-----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, T3EzOsOJHYCPfdP1Q4yiGj2ni5vVtrtKmJidsXrRyp82BHJ+rMIfZnxYobWRdidh CGzGLBjkXvYQpb7np88JIw== 0000950130-98-000492.txt : 19980205 0000950130-98-000492.hdr.sgml : 19980205 ACCESSION NUMBER: 0000950130-98-000492 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980113 ITEM INFORMATION: FILED AS OF DATE: 19980204 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED RENTALS INC CENTRAL INDEX KEY: 0001047166 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 061493538 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-13663 FILM NUMBER: 98520961 BUSINESS ADDRESS: STREET 1: FOUR GREENWICH OFFICE PARK CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2036223131 MAIL ADDRESS: STREET 1: FOUR GREENWICH OFFICE PARK CITY: GREENWICH STATE: CT ZIP: 06830 8-K/A 1 AMENDMENT NO. 1 TO FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A AMENDMENT NO. 1 CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) JANUARY 13, 1998 ---------------- UNITED RENTALS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) - ------------------------------------------------------------------------------- Delaware 1-13663 06-1493538 - ---------------------------- ------------------------ --------------------- (State or Other Jurisdiction (Commission file Number) (IRS Employer of Incorporation) Identification No.) Four Greenwich Office Park, Greenwich, Connecticut 06830 ------------------------------------------------------------------------ (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (203) 622-3131 -------------- ============================================================================== Item 7. Financial Statements and Exhibits (a) Financial Statements of businesses acquired. The following financial statements are included herein: I. Consolidated and Combined Financial Statements of Access Rentals, Inc. and subsidiary and affiliate Report of Independent Accountants Consolidated and Combined Balance Sheets--March 31, 1996 and 1997 and December 31, 1997 (unaudited) Consolidated and Combined Statements of Income for the Years Ended September 30, 1994 and 1995, for the Six Months Ended March 31, 1996, for the Year Ended March 31, 1997 and for the Nine Months Ended December 31, 1996 and 1997 (unaudited) Consolidated and Combined Statement of Stockholders' Equity for the Years Ended September 30, 1994 and 1995, for the Six Months Ended March 31, 1996, for the Year Ended March 31, 1997 and for the Nine Months Ended December 31, 1997 (unaudited) Consolidated and Combined Statements of Cash Flows for the Years Ended September 30, 1994 and 1995, for the Six Months Ended March 31, 1996, for the Year Ended March 31, 1997 and for the Nine Months Ended December 31, 1996 and 1997 (unaudited) Notes to Financial Statements II. Combined Financial Statements of BNR Group of Companies Report of Independent Auditors Combined Balance Sheets--March 31, 1996 and 1997 and December 31, 1997 (unaudited) Combined Statements of Earnings for the Years Ended March 31, 1996 and 1997 and for the Nine Months Ended December 31, 1996 and 1997 (unaudited) Combined Statements of Stockholders' Equity for the Years Ended March 31, 1996 and 1997 and for the Nine Months Ended December 31, 1997 (unaudited) Combined Statements of Cash Flows for the Years Ended March 31, 1996 and 1997 and for the Nine Months Ended December 31, 1996 and 1997 (unaudited) Notes to Combined Financial Statements III. Financial Statements of Mission Valley Rentals, Inc. Report of Independent Auditors Balance Sheets--June 30, 1996 and 1997 and December 31, 1997 (unaudited) Statements of Operations for the Years Ended June 30, 1996 and 1997 and for the Six Months Ended December 31, 1996 and 1997 (unaudited) Statements of Stockholders' Equity for the Years Ended June 30, 1996 and 1997 and for the Six Months Ended December 31, 1997 (unaudited) Statements of Cash Flows for the Years Ended June 30, 1996 and 1997 and the Six Months Ended December 31, 1996 and 1997 (unaudited) Notes to Financial Statements (b) Pro forma financial information The following pro forma financial information is included herein: 1 I. Pro Forma Consolidated Financial Statements of United Rentals, Inc. Introduction Pro Forma Consolidated Balance Sheets--December 31, 1997 (unaudited) Pro Forma Consolidated Statements of Operations for the Year Ended December 31, 1997 (unaudited) Notes to Pro Forma Consolidated Financial Statements (c) Exhibits The following exhibits are filed herewith: Exhibit Number Description - -------------- ----------- 99.1 Consolidated Financial Statements of United Rentals, Inc. for the period August 14, 1997 (Inception) to December 31, 1997. 