-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WZNRtAiyXslFdDzNhWlnu632UuGR4ko82Pe4DoJkmaJnfP6EAQtTDraYaiGTLO4R 5AlHWOSBLktz34H4UpJmRg== 0000944209-98-001558.txt : 19980825 0000944209-98-001558.hdr.sgml : 19980825 ACCESSION NUMBER: 0000944209-98-001558 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980824 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: U S RENTALS INC CENTRAL INDEX KEY: 0001028726 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS EQUIPMENT RENTAL & LEASING [7350] IRS NUMBER: 943061974 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-12623 FILM NUMBER: 98696556 BUSINESS ADDRESS: STREET 1: 1581 CUMMINS DRIVE SUITE 155 CITY: MODESTO STATE: CA ZIP: 95358 BUSINESS PHONE: 2095449000 MAIL ADDRESS: STREET 1: 1581CUMMINS DR STE 155 CITY: MODESTO STATE: CA ZIP: 95358 10-Q/A 1 AMENDMENT NO. 1 TO FORM 10-Q - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- AMENDMENT NO. 1 TO FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1998 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 1-12623 ---------------- U.S. RENTALS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 94-3061974 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1501 CUMMINS DRIVE, STE. 155, MODESTO, CALIFORNIA 95358 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(209) 544-9000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE ) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 month (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes [X] No [_] There were 30,774,975 shares of common stock, $.01 par value, outstanding at August 1, 1998. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- EXPLANATORY NOTE This amendment no. 1 to the Company's report on Form 10-Q for its quarter ended June 30, 1998, is being filed to add information with regards to Year 2000 issues under Management's Discussion and Analysis of Financial Condition and Results of Operations. TABLE OF CONTENTS PART I: Financial Information ITEM 1. Financial Statements Balance Sheets--June 30, 1998 and December 31, 1997........... 3 Statements of Operations--Three and six months ended June 30, 1998 and 1997................................................. 4 Statements of Cash Flows--Three and six months ended June 30, 1998 and 1997................................................. 5 Statement of Changes in Stockholders' Equity--Three and six months ended June 30, 1998................................... 6 Notes to Financial Statements--June 30, 1998.................. 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 9 PART II: Other Information ITEM 1. Legal Proceedings............................................. 13 ITEM 2. Changes in Securities......................................... 13 ITEM 3. Defaults Upon Senior Securities............................... 13 ITEM 4. Submission of Matters to a Vote of Security Holders........... 13 ITEM 5. Other Information............................................. 13 ITEM 6. Exhibits and Reports on Form 8-K.............................. 13 Signatures................................................................ 14
2 U.S. RENTALS, INC. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31, 1998 1997 ----------- ------------ (UNAUDITED) ASSETS ------ Cash and cash equivalents............................. $ 22,510 $ 3,104 Accounts receivable, net.............................. 74,124 60,906 Inventories........................................... 19,040 17,379 Rental equipment, net................................. 521,696 390,598 Property and equipment, net........................... 93,130 78,014 Goodwill, net......................................... 26,398 23,114 Prepaid expenses and other assets..................... 12,167 12,696 -------- -------- Total assets...................................... $769,065 $585,811 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Accounts payable and other liabilities................ $ 78,264 $ 75,048 Note payable to related party......................... 21,500 17,000 Notes payable, other.................................. 357,100 203,300 Deferred taxes........................................ 29,732 25,077 -------- -------- Total liabilities................................. 486,596 320,425 -------- -------- Stockholders' equity: Common stock, $.01 par value--authorized 100,000,000 shares; issued and outstanding 30,774,975 shares as of June 30, 1998 and 30,748,975 as of December 31, 1997............................................... 308 307 Paid-in capital..................................... 244,830 244,211 Retained earnings................................... 37,331 20,868 -------- -------- Total stockholders' equity........................ 282,469 265,386 -------- -------- Total liabilities and stockholders' equity........ $769,065 $585,811 ======== ========
