875%
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 1.200%
to 1.875% per annum or (z) the Eurodollar Rate (which for borrowing by the
Canadian Subsidiary is equal
41
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
to Bank of America Canada's reserve adjusted Eurodollar Rate) plus a margin
ranging from 1.200% to 1.875% 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'
$827.5 million aggregate lending commitment under the Credit Facility (which
fee may be reduced to 0.300% for periods during which the Company maintains a
specified funded debt to cash flow ratio).
The obligations of URI under the Credit Facility are (i) secured by
substantially all of its assets, the stock of its United States subsidiaries
and a portion of the stock of URI's Canadian subsidiaries and (ii) guaranteed
by Holdings and secured by the stock of URI. The obligations of the Canadian
Subsidiary under the Credit Facility are guaranteed by URI and secured by
substantially all of the assets of the Canadian Subsidiary and the stock of the
subsidiaries of the Canadian Subsidiary.
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.
Term Loan B. URI obtained a $250.0 million term loan (the "Term Loan B")
from a group of financial institutions. The Term Loan B matures on June 30,
2005. Prior to maturity, quarterly installments of principal in the amount of
$0.6 million are due on the last day of each calendar quarter, commencing
September 30, 1999. The amount due at maturity is $235.6 million. The Term Loan
B accrues interest, at URI's option, at either (a) the Base Rate (as defined
above with respect to the Credit Facility) plus a margin of 0.375% per annum,
or (b) the Eurodollar Rate (as defined above with respect to the Credit
Facility for borrowings by the Company) plus a margin of 2.25% per annum. The
Term Loan B is secured pari passu with the Credit Facility and the agreement
governing the Term Loan B contains restrictive covenants substantially similar
to those provided under the Credit Facility.
Term Loan C. URI obtained a $750.0 million term loan from a group of
financial institutions (the "Term Loan C"). The Term Loan C matures in June
2006. Prior to maturity, quarterly installments of principal in the amount of
$1.9 million are due on the last day of each calendar quarter, commencing
September 30, 2000. The amount due at maturity is $706.3 million. The Term Loan
C accrues interest, at URI's option, at either (a) the Base Rate (as defined
above with respect to the Credit Facility) plus a margin of 0.625% per annum,
or (b) the Eurodollar Rate (as defined above with respect to the Credit
Facility) plus a margin of 2.50% per annum. The Term Loan C is secured pari
passu with the Credit Facility and the agreement governing the Term Loan C
contains restrictive covenants substantially similar to those provided under
the Credit Facility.
Term Loan D. URI obtained a $200.0 million term loan from a financial
institution (the "Term Loan D"). The Term Loan D matures in June 2006. Prior to
maturity, quarterly installments of principal
42
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
are due on the last day of each calendar quarter, in the amount of $0.25
million on September 30, 2000 and in the amount of $0.5 million commencing
December 31, 2000 to maturity. The amount due at maturity is $188.5 million.
The Term Loan D accrues interest, at URI's option, at either (a) the Base Rate
(as defined above with respect to the Credit Facility) plus a margin of 0.625%
per annum, or (b) the Eurodollar Rate (as defined above with respect to the
Credit Facility) plus a margin of 2.5% per annum. The Term Loan D is secured
pari passu with the Credit Facility, and the agreement governing the Term Loan
D contains restrictive covenants substantially similar to those provided under
the Credit Facility.
At December 31, 2000, the Company had interest rate protection in the form
of swap agreements with an aggregate notional amount of $200.0 million. The
effect of these agreements is to limit the interest rate exposure to 8.75% on
$200.0 million of Term Loan B. The overall weighted average interest rate on
the Term Loan B was 8.80% at December 31, 2000. While it is not the Company's
intention to terminate the interest rate swap agreements, the fair values were
estimated by obtaining quotes from brokers which represented the amounts that
the Company would receive or pay if the agreements were terminated. These fair
values indicated that termination of the agreements at December 31, 2000, would
have resulted in a pretax loss of $4.3 million.
9 1/2% Senior Subordinated Notes. URI issued $200.0 million 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 100.0% 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 $205.0 million 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 104.4% in 2003 to 100.0% 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 $300.0 million 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 100.0% 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.
43
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9% Senior Subordinated Notes. URI issued $250.0 million aggregate principal
amount of 9% senior subordinated notes, (the "9% Notes") which are due April 1,
2009. The 9% Notes are unsecured. URI may, at its option, redeem the 9% Notes
on or after April 1, 2004 at specified redemption prices which range from
104.5% in 2004 to 100.0% in 2007 and thereafter. In addition, on or prior to
April 1, 2002, URI may, at its option, use the proceeds of a public equity
offering to redeem up to 35% of the outstanding 9% Notes, at a redemption price
of 109.0%. The indenture governing the 9% Notes contains restrictions
substantially similar to those applicable to the 9 1/2% Notes.
Receivables Securitization. In December 2000, the Company obtained $100.0
million through the securitization of certain of its accounts receivable. In
the securitization, the Company transferred $203.0 million of its accounts
receivable to a special purpose subsidiary (the "SPV") which in turn pledged
those receivables to secure $100.0 million of borrowings that the SPV incurred
to finance its acquisition of those receivables from the Company. These
borrowings accrue interest at Credit Lyonnais' blended commercial paper rate
plus a margin of 0.75% per annum. These borrowings are an obligation of the SPV
and not of Holdings or URI, and the lenders' recourse in respect of the
borrowings is generally limited to collections that the SPV receives on the
receivables. Collections on the receivables are used to service the borrowings.
Subject to certain conditions, collections from the receivables may also be
used by the SPV from time to time until December 2003 to acquire additional
accounts receivables from the Company that the SPV will pledge to the lenders
to secure the borrowings.
Maturities of the Company's debt for each of the next five years at
December 31, 2000 are as follows (In thousands):
2001...... $ 33,787
2002...... 29,512
2003...... 464,498
2004...... 33,984
2005...... 250,043
Thereafter 1,863,543
44
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Income Taxes
The provision for historical federal and state income taxes is as follows:
Year ended December 31
-------------------------
2000 1999 1998
-------- ------- -------
(In thousands)
Historical:
Domestic federal:
Current............ $ 10,419 $39,643 $14,291
Deferred........... 97,756 37,598 21,047
-------- ------- -------
108,175 77,241 35,338
Domestic state:
Current............ 3,587 10,405 1,067
Deferred........... 6,815 3,437 7,020
-------- ------- -------
10,402 13,842 8,087
-------- ------- -------
Total domestic..... 118,577 91,083 43,425
Foreign federal:
Current............ 1,061 4,917 519
Deferred........... 3,590 465 (492)
-------- ------- -------
4,651 5,382 27
Foreign provincial:
Current............ 774 2,356 277
Deferred........... 1,119 320 (230)
-------- ------- -------
1,893 2,676 47
-------- ------- -------
Total foreign...... 6,544 8,058 74
-------- ------- -------
$125,121 $99,141 $43,499
======== ======= =======
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:
Year ended December 31
--------------------------
2000 1999 1998
-------- ------- -------
(In thousands)
Computed tax rate at statutory tax rate.................... $105,524 $84,632 $27,404
State income taxes, net of federal tax benefit............. 6,762 8,997 4,177
Non-deductible expenses.................................... 9,992 6,265 7,400
Provision for deferred taxes of Subchapter S Corporation at
time of pooling.......................................... 4,750
Other...................................................... 2,843 (753) (232)
-------- ------- -------
$125,121 $99,141 $43,499
======== ======= =======
45
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of deferred income tax assets (liabilities) are as follows:
December 31
---------------------
2000 1999
--------- ---------
(In thousands)
Property and equipment..................... $(298,058) $(175,180)
Intangibles................................ (32,518) (13,188)
Reserves and allowances.................... 37,460 48,577
Net operating loss and credit carryforwards 84,257 56,266
Other...................................... 2,616 2,296
--------- ---------
$(206,243) $ (81,229)
========= =========
The current and deferred tax assets and liabilities at December 31, 2000
include the effects of certain reclassifications related to differences between
the income tax provisions and tax returns for prior years. These
reclassifications had no effect on net income.
For financial reporting purposes, income before income taxes and
extraordinary items for the Company's foreign subsidiaries was $15.6 million
and $19.9 million for the years ended December 31, 2000 and 1999, respectively.
At December 31, 2000 and 1999, unremitted earnings of foreign subsidiaries were
approximately $22.9 million and $13.8 million, respectively. Since it is the
Company's intention to indefinitely reinvest these earnings, no United States
taxes have been provided. Determination of the amount of unrecognized deferred
tax liability on these unremitted taxes is not practicable.
The Company has net operating loss carryforwards ("NOL's") of $138.2
million for federal income tax purposes that expire through 2018.
9. 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.
10. Company-Obligated Mandatorily Redeemable Convertible Preferred Securities
of a Subsidiary Trust
In August 1998, a subsidiary trust (the "Trust") of Holdings issued and
sold in a private offering (the "Preferred Securities Offering") $300.0 million
of 30 year, 6 1/2% Convertible Quarterly Income Preferred Securities (the
"Preferred Securities"). The net proceeds from the Preferred Securities
Offering were approximately $290.0 million. 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
46
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.
11. Capital Stock
Series A Perpetual Convertible Preferred Stock. On January 7, 1999,
Holdings sold 300,000 shares of its Series A Perpetual Convertible Preferred
Stock ("Series A Preferred"). Subject to certain thresholds related to the
aggregate number of shares issuable upon conversion of Series A Preferred, the
holders of the Series A Preferred, voting separately as a single class, have
the right, on an as-converted basis, to elect up to two directors. Currently,
holders of the Series A Preferred may elect two directors. Except for the
election of directors, the holders of the Series A Preferred have the same
voting rights as those belonging to holders of Holdings common stock. The net
proceeds from the sale of the Series A Preferred were approximately $287.0
million. Holdings contributed such net proceeds to URI. The Series A Preferred
is convertible into 12,000,000 shares of Holdings common stock at $25 per share
based upon a liquidation preference of $1,000 per share of Series A Preferred,
subject to adjustment. The Series A Preferred has no stated dividend. However,
in the event Holdings declares or pays any dividends on, or distributions of,
its common stock, it must (subject to certain exceptions) also declare and pay
to the holders of Series A Preferred the dividends and distributions which
would have been declared and paid upon conversion of the Series A Preferred.