2 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholder of Access Rentals, Inc. We have audited the accompanying consolidated balance sheet of Access Rentals, Inc., and subsidiary as of March 31, 1996, and the related consolidated statements of income, stockholders' equity and cash flows for the years ended September 30, 1994 and 1995, and the six months ended March 31, 1996. We have also audited the combined balance sheet of Access Rentals, Inc., and subsidiary and affiliate as of March 31, 1997, and the related combined statements of income, stockholders' equity and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated and combined financial statements referred to above present fairly, in all material respects, the financial position of Access Rentals, Inc., and subsidiary and affiliate as of March 31, 1996 and 1997, and results of their operations and cash flows for the years ended September 30, 1994 and 1995, the six months ended March 31, 1996 and the year ended March 31, 1997 in conformity with generally accepted accounting principles. /s/ Battaglia, Andrews & Moag, P.C. Batavia, New York January 22, 1998 F-1 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE CONSOLIDATED AND COMBINED BALANCE SHEETS
MARCH 31, MARCH 31, DECEMBER 1996 1997 31, 1997 ----------- ----------- ----------- (UNAUDITED) ASSETS ------ Cash.................................... $ 284,228 $ 399,196 $ 362,817 Accounts receivable, net................ 3,319,859 5,173,046 9,482,265 Unbilled receivables.................... -- -- 1,075,209 Inventory............................... 2,013,125 1,835,687 2,511,326 Rental equipment, net................... 30,865,058 49,551,170 63,636,491 Property and equipment, net............. 2,625,564 4,599,576 5,386,167 Due from related party.................. 1,121,814 1,860,102 2,071,971 Prepaid expenses and other assets....... 1,221,482 1,896,518 1,286,100 Deferred tax asset...................... 458,908 937,585 576,730 Intangibles............................. -- 1,375,005 2,212,368 ----------- ----------- ----------- Total assets........................ $41,910,038 $67,627,885 $88,601,444 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Liabilities: Accounts payable, accrued expenses and other liabilities.................... $ 3,128,407 $ 3,601,707 $ 7,160,756 Deferred tax liability................ 4,675,199 6,350,541 7,821,732 Debt.................................. 19,109,094 39,782,237 51,505,595 ----------- ----------- ----------- Total liabilities................... 26,912,700 49,734,485 66,488,083 Commitments and contingencies Stockholders' equity: Common stock, $1 par value; 10,000 shares authorized, 300, 300 and 10,000 shares issued and outstanding for each respective year............. 300 300 10,000 Additional paid-in capital............ 4,500 4,500 4,500 Note receivable from stockholder...... (420,040) (515,606) (1,105,994) Retained earnings..................... 15,426,922 18,411,049 23,278,389 Equity adjustment for foreign currency translation.......................... (14,344) (6,843) (73,534) ----------- ----------- ----------- Total stockholders' equity.......... 14,997,338 17,893,400 22,113,361 ----------- ----------- ----------- Total liabilities and stockholders' equity............................. $41,910,038 $67,627,885 $88,601,444 =========== =========== ===========
See accompanying notes. F-2 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
YEAR ENDED SIX MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED YEAR ENDED DECEMBER 31, ------------------------ MARCH 31, MARCH 31, ------------------------ 1994 1995 1996 1997 1996 1997 ----------- ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) Revenues: Equipment rentals...... $15,804,754 $18,382,243 $10,405,814 $30,615,602 $21,391,478 $33,092,299 Sales of equipment and parts................. 4,731,889 9,426,936 3,629,373 8,963,128 9,279,272 10,258,882 ----------- ----------- ----------- ----------- ----------- ----------- Total revenues......... 20,536,643 27,809,179 14,035,187 39,578,730 30,670,750 43,351,181 Cost of revenues: Cost of rentals excluding depreciation.......... 4,867,059 6,129,103 3,870,961 9,937,663 7,341,151 9,819,143 Depreciation, equipment rentals............... 2,825,381 3,405,797 2,139,726 6,509,012 4,701,737 6,672,741 Cost of equipment and parts................. 3,468,073 7,115,826 2,703,494 6,494,156 5,200,774 7,568,450 ----------- ----------- ----------- ----------- ----------- ----------- Total cost of revenues. 11,160,513 16,650,726 8,714,181 22,940,831 17,243,662 24,060,334 ----------- ----------- ----------- ----------- ----------- ----------- Gross profit............ 