3 U.S. RENTALS, INC. STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ---------------------- 1998 1997 1998 1997 ---------- ---------- ---------- ---------- Revenues: Rental revenue............... $ 114,806 $ 77,109 $ 207,447 $ 142,439 Rental equipment sales....... 18,489 9,274 31,555 16,475 Merchandise and new equipment sales....................... 17,547 10,051 32,358 18,501 ---------- ---------- ---------- ---------- Total revenues............. 150,842 96,434 271,360 177,415 ---------- ---------- ---------- ---------- Cost of revenues: Rental equipment expense..... 24,016 18,678 46,016 36,176 Rental equipment depreciation................ 24,534 15,708 45,979 30,021 Cost of rental equipment sales....................... 9,610 4,631 15,898 8,016 Cost of merchandise and new equipment sales............. 12,080 7,442 22,931 13,936 Direct operating expense..... 31,517 22,698 64,894 43,881 ---------- ---------- ---------- ---------- Total cost of revenues..... 101,757 69,157 195,718 132,030 ---------- ---------- ---------- ---------- Gross profit............... 49,085 27,277 75,642 45,385 Selling, general and administrative expense........ 20,124 10,427 31,550 17,977 Non-rental depreciation........ 3,766 2,724 7,491 4,654 Amortization of goodwill....... 109 41 184 44 Termination cost of deferred compensation agreements....... -- -- -- 20,290 ---------- ---------- ---------- ---------- Operating income........... 25,086 14,085 36,417 2,420 Other expense, net............. -- -- -- (473) Related party interest expense, net........................... (310) (223) (594) (171) Interest expense, net.......... (4,891) (504) (8,293) (2,057) ---------- ---------- ---------- ---------- Income (loss) before income taxes and extraordinary item...................... 19,885 13,358 27,530 (281) Income tax expense............. 7,994 5,343 11,067 14,455 ---------- ---------- ---------- ---------- Income (loss) before extraordinary item........ 11,891 8,015 16,463 (14,736) Extraordinary item, net of tax benefit of $995............... -- -- -- 1,511 ---------- ---------- ---------- ---------- Net income (loss).......... $ 11,891 $ 8,015 $ 16,463 $ (16,247) ========== ========== ========== ========== Basic net income (loss) before extraordinary item per share.. $ 0.39 $ 0.26 $ 0.54 $ (0.53) ---------- ---------- ---------- ---------- Diluted net income (loss) before extraordinary item per share......................... $ 0.37 $ 0.26 $ 0.52 $ (0.52) ---------- ---------- ---------- ---------- Basic and diluted extraordinary item per share................ $ -- $ -- $ -- $ (0.05) ---------- ---------- ---------- ---------- Basic net income (loss) per share......................... $ 0.39 $ 0.26 $ 0.54 $ (0.58) ---------- ---------- ---------- ---------- Diluted net income (loss) per share......................... $ 0.37 $ 0.26 $ 0.52 $ (0.57) ---------- ---------- ---------- ---------- Basic weighted average shares outstanding................... 30,768,502 30,748,975 30,760,301 27,946,777 ========== ========== ========== ========== Diluted weighted average shares outstanding................... 32,245,254 30,975,435 31,920,944 28,537,859 ========== ========== ========== ==========
4 U.S. RENTALS, INC. STATEMENTS OF CASH FLOW (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- -------------------- 1998 1997 1998 1997 --------- -------- --------- --------- Operating activities: Net income (loss)................. $ 11,891 $ 8,015 $ 16,463 $ (16,247) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization... 28,409 18,082 53,654 34,547 Gain on sale of equipment....... (9,249) (5,104) (16,281) (9,006) Principal adjustment on notes receivable..................... -- -- -- (146) Provision for doubtful accounts. 3,015 1,764 5,142 3,236 Deferred taxes.................. 4,963 1,742 4,655 9,380 Interest income not collected... -- -- -- (294) Interest expense not paid....... -- -- -- 495 Loss on early extinguishment of debt........................... -- -- -- 2,506 Changes in operating assets and liabilities accounts receivable.. (15,561) (9,117) (17,970) (14,812) Inventories..................... (1,782) (1,546) (1,197) (1,399) Prepaid expenses and other assets......................... 3,027 1,068 3,102 552 Accounts payable and other liabilities.................... 1,446 9,286 1,142 9,127 --------- -------- --------- --------- Net cash provided by operating activities......................... 26,159 24,190 48,710 17,939 --------- -------- --------- --------- Investing activities: Acquisition of rental operations.. (1,274) (20,919) (9,344) (22,676) Purchases of rental equipment..... (114,387) (64,258) (189,813) (92,511) Proceeds from sale of rental equipment........................ 