Series B Perpetual Convertible Preferred Stock. On September 30, 1999,
Holdings sold 150,000 shares of its Series B Perpetual Convertible Preferred
Stock ("Series B Preferred"). The Series B Preferred is divided into two
classes designated as Class B-1 and Class B-2. Other than voting rights, the
classes are substantially the same. The holders of the 105,252 shares of Class
B-1 are entitled to the same voting rights, on an as-converted basis, as those
belonging to holders of Holdings common stock. The holders of the 44,748 shares
of Class B-2 have no such voting rights. The net proceeds from the sale of the
Series B Preferred were approximately $143.8 million. Holdings contributed such
net proceeds to URI. The Series B Preferred is convertible into 5,000,000
shares of Holding's common stock at $30 per share based upon a liquidation
preference of $1,000 per share of Series B Preferred, subject to adjustment.
The Series B Preferred has no stated dividend. However, in the event Holdings
declares or pays any dividends on, or distributions of, its common stock, it
must (subject to certain exceptions) also declare and pay to the holders of
Series B Preferred the dividends and distributions which would have been
declared and paid upon conversion of the Series B Preferred.
47
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Warrants. As of December 31, 2000 there are outstanding warrants to
purchase an aggregate of 7,094,296 shares of common stock. The weighted average
exercise price of the warrants is $11.76 per share. All warrants are currently
exercisable and may be exercised at any time through 2009.
Common Stock. On March 9, 1999, Holdings completed a public offering of
2,290,000 shares of common stock. The net proceeds to the Company from this
offering were approximately $64.7 million (after deducting underwriting
discounts and offering expenses). Holdings contributed such net proceeds to
URI. During 2000, the Company approved a share repurchase program to acquire up
to $200 million of its issued and outstanding common stock. Share repurchases
under the program may be made from time to time, continuing through May 2002.
During 2000, the Company repurchased and retired 1,785,015 shares of common
stock.
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, 2000 and 1999, options to purchase an aggregate of 4,950,536
shares and 4,731,183 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).
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 4,200,000
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, 2000 and 1999, options to
purchase an aggregate of 4,200,000 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 5,600,000 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, 2000 and 1999, options to purchase an
aggregate of 5,373,509 shares and 4,140,384 shares of common stock,
respectively, 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. The options expire in 2007.
As a result of the Merger, all outstanding options to purchase shares of U.S.
48
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Rentals common stock became fully vested and were converted into options to
purchase the Company's common stock. As of December 31, 2000 and 1999, options
to purchase an aggregate of 2,572,050 shares and 2,581,675 shares of common
stock , respectively, were outstanding pursuant to this plan.
A summary of the transactions within the Company's stock option plans
follows:
Weighted
Average
Exercise
Shares Price
---------- --------
Outstanding at January 1, 1998.. 4,825,699 $19.52
Granted...................... 9,453,718 19.78
Exercised.................... (25,025) 20.78
Canceled..................... (209,578) 22.94
---------- --------
Outstanding at December 31, 1998 14,044,814 19.60
Granted...................... 3,092,462 26.77
Exercised.................... (1,331,528) 20.74
Canceled..................... (152,506) 26.70
---------- --------
Outstanding at December 31, 1999 15,653,242 20.86
Granted...................... 1,921,125 16.56
Exercised.................... (26,307) 16.91
Canceled..................... (451,965) 27.03
---------- --------
Outstanding at December 31, 2000 17,096,095 $20.23
========== ========
Exercisable at December 31, 2000 11,906,938 $19.58
========== ========
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
- ------------------------ ----------- ----------- -------- ----------- --------
$10.00 - $15.00......... 4,722,077 7.7 years $12.38 4,317,980 $12.30
15.01 - 20.00......... 1,995,359 9.0 years 16.79 293,787 18.72
20.01 - 25.00......... 7,146,663 7.1 years 21.77 5,543,191 21.64
25.01 - 30.00......... 1,821,230 8.2 years 27.33 888,666 27.27
30.01 - 50.00......... 1,410,766 7.4 years 34.67 863,314 35.08
----------- -----------
17,096,095. 7.6 years 20.23 11,906,938 19.58
=========== ===========
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 weighted average fair value of options granted was $7.70, $10.99
and $11.94 during 2000, 1999 and 1998, respectively. The fair value is
estimated on the date of grant using the Black-Scholes option pricing model
which uses 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 5.15%, 6.29% and 4.6% in 2000,
49
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1999 and 1998, respectively, a volatility factor for the market price of the
Company's common stock of 69%, 52% and 85% in 2000, 1999 and 1998,
respectively, and a weighted-average expected life of options of approximately
three years in 2000, 1999 and 1998, the Company's net income (loss), basic
earnings (loss) per share and diluted earnings (loss) per share would have been
$156.4 million, $2.20 and $1.69, respectively, for the year ended December 31,
2000, $104.3 million, $1.46 and $1.12, respectively, for the year ended
December 31, 1999, and $(13.3 million), $(0.20) and $(0.20), respectively, for
the year ended December 31, 1998. 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, 2000 there are (i) 7,094,296 shares of common stock
reserved for the exercise of warrants, (ii) 17,338,256 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, (iii) 6,875,580 shares of
common stock reserved for the issuance of outstanding preferred securities of a
subsidiary trust, (iv) 17,000,000 shares of common stock reserved for the
issuance of Series A and Series B preferred stock and (v) 232,586 shares of
common stock reserved for the conversion of convertible debt.
50
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Earnings Per Share
The following table sets forth the computation of historical basic and
diluted earnings per share:
Year Ended December 31
-----------------------------------
2000 1999 1998
----------- ----------- -----------
(In thousands, except share and
per share data)
Numerator:
Income before extraordinary item............ $ 176,375 $ 142,666 $ 34,798
Plus: preferred dividends of a subsidiary
trust, net of taxes....................... 11,406
----------- ----------- -----------
Income available to common stockkholders.... $ 187,781 $ 142,666 $ 34,798
=========== =========== ===========
Denominator:
Denominator for basic earnings per share-
weighted-average shares................... 71,069,174 71,353,127 66,225,492
Effect of dilutive securities:
Employee stock options.................... 1,517,015 4,651,237 2,641,194
Warrants.................................. 2,791,387 3,978,536 4,208,434
Series A Preferred........................ 12,000,000 11,802,740
Series B Preferred........................ 5,000,000 1,250,000
Company-obligated mandatorily
redeemable convertible preferred
securities of a subsidiary trust........ 6,876,003
----------- ----------- -----------
Denominator for dilutive earnings per share-
adjusted weighted-average shares.......... 99,253,579 93,035,640 73,075,120
=========== =========== ===========
Earnings per share-basic:
Income before extraordinary item............ $ 2.48 $ 2.00 $ 0.53
Extraordinary item, net..................... 0.33
----------- ----------- -----------
Net income.................................. $ 2.48 $ 2.00 $ 0.20
=========== =========== ===========
Earnings per share-diluted:
Income before extraordinary item............ $ 1.89 $ 1.53 $ 0.48
Extraordinary item, net..................... 0.30
----------- ----------- -----------
Net income.................................. $ 1.89 $ 1.53 $ 0.18
=========== =========== ===========
51
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Commitments and Contingencies
Operating Leases
The Company leases rental equipment, real estate and certain office
equipment under operating leases. Certain real estate leases require the
Company to pay maintenance, insurance, taxes and certain other expenses in
addition to the stated rentals. Future minimum lease payments, 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, 2000:
Real Rental Other
Estate Equipment Equipment
Leases Leases Leases
-------- --------- ---------
(In thousands)
2001...... $ 51,815 $ 98,158 $17,318
2002...... 46,464 93,864 15,372
2003...... 42,739 77,597 12,076
2004...... 39,706 55,889 10,827
2005...... 34,153 43,352 2,487
Thereafter 108,175 34,830
-------- --------- ---------
$323,052 $403,690 $58,080
======== ========= =========
The Company was the seller-lessee in sale-leaseback transactions in 2000
where it sold rental equipment for aggregate proceeds of $218.8 million, in
1999 where it sold rental equipment for aggregate proceeds of $88.0 million and
in 1998 where it sold rental equipment for aggregate proceeds of $35.0 million.
For the 2000 transactions, the Company agreed to lease back the rental
equipment over periods ranging from eight months to five years. In connection
with the 2000 transactions, the Company recognized a gain of $12.5 million and
recorded deferred gains on the sales of approximately $4.0 million. For the
1999 transaction, the Company agreed to lease back the rental equipment over a
five year period beginning December 1999 and will recognize a deferred gain on
the sale of approximately $6.3 million over the five year period. For the 1998
transaction, the Company agreed to lease back the rental equipment over a five
year period beginning December 1998 and will recognize a deferred gain on the
sale of approximately $0.6 million over the five year period. The future
payments under these leases are included in the table above.
Rent expense under non-cancelable operating leases totaled $137.3 million,
$65.5 million and $20.5 million for the years ended December 31, 2000, 1999 and
1998, respectively. The Company's real estate leases provide for varying terms
and include 24 leases that are on a month-to-month basis and 42 leases that
provide for a remaining term of less than one year and do not provide a renewal
option.
Employee Benefit Plans
The Company currently sponsors one defined contribution 401(k) retirement
plan which is subject to the provisions of ERISA. The Company also sponsors a
deferred profit sharing plan for the benefit of the full time employees of its
Canadian subsidiaries. Under these plans, the Company matches a percentage of
the participants contributions up to a specified amount. Company contributions
to the plans were $6.2 million, $4.6 million and $1.0 million for the years
ended December 31, 2000, 1999 and 1998, 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
52
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 had accrued $7.6
million and $13.7 million at December 31, 2000 and 1999, 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.
14. Segment Information
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, 2000, 1999 and 1998 is as
follows:
Year ended December 31
--------------------------------
2000 1999 1998
---------- ---------- ----------
(In thousands)
Revenues from external customers
Domestic..................................... $2,753,266 $2,086,808 $1,168,071
Foreign...................................... 165,595 146,820 52,211
---------- ---------- ----------
Total revenues from external customers........ $2,918,861 $2,233,628 $1,220,282
========== ========== ==========
Rental equipment, net
Domestic..................................... $1,604,191 $1,537,199 $1,099,539
Foreign...................................... 128,644 122,534 43,467
---------- ---------- ----------
Total consolidated rental equipment, net...... $1,732,835 $1,659,733 $1,143,006
========== ========== ==========
Property and equipment, net
Domestic..................................... $ 405,873 $ 285,456 $ 180,777
Foreign...................................... 16,366 19,451 4,734
---------- ---------- ----------
Total consolidated property and equipment, net $ 422,239 $ 304,907 $ 185,511
========== ========== ==========
Intangible assets, net
Domestic..................................... $2,092,882 $1,740,326 $ 867,090
Foreign...................................... 134,126 123,046 54,975
---------- ---------- ----------
Total consolidated intangible assets, net..... $2,227,008 $1,863,372 $ 922,065
========== ========== ==========
53
UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. 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.