9,376,130 11,158,453 5,321,006 16,637,899 13,427,088 19,290,847 Selling, general and administrative expenses............... 4,414,362 5,394,286 2,329,997 8,747,215 6,261,115 7,953,627 Non-rental depreciation. 489,084 532,659 283,206 946,382 658,899 1,067,156 ----------- ----------- ----------- ----------- ----------- ----------- Operating income....... 4,472,684 5,231,508 2,707,803 6,944,302 6,507,074 10,270,064 Interest expense........ 673,532 1,147,616 682,394 2,604,066 1,821,607 2,918,100 Other (income), net..... (220,289) (250,421) (295,443) (605,215) (363,828) (567,759) ----------- ----------- ----------- ----------- ----------- ----------- Income before provision for income taxes and cumulative effect of change in accounting principle............. 4,019,441 4,334,313 2,320,852 4,945,451 5,049,295 7,919,723 Provision for income taxes.................. 1,661,994 1,819,455 1,122,851 1,786,724 2,016,066 2,974,033 ----------- ----------- ----------- ----------- ----------- ----------- Income before cumulative effect of change in accounting principle............. 2,357,447 2,514,858 1,198,001 3,158,727 3,033,229 4,945,690 Cumulative effect of change in method of accounting for taxes... 46,325 -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- ----------- Net income............. $ 2,403,772 $ 2,514,858 $ 1,198,001 $ 3,158,727 $ 3,033,229 $ 4,945,690 =========== =========== =========== =========== =========== ===========
See accompanying notes. F-3 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE CONSOLIDATED AND COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
NOTE COMMON STOCK ADDITIONAL RECEIVABLE FOREIGN -------------- PAID-IN FROM TREASURY RETAINED CURRENCY SHARES AMOUNT CAPITAL STOCKHOLDER STOCK EARNINGS TRANSLATION ------ ------- ---------- ----------- --------- ----------- ----------- Balance at October 1, 1993................... 6 $ 4,800 $ -- $ (128,069) $(200,000) $ 9,775,310 $ -- Prior period adjustment............ (265,019) ------ ------- ------ ----------- --------- ----------- -------- Balance, October 1, as restated............... 6 4,800 -- (128,069) (200,000) 9,510,291 -- Retroactive retirement of treasury stock..... 200,000 (200,000) Retroactive effect of stock split........... 294 (4,500) 4,500 Advances on note receivable from stockholder, net...... (199,179) Net income............. 2,403,772 ------ ------- ------ ----------- --------- ----------- -------- Balance at September 30, 1994................... 300 300 4,500 (327,248) -- 11,714,063 -- Advances on note receivable from stockholder, net...... (44,180) Net income............. 2,514,858 (5,557) ------ ------- ------ ----------- --------- ----------- -------- Balance at September 30, 1995................... 300 300 4,500 (371,428) -- 14,228,921 (5,557) Advances on note receivable from stockholder, net...... (48,612) Net income............. 1,198,001 (8,787) ------ ------- ------ ----------- --------- ----------- -------- Balance at March 31, 1996................... 300 300 4,500 (420,040) -- 15,426,922 (14,344) Advances on note receivable from stockholder, net...... (105,566) Affiliate owner contributions......... 10,000 Affiliate owner distributions......... (174,600) Net income............. 3,158,727 7,501 ------ ------- ------ ----------- --------- ----------- -------- Balance at March 31, 1997................... 300 300 4,500 (515,606) -- 18,411,049 (6,843) Issuance of common stock (unaudited)..... 9,700 9,700 (9,700) Advances on note receivable from stockholder, net (unaudited)........... (590,388) Affiliate owner distributions (unaudited)........... (68,650) Net income (unaudited). 4,945,690 (66,691) ------ ------- ------ ----------- --------- ----------- -------- Balance at December 31, 1997 (unaudited)....... 10,000 $10,000 $4,500 $(1,105,994) $ -- $23,278,389 $(73,534) ====== ======= ====== =========== ========= =========== ========
See accompanying notes. F-4 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED NINE MONTHS ENDED SEPTEMBER 30, SIX MONTHS YEAR ENDED DECEMBER 31, ------------------------ ENDED MARCH MARCH 31, -------------------------- 1994 1995 31, 1996 1997 1996 1997 ----------- ----------- ----------- ------------ ------------ ------------ (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income............. $ 2,403,772 $ 2,514,858 $ 1,198,001 $ 3,158,727 $ 3,033,229 $ 4,945,690 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......... 3,314,465 3,938,456 2,422,932 7,583,689 5,446,164 7,898,802 Deferred income taxes.. 