18,489 9,274 31,555 16,475 Purchases of property and equipment, net................... (11,590) (11,127) (20,622) (17,173) Funding of notes receivable, net.. -- 32 -- 253 --------- -------- --------- --------- Net cash used in investing activi- ties............................. (108,762) (86,998) (188,224) (115,632) --------- -------- --------- --------- Financing activities: Proceeds from (payments on) line of credit, net................... (154,000) 45,000 (98,000) (13,267) Proceeds from (payments) on senior notes............................ 252,000 -- 252,000 (92,506) Payments on other obligations..... (100) (100) (200) (200) Proceeds from related party note.. 500 18,000 4,500 18,000 Proceeds from issuance of common stock, net of issuance costs..... 369 -- 620 185,950 Cash retained by the predecessor in connection with Recapitalization................. -- -- -- (998) Dividends paid.................... -- -- -- (1,905) --------- -------- --------- --------- Net cash provided by financing activities......................... 98,769 62,900 158,920 95,074 --------- -------- --------- --------- Net increase (decrease) in cash..... 16,166 92 19,406 (2,619) Cash at beginning of period......... 6,344 195 3,104 2,906 --------- -------- --------- --------- Cash at end of period............... $ 22,510 $ 287 $ 22,510 $ 287 ========= ======== ========= ========= Supplemental non-cash flow information: Distribution of net assets to stockholder in connection with the IPO.......................... $ 3,221 =========
5 U.S. RENTALS, INC. STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
ADDITIONAL TOTAL COMMON PAID-IN RETAINED STOCKHOLDERS' SHARES STOCK CAPITAL EARNINGS EQUITY ---------- ------ ---------- -------- ------------- Balance at December 31, 1997...................... 30,748,975 $307 $244,211 $20,868 $265,386 Net income................. -- -- -- 16,463 16,463 Stock options exercised.... 26,000 1 520 -- 521 Income tax benefit from stock options exercised... -- -- 99 -- 99 ---------- ---- -------- ------- -------- Balance at June 30, 1998... 30,774,975 $308 $244,830 $37,331 $282,469 ========== ==== ======== ======= ========
6 U.S. RENTALS, INC. NOTES TO FINANCIAL STATEMENTS (TABLES IN THOUSANDS) (UNAUDITED) 1. INTRODUCTION The Registrant's initial public offering ("IPO") was declared effective on February 20, 1997. Prior to the IPO, the equipment rental business was operated by Ayr, Inc., a California corporation (the "Predecessor") that was treated as an S corporation under the Internal Revenue Code. The Registrant did not have any operations prior to its IPO. Prior to the closing of the IPO, the Predecessor transferred substantially all of its operating assets and associated liabilities to the Registrant in exchange for 20,748,975 shares of Common Stock of the Registrant, representing all of the Registrant's outstanding capital stock prior to the IPO. The Predecessor retained only non- operating assets and liabilities, including approximately $25.7 million of notes receivable from related parties and approximately $24.4 million of notes payable to related parties. These transactions are referred to as the "Recapitalization" in this report. Unless otherwise indicated, the "Company" means the Predecessor prior to the IPO and the Registrant on or after the IPO. 2. BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for the interim periods are not necessarily indicative of the results that may be expected for a full year. 3. BANK DEBT AND LONG-TERM OBLIGATIONS Bank debt and long-term obligations consist of the following:
JUNE 30, DECEMBER 31, 1998 1997 -------- ------------ Notes payable: Senior notes payable to various parties, interest payable semi-annually ranging from 6.71% to 6.93%, due 2006 to 2010.......................................... $252,000 $ -- Revolving line of credit, interest payable monthly at money market rates (6.08% to 6.14% at June 30, 1998 and 6.03% to 6.34% at December 31, 1997).............. 105,000 203,000 Notes payable related to the purchase of certain businesses, imputed interest averaging 7%, due through 1999.................................................. 100 300 -------- -------- 357,100 203,300 Note payable to related party: Demand note payable to majority stockholder of Predecessor interest at a variable rate, payable monthly, 5.9% at June 30, 1998 and December 31, 1997.. 21,500 17,000 -------- -------- $378,600 $220,300 ======== ========
On February 26, 1997, the Company repaid the bank notes, the old revolving line of credit and senior notes utilizing proceeds from its IPO. The early extinguishment of debt generated an extraordinary loss of $1.5 million (net of income tax benefit of $995,000). 7 U.S. RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) On February 26, 1997, the Company entered into a $300.0 million unsecured line of credit with a bank maturing no later than February 25, 2002. The Company believes it is in compliance with all covenants in the credit agreement. On April 28, 1998, the Company completed a $252.0 million private placement of senior unsecured notes. The Company believes it is in compliance with all covenants in the senior note agreement. 4. INCOME TAXES Income tax expense consists of the following:
SIX MONTHS ENDED JUNE 30, --------------- 1998 1997 ------- ------- One-time charge for cumulative deferred taxes as of the date of the IPO as if the Company had always been subject to taxes as a C corporation............................................... $ -- $ 7,520 Income tax provision for the period subsequent to the IPO...... 11,067 6,935 ------- ------- $11,067 $14,455 ======= =======
8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER 1998 VS. SECOND QUARTER 1997 Results Of Operations Revenues. Total revenues for the three months ended June 30, 1998 increased 56.4% to $150.8 million from $96.4 million for the same period in 1997. Rental revenue increased 48.9% to $114.8 million or 76.1% of total revenues for the three months ended June 30, 1998, as compared to $77.1 million or 80.0% of total revenues for the same period in 1997. Of the $37.7 million increase in rental revenue, $24.7 million was due primarily to 46 new locations that were added subsequent to March 31, 1997. The remaining increase of approximately $13.0 million was due to increased equipment rental fleet at existing locations and rental volume. Rental revenue as a percentage of total revenue decreased due to the Company's efforts to take advantage of opportunities in the used equipment sales and merchandise and new equipment sales markets. Used rental equipment sales increased 99.4% to $18.5 million or 12.3% of total revenues for the three months ended June 30, 1998 from $9.3 million or 9.6% of total revenues for the same period in 1997 due to increased customer demand, increased sales efforts across the nation, alternative financing sources for customers and additional locations. Merchandise and new equipment sales increased 74.6% for the three months ended June 30, 1998 to $17.5 million or 11.6% of total revenues as compared to $10.1 million or 10.4% of total revenues for the same period in 1997. This increase was primarily due to the increase in the related rental revenue, expansion of product lines within resale showrooms, as well as a 57% increase in the number of operating locations since March 31, 1997. Gross Profit. Gross profit for the three months ended June 30, 1998 increased 80.0% to $49.1 million from $27.3 million for the same period in 1997 primarily due to increased rental revenue and certain economies achieved through the Company's continued investment in new equipment. Gross profit from rentals increased 55.1% to $66.3 million for the three months ended June 30, 1998 from $42.7 million for the same period in 1997 as a result of higher rental volume. Rental gross profit as a percent of rental revenue increased to 57.7% for the three months ended June 30, 1998 from 55.4% for the same period in 1997. This increase was due primarily to a 48.9% increase in rental revenue partially offset by an increase in rental equipment expense of 28.6% due to the impact of increased rental volume. Gross profit from sales of used rental equipment increased 91.2% to $8.9 million from $4.6 million for the same period in 1997 due to increased demand for used equipment, but continued to decrease as a percent of such sales due to the mix of sales toward later model equipment. Gross profit from sales of merchandise and new equipment increased 109.5% for the three months ended June 30, 1998 as compared to the same period in 1997 due to the impact of increased rental volume on the sale of merchandise, a concerted effort to expand product lines and an increase in new equipment sales and customer volume. Gross profit on the sale of merchandise and new equipment also increased as a percentage of total revenue. Direct operating expenses for the three months ended June 30, 1998 increased 38.9% to $31.5 million as compared to $22.7 million for the same period in 1997. However, as a percentage of total revenue, direct operating expenses for the three month period decreased to 20.9% compared to 23.5% for the same period in 1997. The decrease reflects certain economies achieved as a result of higher rental volume and increased utilization. Selling, General and Administrative Expense. Selling, general and administrative expense for the three months ended June 30, 1998 increased 93.0% to $20.1 million compared to $10.4 million for the same period in 1997. The increase was primarily due to higher profit sharing expense, and to a lessor extent, higher bad debt and credit and collection expenses for the three months ended June 30, 1998 as compared to the same period in 1997. These expenses are directly related to the increase in profitability and revenue volume. Interest Expense, net. Interest expense increased 870.4% to $4.9 million for the three months ended June 30, 1998 from $.5 million for the same period in 1997. The increase was primarily due to a $252.0 million private placement of senior unsecured notes in April 1998 and higher average debt outstanding under the credit facility during the three months ended June 30, 1998 as compared to same period of 1997. The increase in average debt outstanding was the result of the Company's significant capital expenditures. 