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
(In thousands, except per share data)
For the year ended December 31, 2000:
Total revenues...................... $578,962 $729,946 $859,033 $750,920
Gross profit........................ 205,984 271,798 340,704 270,084
Net income.......................... 17,411 47,199 75,391 36,374
Basic earnings per share............ $ 0.24 $ 0.66 $ 1.07 $ 0.51
Diluted earnings per share.......... 0.19 0.51 0.79 0.40
For the year ended December 31, 1999:
Total revenues...................... $392,309 $503,662 $668,618 $669,039
Gross profit........................ 133,991 184,064 256,979 249,884
Net income.......................... 16,225 25,886 56,208 44,347
Basic earnings per share............ $ 0.24 $ 0.36 $ 0.78 $ 0.62
Diluted earning per share........... 0.18 0.28 0.60 0.48
54
REPORT OF INDEPENDENT AUDITORS
Board of Directors
United Rentals, Inc. (Parent Company of United Rentals (North America), Inc.)
We have audited the accompanying consolidated balance sheets of United
Rentals (North America), Inc. as of December 31, 2000 and 1999 and the related
consolidated statements of operations, stockholder's equity, and cash flows for
each of the three years in the period ended December 31, 2000. These
consolidated financial statements are the responsibility of the management of
United Rentals (North America), Inc. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of United Rentals (North America), Inc. at December 31, 2000 and 1999, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States.
/S/ ERNST & YOUNG LLP
MetroPark, New Jersey
February 23, 2001
55
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED BALANCE SHEETS
December 31
----------------------
2000 1999
---------- ----------
(In thousands,
except share data)
Assets
Cash and cash equivalents................................................. $ 34,384 $ 23,811
Accounts receivable, net of allowance for doubtful accounts of $55,624 and
$58,376 at 2000 and 1999, respectively.................................. 469,594 434,985
Inventory................................................................. 133,380 129,473
Prepaid expenses and other assets......................................... 104,493 37,125
Rental equipment, net..................................................... 1,732,835 1,659,733
Property and equipment, net............................................... 387,432 276,524
Intangible assets, net of accumulated amortization of $108,066 and
$51,231 at 2000 and 1999, respectively.................................. 2,227,008 1,863,372
---------- ----------
$5,089,126 $4,425,023
========== ==========
Liabilities and Stockholder's Equity
Liabilities:
Accounts payable....................................................... $ 260,155 $ 212,565
Debt................................................................... 2,675,367 2,266,148
Deferred taxes......................................................... 206,243 81,229
Accrued expenses and other liabilities................................. 119,172 171,807
---------- ----------
Total liabilities.................................................. 3,260,937 2,731,749
Commitments and contingencies
Stockholder's equity:
Common stock--$.01 par value, 3,000 shares authorized, 1,000
shares issued and outstanding........................................
Additional paid-in capital............................................. 1,507,661 1,507,330
Retained earnings...................................................... 327,475 185,627
Accumulated other comprehensive (loss) income.......................... (6,947) 317
---------- ----------
Total stockholder's equity......................................... 1,828,189 1,693,274
---------- ----------
$5,089,126 $4,425,023
========== ==========
See accompanying notes.
56
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31
-----------------------------------
2000 1999 1998
---------- ---------- ----------
(In thousands)
Revenues:
Equipment rentals.................................... $2,056,683 $1,581,026 $ 895,466
Sales of rental equipment............................ 347,678 235,678 119,620
Sales of equipment and merchandise and other revenues 514,500 416,924 205,196
---------- ---------- ----------
Total revenues........................................ 2,918,861 2,233,628 1,220,282
Cost of revenues:
Cost of equipment rentals, excluding depreciation.... 907,477 676,972 394,750
Depreciation of rental equipment..................... 328,131 280,641 175,910
Cost of rental equipment sales....................... 208,182 136,678 66,136
Cost of equipment and merchandise sales and other
operating costs.................................... 386,501 314,419 160,038
---------- ---------- ----------
Total cost of revenues................................ 1,830,291 1,408,710 796,834
---------- ---------- ----------
Gross profit.......................................... 1,088,570 824,918 423,448
Selling, general and administrative expenses.......... 454,330 344,328 195,620
Merger-related expenses............................... 47,178
Non-rental depreciation and amortization.............. 78,583 57,941 34,684
---------- ---------- ----------
Operating income...................................... 555,657 422,649 145,966
Interest expense...................................... 228,779 139,828 64,157
Other (income) expense, net........................... (1,836) (1,646) (5,097)
---------- ---------- ----------
Income before provision for income taxes and
extraordinary item.................................. 328,714 284,467 86,906
Provision for income taxes............................ 136,416 116,628 46,971
---------- ---------- ----------
Income before extraordinary item...................... 192,298 167,839 39,935
Extraordinary item, net of tax benefit of $14,255..... 21,337
---------- ---------- ----------
Net income............................................ $ 192,298 $ 167,839 $ 18,598
========== ========== ==========
See accompanying notes.
57
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
Common Stock Accumulated
---------------- Additional Other
Number Paid-in Retained Comprehensive Comprehensive
of Shares Amount Capital Earnings Income (Loss) Income
--------- ------ ---------- -------- ------------ ------------
(In thousands except share amounts)
Balance, December 31, 1997............. 1,000 $ 402,320 $ 44,068
Comprehensive Income:
Net income.......................... 18,598 $ 18,598
Other comprehensive income:
Foreign currency translation
adjustments-.................... (281) $ (281)
------------
Comprehensive income................ $ 18,317
============
Contributed capital from Parent..... 563,045
Reclassification of Subchapter S
accumulated earnings to
capital from Parent................ 18,979 (18,979)
Pooling-of-interests................ 1 1,795
Subchapter S distributions of a
pooled entity...................... (3,536)
Dividend distribution to Parent..... (4,658)
--------- ------ ---------- -------- ------------
Balance, December 31, 1998............. 1,000 984,345 37,288 (281)
Comprehensive income:
Net income.......................... 167,839 $167,839
Other comprehensive income:
Foreign currency translation
adjustments..................... 598 598
------------
Comprehensive income................ $168,437
============
Contributed capital from parent..... 522,985
Dividend distributions to parent.... (19,500)
--------- ------ ---------- -------- ------------
Balance, December 31, 1999............. 1,000 1,507,330 185,627 317
Comprehensive income:
Net income.......................... 192,298 192,298
Other comprehensive income:
Foreign currency translation
adjustments..................... (7,264) (7,264)
------------
Comprehensive income................ $185,034
============
Contributed capital from parent..... 331
Dividend distributions to parent.... (50,450)
--------- ------ ---------- -------- ------------
Balance, December 31, 2000............. 1,000 $1,507,661 $327,475 $(6,947)
========= ====== ========== ======== ============
See accompanying notes.
58
UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
------------------------------------
2000 1999 1998
--------- ----------- -----------
(In thousands)
Cash Flows From Operating Activities:
Net income....................................................................... $ 192,298 $ 167,839 $ 18,598
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.................................................. 406,714 342,403 211,747
Gain on sales of rental equipment.............................................. (139,496) (99,000) (53,484)
Gain on sale of businesses..................................................... (4,084) (1,842) (4,189)
Write down of assets held for sale............................................. 4,040
Extraordinary item............................................................. 35,592
Deferred taxes................................................................. 109,280 41,820 27,345
Changes in operating assets and liabilities:
Accounts receivable........................................................... 8,613 (93,716) (53,368)
Inventory..................................................................... 69,706 (6,544) (6,392)
Prepaid expenses and other assets............................................. (77,579) 34,701 12,693
Accounts payable.............................................................. 14,290 47,586 25,737
Accrued expenses and other liabilities........................................ (65,062) (8,065) (7,713)
--------- ----------- -----------
Net cash provided by operating activities.................................. 514,680 425,182 210,606
--------- ----------- -----------
Cash Flows From Investing Activities:
Purchases of rental equipment.................................................... (808,204) (718,112) (479,534)
Purchases of property and equipment.............................................. (140,699) (109,468) (69,643)
Proceeds from sales of rental equipment.......................................... 347,678 235,678 119,620
Proceeds from sale of businesses................................................. 19,246 6,521 10,640
Purchases of other companies..................................................... (347,337) (986,790) (911,837)
Payments of contingent purchase price............................................ (16,266) (8,216) (3,956)
--------- ----------- -----------
Net cash used in investing activities...................................... (945,582) (1,580,387) (1,334,710)
--------- ----------- -----------
Cash Flows From Financing Activities:
Capital contributions by Parent.................................................. 331 522,985 492,590
Proceeds from debt............................................................... 456,202 1,083,616 1,263,637
Payments on debt................................................................. (134,599) (497,650) (685,667)
Proceeds from sale-leaseback..................................................... 193,478 88,000 35,000
Dividend distributions to Parent................................................. (50,450) (19,500) (4,658)
Subchapter S distributions of a pooled entity.................................... (3,536)
Payments of financing costs...................................................... (16,223) (19,443) (24,982)
--------- ----------- -----------
Net cash provided by financing activities.................................. 448,739 1,158,008 1,072,384
Effect of foreign exchange rates................................................. (7,264) 598 (281)
--------- ----------- -----------
Net increase (decrease) in cash and cash equivalents............................. 10,573 3,401 (52,001)
Cash and cash equivalents at beginning of year................................... 23,811 20,410 72,411
--------- ----------- -----------
Cash and cash equivalents at end of year......................................... $ 34,384 $ 23,811 $ 20,410
========= =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest........................................................... $ 229,263 $ 104,785 $ 38,499
Cash paid for taxes, net of refunds.............................................. $ 23,746 $ 17,509 $ 10,224
Supplemental schedule of non cash investing and financing activities:
The Company acquired the net assets and assumed certain liabilities of other
companies as follows:
Assets, net of cash acquired................................................... $ 565,114 $ 1,468,567 $ 1,501,467
Liabilities assumed............................................................ (142,277) (472,382) (518,861)
Less:
Amounts paid in common stock and warrants of the Parent....................... (10,000) (60,304)
Amounts paid through issuance of debt......................................... (65,500) (9,395) (10,465)
--------- ----------- -----------
Net cash paid.................................................................... $ 347,337 $ 986,790 $ 911,837
========= =========== ===========
See accompanying notes.