672,080 676,782 667,412 1,151,456 1,048,873 1,835,040 Gain on sales of equipment............. (778,327) (1,274,170) (533,974) (1,543,192) (1,064,927) (1,767,358) Cumulative effect of change in method of accounting for income taxes................. (46,325) -- -- -- -- -- Change in assets and liabilities: Increase (decrease) in: Accounts receivable, net................. (1,163,341) (43,024) 670,789 (1,853,187) (3,004,185) (4,309,219) Unbilled receivables. -- -- -- -- -- (1,075,209) Inventory............ (91,367) (357,333) (741,329) 177,438 (393,457) (675,639) Prepaid expenses and other assets........ (740,966) (92,290) 179,547 (584,753) 111,402 560,606 Increase (decrease) in: Accounts payable, accrued expenses and other liabilities... 213,105 949,842 402,186 473,300 129,992 3,559,049 ----------- ----------- ----------- ------------ ------------ ------------ Total adjustments... 1,379,324 3,798,263 3,067,563 5,404,751 2,273,862 6,026,072 Net cash provided by operating activities......... 3,783,096 6,313,121 4,265,564 8,563,478 5,307,091 10,971,762 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from the sale of property and equipment............. 2,715,240 4,498,860 3,511,441 5,223,214 3,662,918 6,076,640 Purchase of property and equipment......... (2,497,803) (4,978,090) (3,789,714) (3,146,679) (333,516) (5,572,825) Advances on loan receivable-- stockholder........... (304,436) (248,462) (99,555) (389,594) (293,310) (697,153) Repayments on loan receivable-- stockholder........... 105,257 204,282 50,943 284,028 158,829 106,765 Advances on loan receivable--related party................. (13,000) -- (531,466) (759,690) (358,798) (246,543) Repayments on loan receivable--related party................. 10,174 7,128 3,673 21,402 15,401 34,674 Advances on note receivable............ -- (48,322) -- (77,851) -- -- Repayments on note receivable............ (126,668) 3,283 2,554 6,255 4,632 31,128 Acquisition of subsidiary............ -- (866,700) -- -- -- -- Payments for intangibles........... -- -- -- (1,521,984) (1,521,984) (977,583) ----------- ----------- ----------- ------------ ------------ ------------ Net cash provided by (used by) investing activities.......... (111,236) (1,428,021) (852,124) (360,899) 1,334,172 (1,244,897) CASH FLOWS FROM FINANCING ACTIVITIES: Affiliate owner distributions......... -- -- -- (174,600) -- (68,650) Affiliate owner contributions......... -- -- -- 10,000 10,000 -- Borrowings on debt obligations........... 161,297 736,330 2,083,097 23,048,203 16,018,625 22,959,059 Principal payments on debt obligations...... (3,932,202) (5,601,158) (5,234,451) (30,978,715) (22,599,866) (32,586,962) ----------- ----------- ----------- ------------ ------------ ------------ Net cash used by financing activities.......... (3,770,905) (4,864,828) (3,151,354) (8,095,112) (6,571,241) (9,696,553) Equity translation...... -- (5,557) (8,787) 7,501 7,569 (66,691) ----------- ----------- ----------- ------------ ------------ ------------ Net increase (decrease) in cash................ (99,045) 14,715 253,299 114,968 77,591 (36,379) CASH--BEGINNING OF PERIOD................. 115,259 16,214 30,929 284,228 284,228 399,196 ----------- ----------- ----------- ------------ ------------ ------------ CASH--END OF PERIOD..... $ 16,214 $ 30,929 $ 284,228 $ 399,196 $ 361,819 $ 362,817 =========== =========== =========== ============ ============ ============
See accompanying notes. F-5 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 1994 AND 1995, AND AS OF AND FOR THE SIX MONTHS ENDED MARCH 31, 1996 AND AS OF AND FOR THE YEAR ENDED MARCH 31, 1997 (THE INFORMATION AS OF DECEMBER 31, 1997 AND FOR THE NINE MONTHS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION AND COMBINATION The accompanying financial statements include the financial statements of Access Rentals, Inc. (the "Parent"), Access Lift Equipment, Inc. (the "Subsidiary") which was acquired in February 1995 and Reinhart Leasing LLC (the "Affiliate"). The Affiliate, which has common ownership to the Parent, was formed on June 26, 1996. The accompanying financial statements include the financial statements of the Parent for the years ended September 30, 1994 and 1995, as of and for the six months ended March 31, 1996, as of and for the year ended March 31, 1997 and as of December 31, 1997 and for the nine months ended December 31, 1996 and 1997 and the financial statements of the Subsidiary for the seven months ended September 30, 1995, as of and for the three months ended December 31, 1995 (included in the financial statements for the six months ended March 31, 1996), as of and for the year ended December 31, 1996 (included in the financial statements for the year ended March 31, 1997) and the nine months ended December 31, 1996 and 1997. The consolidated financial statements have been combined with the financial statements of the Affiliate for the six months ended December 31, 1996 (included in