9 Income Taxes. For the three months ended June 30, 1998 the Company's income was taxed at an effective rate of 40.2% compared to 40.0% for the same period in 1997. SIX MONTHS 1998 VS. SIX MONTHS 1997 Results Of Operations Revenues. Total revenues for the first six months of 1998 increased 53.0% to $271.4 million from $177.4 million for the same period in 1997. Rental revenue increased 45.6% to $207.4 million or 76.4% of total revenues for the first six months of 1998, as compared to $142.4 million or 80.3% of total revenues for the same period in 1997. Of the $65.0 million increase in rental revenue, $47.6 million was due primarily to 39 new locations that were added subsequent to June 30, 1997. The remaining increase of approximately $17.4 million was due to increased equipment rental fleet at existing locations and rental volume. Rental revenue as a percentage of total revenue decreased due to the Company's efforts to take advantage of opportunities in the used equipment sales and merchandise and new equipment sales markets. In addition to the above, severe weather conditions along the West Coast related to El Nino, slowed construction activity resulting in lower than expected rental volume during the first quarter of 1998. Used rental equipment sales increased 91.5% to $31.6 million or 11.6% of total revenues for the first six months of 1998 from $16.5 million or 9.3% of total revenues for the same period in 1997. This increase was due to continued customer demand, increased sales efforts across the nation and alternative financing sources for customers. Merchandise and new equipment sales increased 74.9% for the first six months of 1998 to $32.4 million or 11.9% of total revenues as compared to $18.5 million or 10.4% of total revenues for the same period in 1997. This increase was primarily due to the increase in the related rental revenue, expansion of product lines within resale showrooms, as well as a 44% increase in the number of operating locations since June 30, 1997. Gross Profit. Gross profit for the first six months of 1998 increased 66.7% to $75.6 million from $45.4 million for the same period in 1997 primarily due to increased rental revenue and certain economies achieved through the Company's continued investment in new equipment. Gross profit from rentals increased 51.4% to $115.5 million for the first six months of 1998 from $76.2 million for the same period in 1997 as a result of higher rental volume. Rental gross profit as a percent of rental revenue increased to 55.7% for the first six months of 1998 from 53.5% for the same period in 1997. This increase was due primarily to a 45.6% increase in rental revenue partially offset by an increase in rental equipment expense of 27.2% due to the impact of increased rental volume. Gross profit from sales of used rental equipment increased 85.1% to $15.7 million from $8.5 million for the same period in 1997 due to increased demand for used equipment, but continued to decrease as a percent of such sales due to the mix of sales toward later model equipment. Gross profit from sales of merchandise and new equipment increased 106.5% for the first six months of 1998 as compared to the same period in 1997 due to the impact of increased rental volume on the sale of merchandise, a concerted effort to expand product lines and an increase in new equipment sales and customer volume. Gross profit on the sale of merchandise and new equipment also increased as a percentage of total revenue. Total gross profit was negatively impacted by an increase in direct operating expenses for the first six months of 1998 of 47.9% to $64.9 million as compared to $43.9 million for the same period in 1997. The increase reflects staffing and facilities costs resulting from an increased number of rental yards and higher maintenance costs necessary to support the increased size of the rental fleet and an increase in rental volume. As a percentage of total revenue, direct operating expenses decreased slightly to 23.9% in the first six months of 1998 from 24.7% for the same period in 1997. The decrease was primarily due to the maturation of new locations and the related rise in revenues. Selling, General and Administrative Expense. Selling, general and administrative expense for the first six months of 1998 increased 75.5% to $31.6 million compared to $18.0 million for the same period in 1997. The increase was primarily due to higher profit sharing expense, bad debt and credit and collection expenses for the first six months of 1998 as compared to the same period in 1997. These expenses are directly related to the increase in profitability and revenue volume. 