59
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
United Rentals (North America), Inc., ("URI") and subsidiaries is a wholly
owned subsidiary of United Rentals, Inc., which is principally a holding
company ("Holdings" or "Parent"). 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. Prior to such reorganization, the name of URI was
United Rentals, Inc. References herein to the "Company" refer to URI and its
subsidiaries.
Certain footnotes are not provided for the accompanying financial
statements as the information in Notes 1 through 9, 11 and 13 through 15 to the
consolidated financial statements of United Rentals, Inc. included elsewhere in
this report is substantially equivalent to that required for the consolidated
financial statements of URI and its subsidiaries. Earnings per share data is
not provided for the operating results of URI and subsidiaries, as they are
wholly owned subsidiaries of Holdings. URI's various credit agreements and debt
instruments place restrictions on its ability to transfer funds to its
shareholder.
Holdings provides certain services to URI in connection with its
operations. These services principally include: (i) senior management services,
(ii) finance related services and support, (iii) information technology systems
and support and (iv) acquisition related services. In addition, Holdings leases
certain equipment and real property that are made available for use by URI and
its subsidiaries. URI has made, and expects to continue to make, certain
payments to Holdings in respect of the services provided by Holdings to the
Company. The expenses relating to URI's payments to Holdings are reflected on
URI's financial statements as selling, general and administrative expenses. In
addition, although not legally obligated to do so, URI has in the past, and
expects that it will in the future, make distributions to Holdings for, among
other things, enabling Holdings to pay dividends on its preferred securities.
2. Capital Stock and Contributions
At December 31, 2000, the Company has authorized 3,000 shares of its $0.01
par value common stock of which 1,000 shares are issued and outstanding. All of
the issued and outstanding common shares are owned by its Parent.
Pursuant to the reorganization described in Note 1, the net proceeds from
the Company's initial public offering completed in December 1997 and the public
offering completed in March 1998 have been reflected as Contributed Capital
from the Parent in the accompanying statement of stockholder's equity. Holdings
also contributed the net proceeds from the issuance of redeemable convertible
preferred securities in August 1998 to URI. During 1999, Holdings contributed
the net proceeds from the issuance of common stock in a public offering and the
net proceeds from the issuance of perpetual convertible preferred stock to URI.
3. Condensed Consolidating Financial Information of Guarantor Subsidiaries
Certain indebtedness of URI is guaranteed by URI's United States
subsidiaries (the "guarantor subsidiaries") but is not guaranteed by URI's
foreign subsidiaries (the "non-guarantor subsidiaries"). The guarantor
subsidiaries are all wholly-owned and the guarantees are made on a joint and
several basis and are full and unconditional (subject to subordination
provisions and subject to a standard limitation which provides that the maximum
amount guaranteed by each guarantor will not exceed the maximum amount that can
be guaranteed without making the guarantee void under fraudulent
60
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
conveyance laws). All expenses incurred by URI have been charged by URI to its
guarantor and non-guarantor subsidiaries. Separate consolidated financial
statements of the guarantor subsidiaries have not been presented because
management believes that such information would not be material to investors.
However, condensed consolidating financial information as of December 31, 2000
and 1999, and for each of the three years in the period ended December 31,
2000, are presented. The condensed consolidating financial information of URI
and its subsidiaries are as follows:
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2000
Guarantor Non-Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
---------- ----------- ------------ ----------- -----------
(In thousands)
Assets
Cash and cash equivalents.................. $ 29,733 $ 4,651 $ 34,384
Accounts receivable, net................... $ 216,444 143,295 109,855 469,594
Intercompany receivable (payable).......... 319,423 (55,187) (264,236)
Inventory.................................. 54,022 73,979 5,379 133,380
Prepaid expenses and other assets.......... 28,263 75,633 597 104,493
Rental equipment, net...................... 837,972 766,219 128,644 1,732,835
Property and equipment, net................ 139,871 231,195 16,366 387,432
Investment in subsidiaries................. 2,257,692 $(2,257,962)
Intangible assets, net..................... 960,444 1,132,438 134,126 2,227,008
---------- ----------- ------------ ----------- -----------
$4,814,131 $2,397,305 $ 135,382 $(2,257,962) $5,089,126
========== =========== ============ =========== ===========
Liabilities and Stockholder's Equity
Liabilities:
Accounts payable........................ $ 78,623 $ 165,677 $ 15,855 $ 260,155
Debt.................................... 2,647,144 3,484 24,739 2,675,367
Deferred taxes.......................... 186,091 20,702 (550) 206,243
Accrued expenses and other liabilities.. 86,560 18,862 13,750 119,172
---------- ----------- ------------ ----------- -----------
Total liabilities.................... 2,998,418 208,725 53,794 3,260,937
Commitments and contingencies
Stockholder's equity:
Common stock............................
Additional paid-in capital.............. 1,488,238 1,830,500 65,657 (1,876,734) 1,507,661
Retained earnings....................... 327,475 358,080 22,878 (380,958) 327,475
Accumulated other comprehensive
loss................................... (6,947) (6,947)
---------- ----------- ------------ ----------- -----------
Total stockholder's equity........... 1,815,713 2,188,580 81,588 $(2,257,692) 1,828,189
---------- ----------- ------------ ----------- -----------
$4,814,131 $2,397,305 $ 135,382 $(2,257,692) $5,089,126
========== =========== ============ =========== ===========
61
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 1999
---------------------------------------------------------------
Guarantor Non-Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
---------- ------------ ------------ ----------- ------------
(In thousands)
Assets
Cash and cash equivalents.................. $ 3,689 $ 16,414 $ 3,708 $ 23,811
Accounts receivable, net................... 200,419 199,981 34,585 434,985
Intercompany receivable (payable).......... 142,156 42,906 (185,062)
Inventory.................................. 56,086 64,253 9,134 129,473
Prepaid expenses and other assets.......... 1,020 18,296 17,809 37,125
Rental equipment, net...................... 747,232 789,967 122,534 1,659,733
Property and equipment, net................ 150,841 106,232 19,451 276,524
Investment in subsidiaries................. 2,072,115 $(2,072,115)
Intangible assets, net..................... 792,198 948,128 123,046 1,863,372
---------- ------------ ------------ ----------- ------------
$4,165,756 $2,186,177 $ 145,205 $(2,072,115) $4,425,023
========== ============ ============ =========== ============
Liabilities and Stockholder's Equity
Liabilities:
Accounts payable........................ $ 71,995 $ 120,511 $ 20,059 $ 212,565
Debt.................................... 2,231,923 380 33,845 2,266,148
Deferred income taxes................... 80,476 753 81,229
Accrued expenses and other liabilities.. 107,828 53,177 10,802 171,807
---------- ------------ ------------ ----------- ------------
Total liabilities.................... 2,492,222 174,068 65,459 2,731,749
Commitments and contingencies
Stockholder's equity:
Common stock............................
Additional paid-in capital.............. 1,487,907 1,830,182 65,644 $(1,876,403) 1,507,330
Retained earnings....................... 185,627 181,927 13,785 (195,712) 185,627
Accumulated other comprehensive
income................................. 317 317
---------- ------------ ------------ ----------- ------------
Total stockholder's equity........... 1,673,534 2,012,109 79,746 (2,072,115) 1,693,274
---------- ------------ ------------ ----------- ------------
$4,165,756 $2,186,177 $ 145,205 $(2,072,115) $4,425,023
========== ============ ============ =========== ============
62
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2000
Guarantor Non-Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
---------- ----------- ------------- ----------- -----------
(In thousands)
Revenues:
Equipment rentals......................... $ 851,541 $1,094,613 $ 110,529 $2,056,683
Sales of rental equipment................. 145,519 178,576 23,583 347,678
Sales of equipment and merchandise and
other revenues........................... 253,798 229,219 31,483 514,500
---------- ----------- ------------- ----------- -----------
Total revenues.............................. 1,250,858 1,502,408 165,595 2,918,861
Cost of revenues:
Cost of equipment rentals, excluding
depreciation............................. 364,047 494,350 49,080 907,477
Depreciation of rental equipment.......... 152,640 155,239 20,252 328,131
Cost of rental equipment sales............ 87,161 106,617 14,404 208,182
Cost of equipment and merchandise sales
and other operating costs................ 197,190 164,186 25,125 386,501
---------- ----------- ------------- ----------- -----------
Total cost of revenues...................... 801,038 920,392 108,861 1,830,291
---------- ----------- ------------- ----------- -----------
Gross profit................................ 449,820 582,016 56,734 1,088,570
Selling, general and administrative expenses 184,135 245,431 24,764 454,330
Non-rental depreciation and amortization.... 33,692 39,618 5,273 78,583
---------- ----------- ------------- ----------- -----------
Operating income............................ 231,993 296,967 26,697 555,657
Interest expense............................ 217,904 135 10,740 228,779
Other (income) expense, net................. 2,129 (4,285) 320 (1,836)
------------
---------- ----------- ------------- -----------
Income before provision for income taxes.... 11,960 301,117 15,637 328,714
Provision for income taxes.................. 4,908 124,964 6,544 136,416
---------- ----------- ------------- ----------- -----------
Income before equity in net earnings of
subsidiaries............................... 7,052 176,153 9,093 $ (185,246) 7,052
Equity in net earnings of subsidiaries...... 185,246 185,246
---------- ----------- ------------- ----------- -----------
Net income.................................. $ 192,298 $ 176,153 $ 9,093 $ (185,246) $ 192,298
========== =========== ============= =========== ===========
63
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
Guarantor Non-Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
-------- ----------- ------------- ----------- -----------
(In thousands)
Revenues:
Equipment rentals......................... $600,431 $ 880,182 $100,413 $1,581,026
Sales of rental equipment................. 113,982 106,737 14,959 235,678
Sales of equipment and merchandise and
other revenues........................... 195,647 189,829 31,448 416,924
-------- ----------- ------------- ----------- -----------
Total revenues.............................. 910,060 1,176,748 146,820 2,233,628
Cost of revenues:
Cost of equipment rentals, excluding
depreciation............................. 250,959 381,718 44,295 676,972
Depreciation of rental equipment.......... 116,385 146,622 17,634 280,641
Cost of rental equipment sales............ 62,972 64,945 8,761 136,678
Cost of equipment and merchandise sales
and other operating costs................ 161,902 128,328 24,189 314,419
-------- ----------- ------------- ----------- -----------
Total cost of revenues...................... 592,218 721,613 94,879 1,408,710
-------- ----------- ------------- ----------- -----------
Gross profit................................ 317,842 455,135
51,941 824,918
Selling, general and administrative expenses 144,341 177,456 22,531 344,328
Non-rental depreciation and amortization.... 29,667 24,617 3,657 57,941
-------- ----------- ------------- ----------- -----------
Operating income............................ 143,834 253,062 25,753 422,649