the financial statements for the nine months ended December 31, 1996) as of and for the nine months ended March 31, 1997 and as of and for the nine months ended December 31, 1997. All material intercompany transactions and balances have been eliminated in consolidation and combination. BUSINESS Access Rentals, Inc. and Subsidiary (the Company) rents, sells and repairs aerial personnel lift equipment primarily to companies in the manufacturing and construction industries. Sales and rentals primarily occur in areas where the Company maintains offices, such as the states of New York, Minnesota, Tennessee, Indiana, New Jersey, Pennsylvania, Connecticut, South Carolina, Florida, Washington and in and around Toronto, Canada. The nature of the Company's business is such that short-term obligations are typically met by cash flow generated from long-term assets. Consequently, consistent with industry practice, the balance sheet is presented on an unclassified basis. Reinhart Leasing, LLC rents and sells aerial personnel lift equipment solely to Access Rentals, Inc. INTERIM FINANCIAL STATEMENTS The accompanying balance sheet at December 31, 1997, and the statements of income, stockholders' equity and cash flows for the nine month periods ended December 31, 1996 and 1997 are unaudited and have been prepared on the same basis as the audited financial statements included herein. In the opinion of management, such unaudited financial statements include all adjustments necessary to present fairly the information set forth therein, which consists solely of normal recurring adjustments. The results of operations for such interim periods are not necessarily indicative of results for the full year. ACCOUNTS RECEIVABLE It is the Company's policy to present accounts receivable net of an allowance for uncollectible accounts. At March 31, 1996 and 1997 and December 31, 1997, the balance of the allowance for uncollectible accounts amounted to $103,028, $228,885 and $380,000, respectively. INVENTORY Inventory consists of equipment and vehicles purchased for resale and equipment parts purchased for repairs and resale. Equipment is valued at the lower of cost or market, based on specific identification, and parts are valued using the average cost method. F-6 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Inventory amounted to:
MARCH 31, ----------------------- DECEMBER 1996 1997 31, 1997 ----------- ----------- ----------- (UNAUDITED) Equipment for resale.................. $ 1,371,741 $ 368,723 $ 842,295 Parts................................. 641,384 1,466,964 1,669,031 ----------- ----------- ----------- Total............................... $ 2,013,125 $ 1,835,687 $ 2,511,326 =========== =========== ===========
RENTAL EQUIPMENT Rental equipment is recorded at cost. Depreciation for rental equipment is computed using the straight-line method over an estimated six-year useful life with a 10% salvage value. PROPERTY AND EQUIPMENT Property and equipment is stated at cost and is being depreciated using the straight-line and declining balance methods over the estimated useful lives of the respective assets. The cost of normal maintenance and repairs is charged to expense as incurred, whereas expenditures which materially extend property lives are capitalized. When depreciable property is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in income. RENTAL REVENUE Rental revenue is recorded as earned under the operating method. ADVERTISING COSTS The Company advertises primarily through trade journals, trade associations and phone directories. All advertising costs are expensed as incurred. Advertising expenses amounted to approximately $7,706, $11,349, $6,717, $10,395, $6,454 and $26,982, for the years ended September 30, 1994 and 1995, six months ended March 31, 1996, year ended March 31, 1997, and nine months ended December 31, 1996 and 1997, respectively. OTHER ASSETS/AMORTIZATION During the year ended March 31, 1997 and the nine months ended December 31, 1997, the Company acquired assets of two companies. The acquisitions resulted in goodwill and covenants not-to-compete amounting to approximately $1,777,500 and $700,000, respectively, which are being amortized using the straight-line method over 15 years and 5 years, respectively. Total amortization expense amounted to $128,295, $85,528 and $158,905 for the year ended March 31, 1997 and the nine months ended December 31, 1996 and 1997, respectively. INCOME TAXES The provision for income tax is based on earnings reported for financial statement purposes, adjusted for transactions that do not enter into the computation of income taxes payable. The Parent, Subsidiary and Affiliate file separate tax