10 Termination Cost of Deferred Compensation Agreements. Other operating expense for the first six months of 1997 consists of a one-time compensation expense related to the termination of the Predecessor's deferred incentive compensation agreements just prior to the IPO in February 1997. Interest Expense, net. Interest expense increased 303.2% to $8.3 million for the first six months of 1998 from $2.1 million for the same period in 1997. The increase was primarily due to a $252.0 million private placement of senior unsecured notes in April 1998 and higher average debt outstanding under the credit facility during the first six months of 1998 as compared to the same period of 1997. The increase in average debt outstanding was the result of the Company's significant investment in capital expenditures. Income Taxes. Prior to its IPO, the Company was taxed as an S corporation for federal and state purposes. Upon the IPO, the Company recorded a $7.5 million one-time charge for cumulative deferred tax liabilities. For the first six months of 1998 the Company's income was taxed at an effective rate of 40.2% compared to 40.0% for the period from February 26, 1997 to June 30, 1997. LIQUIDITY AND CAPITAL RESOURCES In conjunction with the IPO, the Company entered into a new credit facility that provides availability of up to $300.0 million with its existing lenders (the "Credit Facility") of which $195.0 million was available at June 30, 1998. The Company has primarily used cash to purchase rental equipment as well as acquire and start up new rental yards. The Company historically has financed its cash requirements primarily through net cash provided by operating activities and borrowings under its Credit Facility. In addition to the Company's Credit Facility, the Company completed a $252.0 million private placement of senior unsecured notes on April 28, 1998. The Company believes that cash flow from operations and availability under its Credit Facility will be sufficient to support its operations, expansion and liquidity requirements for at least the next 12 months. For the first six months of 1998, the Company's operating activities before changes in operating assets and liabilities provided net cash flow of $63.6 million as compared to $24.5 million for the same period in 1997. The $39.1 million increase was primarily due to increased operating income (exclusive of depreciation and amortization expenses, gains on sale of rental equipment and the deferred compensation agreement termination costs) of $25.4 million. The $25.4 million increase in operating income was due to higher revenues associated with increased investment in rental equipment, increases in the number of locations, and enhanced focus on merchandise and new equipment sales. Net cash used in investing activities was $188.2 million for the first six months of 1998 as compared to $115.6 million for the same period in 1997. This increase was primarily due to the continued investment in rental equipment, purchase of non-rental property and equipment, partially offset by increased sales of used rental equipment. The increase in rental fleet relates to newly opened or acquired yards and the continued expansion of rental fleet at existing locations. Rental equipment purchases for the first six months of 1998 were $189.8 million as compared to $92.5 million for the same period in 1997. Net cash provided by financing activities was $158.9 million for the first six months of June 1998 as compared to $95.1 million for the same period in 1997. The principal cause for the variation between periods was the receipt of the net proceeds from the $252.0 million private placement of Senior unsecured notes which were then used in part to pay borrowings under the Credit Facility. U.S. Rentals believes that its management information systems are year 2000 compliant. At minimal cost over the past two years the Company has upgraded its proprietary systems and the Company's software vendors have advised the Company that the systems provided by them are year 2000 compliant. U.S. Rentals does not believe that year 2000 will have a material adverse effect on its business relationships with its suppliers or customers, or have a material adverse effect on its business, results of operations or financial condition. 