Interest expense............................ 132,929 1,428 5,471 139,828
Other (income) expense, net................. (1,549) (524) 427 (1,646)
-------- ----------- ------------- ----------- -----------
Income before provision for income taxes.... 12,454 252,158 19,855 284,467
Provision for income taxes.................. 3,039 105,531 8,058 116,628
-------- ----------- ------------- ----------- -----------
Income before equity in net earnings of
subsidiaries............................... 9,415 146,627 11,797 $(158,424) 9,415
Equity in net earnings of subsidiaries...... 158,424 158,424
-------- ----------- ------------- ----------- -----------
Net income.................................. $167,839 $ 146,627 $ 11,797 $(158,424) $ 167,839
======== =========== ============= =========== ===========
64
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
Guarantor Non-Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
-------- ----------- ------------ ----------- -----------
(In thousands)
Revenues:
Equipment rentals.......................... $213,823 $649,508 $32,135 $ 895,466
Sales of rental equipment.................. 17,992 96,739 4,889 119,620
Sales of equipment and merchandise and
other revenues............................ 58.582 131,427 15,187 205,196
-------- ----------- ------------ ----------- -----------
Total revenues................................ 290,397 877,674 52,211 1,220,282
Cost of revenues:
Cost of equipment rentals, excluding
depreciation.............................. 91,100 289,892 13,758 394,750
Depreciation of rental equipment........... 45,602 125,810 4,498 175,910
Cost of rental equipment sales............. 8,586 54,805 2,745 66,136
Cost of equipment and merchandise sales
and other operating costs................. 49,754 98,332 11,952 160,038
-------- ----------- ------------ ----------- -----------
Total cost of revenues........................ 195,042 568,839 32,953 796,834
-------- ----------- ------------ ----------- -----------
Gross profit.................................. 95,355 308,835 19,258 423,448
Selling, general and administrative expenses.. 31,092 155,512 9,016 195,620
Merger-related expenses....................... 47,178 47,178
Non-rental depreciation and amortization...... 8,682 24,769 1,233 34,684
-------- ----------- ------------ ----------- -----------
Operating income.............................. 55,581 81,376 9,009 145,966
Interest expense.............................. 33,006 24,193 6,958 64,157
Other (income) expense, net................... (2,481) (2,605) (11) (5,097)
-------- ----------- ------------ ----------- -----------
Income before provision for income taxes and
extraordinary item........................... 25,056 59,788 2,062 86,906
Provision for income taxes.................... 13,850 33,047 74 46,971
-------- ----------- ------------ ----------- -----------
Income before extraordinary item and equity in
net earnings of subsidiaries................. 11,206 26,741 1,988 39,935
Extraordinary item, net....................... 21,337 21,337
-------- ----------- ------------ ----------- -----------
Income before equity in net earnings of
subsidiaries................................. 11,206 5,404 1,988 $(7,392) 11,206
Equity in net earnings of subsidiaries........ 7,392 7,392
-------- ----------- ------------ ----------- -----------
Net income.................................... $ 18,598 $ 5,404 $ 1,988 $(7,392) $ 18,598
======== =========== ============ =========== ===========
65
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Year Ended December 31, 2000
Guarantor Non-Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
--------- ----------- ------------ ------------ -----------
(In thousands)
Net cash provided by operating activities... $ 243,759 $ 227,855 $ 43,066 $ 514,680
Cash Flows From Investing Activities:
Purchases of rental equipment............ (489,259) (283,488) (35,457) (808,204)
Purchases of property and equipment...... (34,477) (102,510) (3,712) (140,699)
Proceeds from sales of rental equipment.. 145,519 178,576 23,583 347,678
Proceeds from sale of businesses......... 16,246 3,000 19,246
Payments of contingent purchase price.... (3,030) (13,236) (16,266)
Purchases of other companies............. (337,257) (10,080) (347,337)
--------- ----------- ------------ ------------ -----------
Net cash used in investing
activities........................... (702,258) (217,658) (25,666) (945,582)
Cash Flows from Financing Activities:
Dividend distributions to Parent......... (50,450) (50,450)
Proceeds from debt....................... 452,912 3,290 456,202
Repayments of debt....................... (125,238) (168) (9,193) (134,599)
Proceeds from sale-leaseback............. 193,478 193,478
Payments of financing costs.............. (16,223) (16,223)
Capital contributions by parent.......... 331 331
--------- ----------- ------------ ------------ -----------
Net cash provided by financing
activities........................... 454,810 3,122 (9,193) 448,739
Effect of foreign exchange rates......... (7,264) (7,264)
--------- ----------- ------------ ------------ -----------
Net increase (decrease) in cash and cash
equivalents................................ (3,689) 13,319 943 10,573
Cash and cash equivalents at beginning of
period..................................... 3,689 16,414 3,708 23,811
--------- ----------- ------------ ------------ -----------
Cash and cash equivalents at end of
period..................................... $ 29,733 $ 4,651 $ 34,384
========= =========== ============ ============ ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest...................... $ 218,346 $ 135 $ 10,782 $ 229,263
Cash paid for income taxes.................. $ 19,833 $ 3,913 $ 23,746
Supplemental disclosure of non-cash
investing and financing activities:
The Company acquired the net assets and
assumed certain liabilities of other
companies as follows:
Assets, net of cash acquired............. $ 554,077 $ 11,037 $ 565,114
Liabilities assumed...................... (141,320) (957) (142,277)
Less:
Amounts paid in common stock and
warrants of Parent...................... (10,000) (10,000)
Amounts paid through issuance
of debt................................. (65,500) (65,500)
--------- ----------- ------------ ------------ -----------
Net cash paid............................ $ 337,257 $ 10,080 $ 347,337
========= =========== ============ ============ ===========
66
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Year Ended December 31, 1999
Guarantor Non-Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
----------- ----------- ------------ ------------ -----------
(In thousands)
Net cash provided by operating activities. $ 292,412 $ 13,185 $ 119,585 $ 425,182
Cash Flows From Investing Activities:
Purchases of rental equipment.......... (539,775) (99,365) (78,972) (718,112)
Purchases of property and equipment.... (74,634) (20,366) (14,468) (109,468)
Proceeds from sales of rental
equipment............................. 113,982 106,737 14,959 235,678
Proceeds from sale of businesses....... 1,040 2,354 3,127 6,521
Payments of contingent purchase price.. (2,387) (4,265) (1,564) (8,216)
Purchases of other companies........... (915,937) (70,853) (986,790)
----------- ----------- ------------ ------------ -----------
Net cash used in investing
activities......................... (1,417,711) (14,905) (147,771) (1,580,387)
Cash Flows from Financing Activities:
Dividend distributions to Parent....... (19,500) (19,500)
Proceeds from debt..................... 1,025,843 26,524 31,249 1,083,616
Repayments of debt..................... (474,808) (20,958) (1,884) (497,650)
Proceeds from sale-leaseback........... 88,000 88,000
Payments of financing costs............ (18,995) (448) (19,443)
Capital contributions by parent........ 522,985 522,985
----------- ----------- ------------ ------------ -----------
Net cash provided by financing
activities......................... 1,123,525 5,566 28,917 1,158,008
Effect of foreign exchange rates....... 598 598
----------- ----------- ------------ ------------ -----------
Net increase (decrease) in cash and cash
equivalents.............................. (1,774) 3,846 1,329 3,401
Cash and cash equivalents at beginning of
period................................... 1,774 16,257 2,379 20,410
----------- ----------- ------------ ------------ -----------
Cash and cash equivalents at end of
period................................... $ 20,103 $ 3,708 $ 23,811
=========== =========== ============ ============ ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest.................... $ 98,728 $ 1,194 $ 4,863 $ 104,785
Cash paid for income taxes................ $ 16,372 $ 1,137 $ 17,509
Supplemental disclosure of non-cash
investing and financing activities:
The Company acquired the net assets and
assumed certain liabilities of other
companies as follows:
Assets, net of cash acquired........... $ 1,371,807 $ 96,760 $ 1,468,567
Liabilities assumed.................... (448,685) (23,697) (472,382)
Less:
Amounts paid through issuance of
debt.................................. (7,185) (2,210) (9,395)
----------- ----------- ------------ ------------ -----------
Net cash paid.......................... $ 915,937 $ 70,853 $ 986,790
=========== =========== ============ ============ ===========
67
UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Year Ended December 31, 1998
Non-
Guarantor Guarantor Consolidated
URI Subsidiaries Subsidiaries Eliminations Total
----------- ----------- ----------- ------------ -----------
(In thousands)
Net cash provided by (used in) operating
activities.................................... $ (63,760) $ 206,996 $ 67,370 $ 210,606
Cash Flows From Investing Activities:
Purchases of rental equipment............... (415,140) (50,494) (13,900) (479,534)
Purchases of property and equipment......... (65,742) (2,851) (1,050) (69,643)
Proceeds from sales of rental
equipment.................................. 17,992 96,739 4,889 119,620
Proceeds from sale of businesses............ 10,640 10,640
Payments of contingent purchase price....... (2,800) (1,156) (3,956)
Purchases of other companies................ (840,730) (12,510) (58,597) (911,837)
----------- ----------- ----------- ------------ -----------
Net cash used in investing
activities.............................. (1,292,980) 28,084 (69,814) (1,334,710)
Cash Flows from Financing Activities:
Dividend distributions to Parent............ (4,658) (4,658)
Proceeds from debt.......................... 1,225,586 10,187 27,864 1,263,637
Repayments of debt.......................... (432,222) (230,685) (22,760) (685,667)
Proceeds from sale-leaseback................ 35,000 35,000
Payments of financing costs................. (24,982) (24,982)
Capital contributions by parent............. 492,590 492,590
Distributions to stockholders............... (3,536) (3,536)
----------- ----------- ----------- ------------ -----------
Net cash provided by (used in)
financing activities.................... 1,291,314 (224,034) 5,104 1,072,384
Effect of foreign exchange rates............ (281) (281)
----------- ----------- ----------- ------------ -----------
Net increase (decrease) in cash and cash
equivalents................................... (65,426) 11,046 2,379 (52,001)
Cash and cash equivalents at beginning of
period........................................ 67,200 5,211 72,411
----------- ----------- ----------- ------------ -----------
Cash and cash equivalents at end of period..... $ 1,774 $ 16,257 $ 2,379 $ 20,410
=========== =========== =========== ============ ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest......................... $ 27,085 $ 11,098 $ 316 $ 38,499
Cash paid for income taxes..................... $ 8,034 $ 2,190 $ 10,224
Supplemental disclosure of non-cash
investing and financing activities:
The Company acquired the net assets and
assumed certain liabilities of other companies
as follows:
Assets, net of cash acquired................ $ 1,409,516 $ 12,510 $ 79,441 $ 1,501,467
Liabilities assumed......................... (500,228) (18,633) (518,861)
Less:
Amounts paid in common stock and
warrants of Parent......................... (58,093) (2,211) (60,304)
Amounts paid through issuance of debt....... (10,465) (10,465)
----------- ----------- ----------- ------------ -----------
Net cash paid............................... $ 840,730 $ 12,510 $ 58,597 $ 911,837
=========== =========== =========== ============ ===========
68
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES
Board of Directors
United Rentals, Inc.
We have audited the consolidated financial statements of United Rentals,
Inc. as of December 31, 2000 and 1999, and for each of the three years in the
period ended December 31, 2000, and have issued our report thereon dated
February 23, 2001, included elsewhere in this Form 10-K. Our audits also
included the financial statement schedules listed in Item 14(a)(2). These
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey
February 23, 2001
69
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED RENTALS, INC.
CONDENSED BALANCE SHEET
December 31
----------------------
2000 1999
---------- ----------
(In thousands)
Assets
Prepaid expenses and other assets................ $ 31,554
Property and equipment, net...................... $ 34,807 28,383
Investment in and advances to subsidiaries....... 1,839,952 1,702,802
---------- ----------
$1,874,759 $1,762,739
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable.............................. $ 30,381
Debt.......................................... $ 300,000 300,000
Accrued expenses and other liabilities........ 28,816 34,872
---------- ----------
Total liabilities......................... 328,816 365,253
Commitments and contingencies
Stockholders' equity:
Preferred stock............................... 5 5
Common stock.................................. 711 721
Additional paid-in capital.................... 1,196,324 1,216,968
Retained earnings............................. 355,850 179,475
Accumulated other comprehensive (loss) income. (6,947) 317
---------- ----------
Total stockholders' equity................ 1,545,943 1,397,486
---------- ----------
$1,874,759 $1,762,739
========== ==========
See accompanying notes.
70
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED RENTALS, INC.
CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31
----------------------------
2000 1999 1998
-------- -------- -------
(In thousands)
Selling, general and administrative expenses...... $ 8,267
Non-rental depreciation and amortization.......... $ 7,718 4,926 $ 561
-------- -------- -------
Operating loss.................................... (7,718) (13,193) (561)
Interest expense.................................. 19,500 19,500 7,854
Other (income) expense, net....................... 9,689
-------- -------- -------
Loss before benefit for income taxes.............. (27,218) (42,382) (8,415)
Benefit for income taxes.......................... 11,295 17,487 3,472
-------- -------- -------
Net loss before equity in earnings of subsidiaries (15,923) (24,895) (4,943)
Equity in earnings of subsidiaries................ 192,298 167,561 18,404
-------- -------- -------
Net income........................................ $176,375 $142,666 $13,461
======== ======== =======
See accompanying notes.
71
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED RENTALS, INC.
CONDENSED CASH FLOW INFORMATION
Year Ended December 31,
-------------------------------
2000 1999 1998
-------- --------- ---------
(In thousands)
Net cash used in operating activities................ $(37,379) $ (4,824) $ (4,157)
Cash Flows from Investing Activities:
Purchase of property and equipment................ (13,071) (14,181) (15,535)
Capital contributed to subsidiary................. (331) (522,985) (492,590)
-------- --------- ---------
Net cash used in investing activities......... (13,402) (537,166) (508,125)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock and
warrants, net of issuance costs................. 64,701 207,005
Proceeds from the issuance of preferred
stock, net of issuance costs.................... 430,800
Proceeds from debt................................ 300,000
Proceeds from the exercise of stock options....... 331 26,989 619
Proceeds from dividends from subsidiary........... 50,450 19,500 4,658
-------- --------- ---------
Net cash provided by financing activities..... 50,781 541,990 512,282
-------- --------- ---------
Net increase in cash and cash equivalents.........
Cash and cash equivalents at beginning of
period..........................................
-------- --------- ---------
Cash and cash equivalents at end of
period......................................
======== ========= =========
See accompanying notes.
72
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED RENTALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. 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. In the parent
company-only financial statements, Holdings, investment in subsidiaries is
stated at cost plus equity in undistributed earnings of subsidiaries since the
date of acquisition. Holdings share of net income of its unconsolidated
subsidiaries is included in consolidated income using the equity method. The
parent company-only financial statements should be read in conjunction with the
Company's consolidated financial statements.
2. Debt
See Note 10 to the Consolidated Financial Statements for information
concerning debt.
3. Guarantee
See Note 10 to the Consolidated Financial Statements for information
concerning the guarantee.
73
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
UNITED RENTALS, INC.
(In thousands)
Additions
---------------------
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Other Deductions of Period
----------- ---------- ---------- ------- ------- ---------
Year ended December 31, 2000:
Allowance for doubtful accounts.................. $58,376 $38,431 $14,791(a) $55,974(c) $55,624
Reserve for inventory obsolescence and shrinkage. 16,782 9,124 11,302(b) 21,747(d) 15,461
Insurance reserves............................... 22,750 30,027 37,333(e) 15,444
Year ended December 31, 1999:
Allowance for doubtful accounts.................. 43,481 46,121 23,568(a) 54,794(c) 58,376
Reserve for inventory obsolescence and shrinkage. 9,288 6,857 11,975(b) 11,338(d) 16,782
Insurance reserves............................... 20,553 49,223 47,026(e) 22,750
Year ended December 31, 1998:
Allowance for doubtful accounts.................. 11,085 24,810 19,079(a) 11,493(c) 43,481
Reserve for inventory obsolescence and shrinkage. 620 3,254 6,068(b) 654(d) 9,288
Insurance reserves............................... 11,665 16,456 7,568(e) 11,665
- --------
(a) Represents allowance for doubtful accounts established through
acquisitions.
(b) Represents reserve for inventory obsolescence and shrinkage assumed through
acquisitions.
(c) Represents write-offs of accounts, net of recoveries.
(d) Represents write-offs of inventory items.
(e) Represents payments.
74
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item is incorporated by reference to the
applicable information in the 2001 Proxy Statement, including the information
set forth under the captions "Election of Directors" and "Compliance with
Section 11(A) of the Securities Exchange Act of 1934". The "2001 Proxy
Statement" refers to the Company's definitive Proxy Statement for its 2001
Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended, prior to April 30, 2001.
Item 11. Executive and Director Compensation
The information required by this Item is incorporated by reference to the
applicable information in the 2001 Proxy Statement, including the information
set forth under the captions "Executive and Director Compensation" and
"Compensation Committee Interlocks and Insider Participation".
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference to the
applicable information in the 2001 Proxy Statement, including the information
set forth under the caption "Security Ownership of Certain Beneficial Owners
and Management".
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to the
applicable information in the 2001 Proxy Statement, including the information
set forth under the caption "Certain Transactions".
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Consolidated Financial Statements:
Report of Independent Auditors
United Rentals, Inc. Consolidated Balance Sheets--December 31, 2000 and
1999
United Rentals, Inc. Consolidated Statements of Operations for the years
ended December 31, 2000, 1999 and 1998
United Rentals, Inc. Consolidated Statements of Stockholders' Equity for
the years ended December 31, 2000, 1999 and 1998
United Rentals, Inc. Consolidated Statements of Cash Flows for the years
ended December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
Report of Independent Auditors
United Rentals (North America), Inc. Consolidated Balance
Sheets--December 31, 2000 and 1999
United Rentals (North America), Inc. Consolidated Statements of
Operations for the years ended December 31, 2000, 1999 and 1998
75
United Rentals (North America), Inc. Consolidated Statements of
Stockholder's Equity for the years ended December 31, 2000, 1999 and 1998
United Rentals (North America), Inc. Consolidated Statements of Cash Flows
for the years ended December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules:
Report of Independent Auditors on Financial Statement Schedules
Schedule I Condensed Financial Information of Registrant
Schedule II Valuation and Qualifying Accounts
Schedules other than those listed are omitted as they are not applicable
or the required or equivalent information has been included in the financial
statements or notes thereto.
(a)(3) Exhibits
Exhibit
Number Description of Exhibit
- ------ ----------------------
2(a) Amended and Restated Agreement and Plan of Merger dated as of August 31, 1998,
among United Rentals, Inc., UR Acquisition Corporation and U.S. Rentals, Inc.
(incorporated by reference to Exhibit 2 of United Rentals, Inc. Registration Statement on
Form S-4, Registration No. 333-63171)
3(a) Amended and Restated Certificate of Incorporation of United Rentals, Inc., in effect as of
the date hereof (incorporated by reference to exhibit 3.1 of United Rentals, Inc. Report on
Form 10-Q for the quarter ended June 30, 1998)
3(b) Certificate of Amendment to the United Rentals, Inc. Certificate of Incorporation dated
September 29, 1998 (incorporated by reference to Exhibit 4.2 to the United Rentals, Inc.