11 CERTAIN RISK FACTORS THAT MAY IMPACT FUTURE OPERATING RESULTS Statements in this report may contain forward-looking statements that represent the Company's expectations or beliefs concerning the continued sufficiency of the Company's cash to meet expected capital expenditures and interest expense and the likelihood of completing the previously announced agreement to merge with United Rentals, Inc. The Company cautions that these statements are qualified by important factors that could cause actual results to differ from those in the forward- looking statements: the Company's ability to acquire or start more rental yards and the timing, pricing and related costs of the acquisitions and openings, the effective integration of the acquired businesses and new yards, variations in seasonal rental patterns principally due to the effect of weather on construction activity, increased competition due to larger companies expanding into previously less competitive markets, the cyclical nature of the equipment rental industry, the timing and financing of capital expenditures for fleet expansions, and general economic conditions in the Company's markets including the possible impact of interest rate fluctuations. In addition, the market price of the Company's common stock could be subject to significant variation due to fluctuations in the Company's operating results, changes in earnings estimates by securities analysts and other factors, including the announcement of an agreement by the Company to merge with United Rentals, Inc. Although the Company expects the merger will be completed in the third quarter of 1998, there can be no assurance the merger will be completed in the third quarter or at all. Fluctuations in Quarterly Operating Results. The Company has experienced fluctuations in operating results in interim periods in certain geographic regions due to seasonality. Weather conditions, such as El Nino, sometimes affect quarterly revenues. As a result, the Company may not learn of revenue shortfalls until late in the quarter. The Company's operating expenses are based in part on its expectations for future revenues and are relatively fixed in the short term. Any revenue shortfall below expectations could have an immediate and significant adverse effect on results of operations. 12 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Stockholders was held on May 7, 1998, at which all six Directors were re-elected to the Board, one new Director was elected to the Board, and the appointment of Price Waterhouse LLP as the Company's independent accountants for the fiscal year 1998 was ratified. No other matters were presented at the meeting. The number of shares of the Company's Common Stock present at the meeting, by proxy or in person, collectively represented 94.7% of the voting interest of all shares of stock outstanding and eligible to vote at the Annual Meeting. The holders of the Common Stock elected all Directors as follows:
VOTES NOMINEES VOTES FOR WITHHELD -------- ---------- --------- Richard D. Colburn.................................... 27,792,973 2,967,002 William F. Berry...................................... 28,459,405 2,300,570 John S. McKinney...................................... 28,459,405 2,300,570 James P. Miscoll...................................... 28,459,405 2,300,570 Robert D. Paulson..................................... 28,459,405 2,300,570 Keith W. Renken....................................... 28,459,405 2,300,570 Jeremiah H. B. Kean................................... 28,459,405 2,300,570
The votes cast for the ratification of the appointment of Price Waterhouse LLP as the Company's accountants were as follows: 29,127,460 for, 4,825 withheld and 4,045 abstained. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.1* Amended revolving note payable to Richard D. Colburn. 27.1* Financial data schedule.
- -------- * Previously filed under 10Q (1-12623) for the quarter ended June 30, 1998. (b) Reports on 8-K 1) The Company filed a Current Report on Form 8-K, dated June 15, 1998, announcing the signing of an Agreement and Plan of Merger to merge U.S. Rentals, Inc. with United Rentals, Inc. In connection with the merger, each outstanding share of common stock of U.S. Rentals, Inc. will be converted into the right to receive 0.9625 of a share of common stock of United Rentals, Inc. 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Amendment No. 1 to be signed on its behalf by the undersigned thereunto duly authorized. U.S. RENTALS, INC. (Registrant) /s/ John S. McKinney Date: August 24, 1998 By: _________________________________ John S. McKinney Vice President Chief Financial Officer 14 -----END PRIVACY-ENHANCED MESSAGE-----