Registration Statement on Form S-3, No. 333-70151)
3(c) By-laws of United Rentals, Inc., in effect as of the date hereof (incorporated by reference to
exhibit 3.2 of United Rentals, Inc. Report on Form 10-Q for the quarter ended June 30, 1998)
3(d) Form of Certificate of Designation for Series A Perpetual Convertible Preferred Stock
(incorporated by reference to Exhibit 4(k) to the United Rentals, Inc. Registration Statement
on Form S-3, No. 333-64463) together with a certificate of amendment thereto (incorporated
by reference to exhibit A of the United Rentals, Inc. Proxy Statement dated July 22, 1999)
3(e) Form of Certificate of Designation for Series B Perpetual Convertible Preferred Stock
(incorporated by reference to exhibit B of the United Rentals, Inc. Proxy Statement on
Schedule 14A dated July 22, 1999)
3(f) Amended and Restated Certificate of Incorporation of United Rentals (North America), Inc.,
in effect as of the date hereof (incorporated by reference to Exhibit 3.3 of the United
Rentals (North America), Inc. Report on Form 10-Q for the quarter ended June 30, 1998)
3(g) By-laws of United Rentals (North America), Inc., in effect as of the date hereof
(incorporated by reference to Exhibit 3.4 of the United Rentals (North America), Inc. Report
on Form 10-Q for the quarter ended June 30, 1998)
4(a) Form of certificate representing United Rentals, Inc. Common Stock (incorporated by
reference to Exhibit 4 of United Rentals, Inc. Registration Statement on Form S-1,
Registration No. 333-39117)
4(b) Certificate of Trust of United Rentals Trust I (incorporated by reference to Exhibit 4(a) of the
United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-64463)-
76
Exhibit
Number Description of Exhibit
- ------ ----------------------
4(c) Amended and Restated Trust Agreement dated August 5, 1998 among United Rentals,
Inc., The Bank of New York, as Property Trustee, The Bank of New York (Delaware), as
Delaware Trustee, and the Administrative Trustees named therein (incorporated by
reference to Exhibit 10(ii) of United Rentals, Inc. Registration Statement on Form S-4,
Registration No. 333-63171)
4(d) Indenture dated August 5, 1998 by and between United Rentals, Inc. and The Bank of New
York, as Trustee (incorporated by reference to Exhibit 10(hh) of United Rentals, Inc.
Registration Statement on Form S-4, Registration No. 333-63171)
4(e) Guarantee Agreement dated August 5, 1998 between United Rentals, Inc. and The Bank of
New York (incorporated by reference to Exhibit 10(jj) of United Rentals, Inc. Registration
Statement on Form S-4, Registration No. 333-63171)
4(f) Form of Certificate representing 6 1/2% Convertible Quarterly Income Preferred Securities
(incorporated by reference to Exhibit 4(e) of the United Rentals, Inc. Registration Statement
on Form S-1, Registration No. 333-64463)-
4(g) Form of Certificate representing 6 1/2% Convertible Subordinated Debentures (incorporated
by reference to Exhibit 4(f) of the United Rentals, Inc. Registration Statement on Form S-1,
Registration No. 333-64463)-
4(h) Indenture dated May 22, 1998, among United Rentals (North America), Inc., the Guarantors
named therein and State Street Bank and Trust Company, as trustee (incorporated by
reference to Exhibit 4(b) of the Registration Statement on Form S-4 filed by United Rentals
(North America), Inc., Registration No. 333-60467)
4(i) Indenture dated August 12, 1998, among United Rentals (North America), Inc., the
Guarantors named therein and State Street Bank and Trust Company, as trustee
(incorporated by reference to Exhibit 10(bb) of United Rentals, Inc. Registration Statement
on Form S-4, Registration No. 333-63171)
4(j) Form of Registration Rights Agreement with certain affiliates of U.S. Rentals (incorporated
by reference to Exhibit 10(gg) of United Rentals, Inc. Registration Statement on Form S-4,
Registration No. 333-63171)
4(k) Indenture dated December 15, 1998, among United Rentals (North America), Inc., the
Guarantors named therein and State Street Bank and Trust Company, as trustee
(incorporated by reference to Exhibit 10(uu) to Amendment No. 1 to the United Rentals
(North America), Inc. Registration Statement on Form S-4, No. 333-64227)
4(l) Amended and Restated Registration Rights Agreement relating to Series A Perpetual
Convertible Preferred Stock and Series B Perpetual Convertible Preferred Stock among
United Rentals, Inc., Bradley S. Jacobs, Apollo Investment Fund IV, LP and Apollo
Overseas Partners IV, LP (incorporated by reference to exhibit D of the United Rentals, Inc.
Proxy Statement dated July 22, 1999)
4(m) Indenture dated March 23, 1999 among United Rentals (North America), Inc., the
Guarantors named therein and The Bank of New York, as trustee (incorporated by
reference to exhibit 4(q) of the United Rentals, Inc. Annual Report on Form 10-K for the
Year Ended December 31, 1998)
4(n) Notes Registration Rights Agreement dated as of March 23, 1999 among United Rentals
(North America), Inc., the subsidiaries of United Rentals (North America), Inc. named therein,
and the initial purchasers named therein (incorporated by reference to exhibit 4(r) of the
United Rentals, Inc. Annual Report on Form 10-K for the Year Ended December 31, 1998)
77
Exhibit
Number Description of Exhibit
- ------ ----------------------
4(o) Form of Registration Rights Agreement relating to the Series B Perpetual Convertible
Preferred Stock between United Rentals, Inc. and Chase Equity Associates, LP (incorporated
by reference to exhibit 10(c) of the United Rentals, Inc. Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999)
10(a) The following agreements (i) Second Amended and Restated Credit Agreement dated as of
March 30, 1998, between United Rentals (North America), Inc., various financial institutions,
Bank of America Canada, as Canadian agent, and Bank of America National Trust and
Savings Association, as U.S. agent (incorporated by reference to Exhibit 10.1 to United
Rentals, Inc. Report on Form 10-Q for the quarterly period ended March 31, 1998), (ii) Third
Amended and Restated Credit Agreement dated as of May 12, 1998, between United Rentals
(North America), Inc., various financial institutions, Bank of America Canada, as Canadian
agent, and Bank of America National Trust and Savings Association, as U.S. agent
(incorporated by reference to Exhibit 10(a)(ii) to the Registration Statement on Form S-4 filed
by United Rentals (North America), Inc., Registration No. 333-60467) and (iii) First
Amendment to Third Amended and Restated Credit Agreement dated as of July 10, 1998
(incorporated by reference to Exhibit 10(a)(iii) to the Registration Statement on Form S-4 filed
by United Rentals (North America), Inc., Registration No. 333-60467)-
10(b) Credit Agreement dated as of September 29, 1998, between United Rentals (North America),
Inc., various financial institutions, Bank of America Canada, as Canadian agent, and Bank of
America National Trust, as U.S. Agent (incorporated by reference to exhibit 10.2 of United
Rentals, Inc. Report on From 10-Q for the quarter ended September 30, 1998).
10(c) Term Loan Agreement dated as of July 10, 1998 among United Rentals (North America), Inc.,
various financial institutions and Bank of America National Trust and Savings Association, as
Agent---- (incorporated by reference to Exhibit 10(cc) of the Registration Statement on Form S-4
filed by United Rentals (North America), Inc., Registration No. 333-60467)
10(d) First Amendment to the Term Loan Agreement dated as of September 29, 1998 among
United Rentals (North America), Inc., various financial institutions and Bank of America
National Trust and Savings Association, as Agent (incorporated by reference to exhibit 10.3
of United Rentals, Inc. Report on Form 10-Q for the quarter ended September 30, 1998).
10(e) Term Loan Agreement dated as of July 15, 1999 among United Rentals, Inc., United
Rentals (North America), Inc., various financial institutions, Goldman Sachs Credit Partners
L.P., as Syndication Agent and Bank of America National Trust and Savings Association, as
Administrative Agent (incorporated by reference to exhibit 10(d) of the United Rentals, Inc.
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999)
10(f) First Amendment dated as of August 12, 1999, to Term Loan Agreement dated as of
July 15, 1999 among United Rentals, Inc., United Rentals (North America), Inc., various
financial institutions, Goldman Sachs Credit Partners L.P., as syndication Agent and Bank
of America National Trust and Savings Association, as administrative Agent (incorporated
by reference to exhibit 10(e) of the United Rentals, Inc. Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999)
10(g) Second Amendment dated as of July 14, 1999, to Term Loan Agreement dated as of July 10,
1998 among United Rentals, Inc., United Rentals (North America), Inc., various financial
institutions and Bank of America National Trust and -Savings Association, as Agent
(incorporated by reference to exhibit 10(f) of the United Rentals, Inc. Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999) -
78
Exhibit
Number Description of Exhibit
- ------ ----------------------
10(h) Second Amendment dated as of July 14, 1999, to Credit Agreement dated as of
September 29, 1998, between United Rentals, Inc., United Rentals (North America), Inc.,
various financial institutions, Bank of America Canada, as Canadian agent, and Bank of
America National Trust and Savings Association, as U.S. Agent (incorporated by reference
to exhibit 10(g) of the United Rentals, Inc. Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999)
10(i) Third Amendment dated as of December 15, 1999, to Credit Agreement dated as of
September 29, 1998, between United Rentals, Inc., United Rentals (North America), Inc.,
various financial institutions, Bank of America Canada, as Canadian agent, and Bank of
America, N.A. (formerly known as Bank of America National Trust and Savings
Association), as U.S. Agent (incorporated by reference to exhibit 10(i) of the United Rentals
Annual Report on Form 10-K for the year ended December 31, 1999)
10(j) Form of Warrant Agreement (incorporated by reference to exhibit 10(c) of United Rentals,
Inc. Registration Statement on Form S-1, Registration No. 333-39117)(1)++
10(k) Form of Indemnification Agreement for Officers and Directors (incorporated by reference to
exhibit 10(f) of United Rentals, Inc. Registration Statement on Form S-1, Registration
No. 333-39117)++
10(l) 1997 Stock Option Plan (incorporated by reference to exhibit 10(b) of United Rentals, Inc.
Registration Statement on Form S-1, Registration No. 333-39117)++
10(m) 1998 Stock Option Plan of United Rentals, Inc. (incorporated by reference to Exhibit 99.1 to
United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171)++
10(n) 1998 Supplemental Stock Option Plan of United Rentals, Inc. (incorporated by reference to
Exhibit 4.6 to the United Rentals, Inc. Registration Statement on Form S-8, No. 333-70345)
10(o) Employment Agreement with Bradley S. Jacobs, dated as of September 19, 1997
(incorporated by reference to exhibit 10(g) of United Rentals, Inc. Registration Statement
on Form S-1, Registration No. 333-39117)++
10(p) Amendment No. 1 to Employment Agreement with Bradley S. Jacobs, dated as of
December 24, 1999 (incorporated by reference to exhibit 10(p) of the United Rentals
Annual Report on Form 10-K for the year ended December 31, 1999)++
10(q) Employment Agreement with John N. Milne, dated as of September 19, 1997 (incorporated
by reference to exhibit 10(h) of United Rentals, Inc. Registration Statement on Form S-1,
Registration No. 333-39117)++
10(r) Amendment No. 1 to Employment Agreement with John N. Milne, dated as of
December 24, 1999 (incorporated by reference to exhibit 10(r) of the United Rentals Annual
Report on Form 10-K for the year ended December 31, 1999)++
10(s) Employment Agreement with Michael J. Nolan, dated as of October 14, 1997 (incorporated
by reference to exhibit 10(i) of United Rentals, Inc. Registration Statement on Form S-1,
Registration No. 333-39117)++
10(t) Amendment No. 1 to Employment Agreement with Michael J. Nolan, dated as of December
24, 1999 (incorporated by reference to exhibit 10(t) of the United Rentals Annual Report on
Form 10-K for the year ended December 31, 1999)++
10(u) Employment Agreement with Robert P. Miner, dated as of October 10, 1997 (incorporated by
reference to exhibit 10(j) of United Rentals, Inc. Registration Statement on Form S-1,
Registration No. 333-39117)++
79
Exhibit
Number Description of Exhibit
- ------ ----------------------
10(v) Amendment No. 1 to Employment Agreement with Robert Miner, dated as of December 24,
1999 (incorporated by reference to exhibit 10(v) of the United Rentals Annual Report on
Form 10-K for the year ended December 31, 1999)++
10(w) Subscription Agreement dated November 14, 1997, from Wayland R. Hicks (Incorporated
by reference to exhibit 10(r) of United Rentals, Inc. Registration Statement on Form S-1,
Registration No. 333-39117)++
10(x) Agreement dated November 14, 1997, with Wayland R. Hicks (incorporated by reference to
exhibit 10(s) of United Rentals, Inc., Registration Statement on Form S-1, Registration No.
333-39117)++
10(y) Amendment No. 1 to Employment Agreement with Wayland R. Hicks, dated as of
December 24, 1999 (incorporated by reference to exhibit 10(y) of the United Rentals
Annual Report on Form 10-K for the year ended December 31, 1999)++
10(z)* Amendment No. 2 to Employment Agreement with Wayland R. Hicks, dated as of
November 14, 2000++
10(aa) Form of Employment Agreement with William Berry (incorporated by reference to Exhibit
10(ee) of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-
63171)++
10(bb) Form of Employment Agreement with John McKinney (incorporated by reference to Exhibit
10(ff) of United Rentals, Inc. Registration Statement on Form S-4, Registration No.
333-63171)++
10(cc) Form of Private Placement Purchase Agreement entered into by certain officers in
connection with purchasing shares and warrants from United Rentals, Inc., together with
the form of Amendment No. 1 thereto (the Private Placement Purchase Agreement is
incorporated by reference to exhibit 10(d) of United Rentals, Inc. Registration Statement on
Form S-1, Registration No. 333-39117; and Amendment No. 1 is incorporated by reference
to Exhibit 10.2 to United Rentals, Inc. Report on Form 10-Q for the quarterly period ended
March 31, 1998)(2)++
10(dd) Form of Subscription Agreement for September 1997 Private Placement (incorporated by
reference to exhibit 10(e) of United Rentals, Inc. Registration Statement on Form S-1,
Registration No. 333-39117)(3)
10(ee) Preferred Stock Purchase Agreement dated December 21, 1998 between United Rentals,
Inc., Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P. (incorporated
by reference to exhibit 10(y) of the United Rentals, Inc. Annual Report on Form 10-K for the
Year Ended December 31, 1998)
10(ff) Form of U.S. Underwriting Agreement for the public offering completed on March 9, 1999
(incorporated by reference to Exhibit 1(a) to the United Rentals, Inc. Registration Statement
on Form S-3, No. 333-71775)
10(gg) Purchase Agreement dated March 16, 1999 relating to the initial sale by United Rentals
(North America), Inc. of $250 million aggregate principal amount of 9% Senior Subordinated
Notes due 2009 (incorporated by reference to exhibit 10(dd) of the United Rentals, Inc.
Annual Report on Form 10-K for the Year Ended December 31, 1998)
10(hh) Preferred Stock Purchase Agreement, Series B Perpetual Convertible Preferred Stock,
dated June 28, 1999, among United Rentals, Inc., Apollo Investment Fund IV, L.P. and
Apollo Overseas Partners IV, L.P., together with an Amendment dated as of July 16, 1999
(incorporated by reference to exhibit C of the United Rentals, Inc. Proxy Statement dated
July 22, 1999)
80
Exhibit
Number Description of Exhibit
- ------ ----------------------
10(ii) Preferred Stock Purchase Agreement, Series B Perpetual Convertible Preferred Stock
dated July 16, 1999 between United Rentals, Inc. and Chase Equity Associates, L.P.
(incorporated by reference to exhibit 10(c) of the United Rentals, Inc. Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999)
21* Subsidiaries of United Rentals, Inc.
23* Consent of Ernst & Young LLP
- --------
* Filed herewith.
+ Filed without exhibits and schedules (to be provided supplementally upon
request of the Commission).
++ This document is a management contract or compensatory plan or arrangement.
(1) United Rentals, Inc. issued a warrant in this form to the following
officers and other employees of United Rentals, Inc. (or in certain cases
to an entity controlled by such officer) for the number of shares
indicated: Bradley S. Jacobs (5,000,000); John N. Milne (714,286); Michael
J. Nolan (285,715); Robert P. Miner (142,857); Sandra E. Welwood (50,000);
Joseph J. Kondrup, Jr. (50,000); Kai E. Nyby (50,000); and Richard A.
Volonino (50,000).
(2) Each officer or other employee of United Rentals, Inc. who purchased
securities of United Rentals, Inc. prior to December 18, 1997, other than
Messrs. Jacobs and Hicks, entered into a Private Placement Purchase
Agreement in this form (modified, in the case of Messrs. Barker and Imig,
to reflect the fact that said officers did not purchase warrants) with
respect to the shares of Common Stock and warrants purchased by such
individual from United Rentals, Inc. United Rentals, Inc. entered into
Amendment No. 1 with each of Mr. Milne, Mr. Nolan and Mr. Miner.
(3) Each purchaser of shares of Common Stock in United Rentals, Inc.'s
September 1997 private placement entered into a Subscription Agreement in
this form with respect to the shares purchased.
(b) Reports on Form 8-K:
1. Form 8-K dated December 18, 2000 (earliest event reported December 18,
2000); Item 5 was reported.
2. Form 8-K dated December 18, 2000 (earliest event reported December 18,
2000); Item 5 was reported.
81
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
UNITED RENTALS, INC.
Date: March 21, 2001
/S/ MICHAEL J. NOLAN
By: _________________________________
Michael J. Nolan
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signatures Title Date
---------- ----- ----
/S/ BRADLEY S. JACOBS Chairman of the Board March 21, 2001
- ---------------------- of Directors and Chief
Bradley S. Jacobs Executive Officer (Principal
Executive Officer)
/S/ WAYLAND R. HICKS Director March 21, 2001
- ----------------------
Wayland R. Hicks
/S/ JOHN N. MILNE Director March 21, 2001
- ----------------------
John N. Milne
/S/ JOHN S. MCKINNEY Director March 21, 2001
- ----------------------
John S. McKinney
/S/ LEON D. BLACK Director March 21, 2001
- ----------------------
Leon D. Black
/S/ RICHARD D. COLBURN Director March 21, 2001
- ----------------------
Richard D. Colburn
/S/ RONALD M. DEFEO Director March 21, 20001
- ----------------------
Ronald M. DeFeo
/S/ MICHAEL S. GROSS Director March 21, 2001
- ----------------------
Michael S. Gross
82
Signatures Title Date
---------- ----- ----
/S/ RICHARD J. HECKMANN Director March 21, 2001
- -----------------------
Richard J. Heckmann
/S/ GERALD TSAI, JR. Director March 21, 2001
- -----------------------
Gerald Tsai, Jr.
/S/ CHRISTIAN M. WEYER Director March 21, 2001
- -----------------------
Christian M. Weyer
/S/ MICHAEL J. NOLAN Chief Financial Officer (Principal March 21, 2001
- ----------------------- Financial Officer)
Michael J. Nolan
/S/ PETER R. BORZILLERI Vice President, Corporate March 21, 2001
- ----------------------- Controller (Principal
Peter R. Borzilleri Accounting Officer)
83
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
UNITED RENTALS (NORTH AMERICA), INC.
Date: March 21, 2001 /s/ MICHAEL J. NOLAN
By: _________________________________
Michael J. Nolan
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Signatures Title Date
---------- ----- ----
/S/ BRADLEY S. JACOBS Chairman of the Board March 21, 2001
---------------------- of Directors and Chief
Bradley S. Jacobs Executive Officer (Principal
Executive Officer)
/S/ WAYLAND R. HICKS Director March 21, 2001
----------------------
Wayland R. Hicks
/S/ JOHN N. MILNE Director March 21, 2001
----------------------
John N. Milne
/S/ JOHN S. MCKINNEY Director March 21, 2001
----------------------
John S. McKinney
/S/ LEON D. BLACK Director March 21, 2001
----------------------
Leon D. Black
/S/ RICHARD D. COLBURN Director March 21, 2001
----------------------
Richard D. Colburn
/S/ RONALD M. DEFEO Director March 21, 2001
----------------------
Ronald M. DeFeo
/S/ MICHAEL S. GROSS Director March 21, 2001
----------------------
Michael S. Gross
84
Signatures Title Date
---------- ----- ----
/S/ RICHARD J. HECKMANN Director March 21, 2001
- -----------------------
Richard J. Heckmann
/s/ DAVID C. KATZ Director March 21, 2001
- -----------------------
David C. Katz
/S/ GERALD TSAI, JR. Director March 21, 2001
- -----------------------
Gerald Tsai, Jr.
/S/ CHRISTIAN M. WEYER Director March 21, 2001
- -----------------------
Christian M. Weyer
/s/ MICHAEL J. NOLAN Chief Financial Officer (Principal March 21, 2001
- ----------------------- Financial Officer)
Michael J. Nolan
/s/ PETER R. BORZILLERI Vice President, Corporate March 21, 2001
- ----------------------- Controller (Principal
Peter R. Borzilleri Accounting Officer)
85