returns. The Parent files tax returns in the United States and the Subsidiary files tax returns in Canada. The Affiliate is a limited liability company taxed as a partnership; therefore the members are taxed individually on the income of the Affiliate and a provision for taxes has not been made in the financial statements. F-7 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) CONCENTRATION OF CREDIT RISK Credit is granted to substantially all of the Parent's customers throughout the United States and the Subsidiary's customers throughout Canada. Management feels that adequate reserves for potential credit losses are maintained. FOREIGN CURRENCY TRANSLATION The Company conducts business through a subsidiary located in Canada. The Company regards the local currency of the subsidiary to be its functional currency; consequently, translation gains and losses of the foreign subsidiary are accumulated and reported as a separate component of stockholders' equity. Transaction gains and losses that arise from exchange rate fluctuations on the transactions denominated in a currency other than the local functional currency are included in the results of operations. USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. This affects the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. NOTE 2--RENTAL EQUIPMENT RENTAL EQUIPMENT Rental equipment and related accumulated depreciation consisted of the following:
MARCH 31, ----------------------- DECEMBER 1996 1997 31, 1997 ----------- ----------- ----------- (UNAUDITED) Rental equipment........................... $43,896,291 $66,007,890 $84,098,558 Less accumulated depreciation.............. 13,031,233 16,456,720 20,462,067 ----------- ----------- ----------- Rental equipment, net...................... $30,865,058 $49,551,170 $63,636,491 =========== =========== ===========
PROPERTY AND EQUIPMENT Property and equipment and related accumulated depreciation consisted of the following:
MARCH 31, --------------------- DECEMBER 31, 1996 1997 1997 ---------- ---------- ------------ (UNAUDITED) Land......................................... $ 182,969 $ 182,969 $ 182,969 Buildings and improvements................... 949,741 1,346,619 1,779,975 Office and shop equipment.................... 833,209 1,341,605 1,387,020 Transportation equipment..................... 2,573,492 4,425,156 5,393,695 Less accumulated depreciation................ 1,913,847 2,696,773 3,357,492 ---------- ---------- ---------- Property and equipment, net.................. $2,625,564 $4,599,576 $5,386,167 ========== ========== ==========
F-8 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 3--NET INVESTMENT IN SALES-TYPE LEASES The Company leases some of its rental equipment to customers under sales- type leases. The following summarizes the net investment in sales-type leases which are included in prepaid and other assets on the balance sheet:
MARCH 31, ------------------- DECEMBER 31, 1996 1997 1997 --------- --------- ------------ (UNAUDITED) Total minimum lease payments to be received.... $ 418,679 $ 573,127 $ 716,961 Less unearned interest income.................. 26,950 38,773 39,627 --------- --------- --------- Net investment in sales-type leases............ $ 391,729 $ 534,354 $ 677,334 ========= ========= =========
NOTE 4--DEBT Debt consists of the following:
MARCH 31, ----------------------- DECEMBER 31, 1996 1997 1997 ----------- ----------- ------------ (UNAUDITED) Lines-of-credit.......................... $ 2,130,195 $ 3,788,341 $ 3,828,370 Present value of capital lease obligations............................. 3,436,191 8,465,249 16,104,886 Various installment obligations collateralized by rental and transportation equipment. These notes bear interest ranging from 6%-9.8%, with repayment periods ranging from two to five years.............................. 12,030,127 18,913,002 23,965,117 Term loan payable to a bank, monthly payments of $50,500 including interest at 7.84%, maturing July, 2006. Collateralized by rental equipment...... 270,413 2,217,572 1,887,211 Term loan payable to a bank, requiring monthly principle payments of $79,511, plus interest at the prime rate plus 1.75%, or the sum of the LIBOR on the request day plus 1.75% (7.3125% at March 31, 1997), maturing July 2002. The loan is collateralized by rental equipment of the Affiliate.............. -- 5,088,735 4,325,469 Term loan payable to a bank, quarterly principal payments of $46,021, plus interest at 6%, maturing July 1999. Collateralized by rental equipment of the Parent.............................. 598,268 414,186 276,124 Subsidiary revolving term loan payable to a bank, monthly principal payments totaling Canadian $39,455, plus interest at Canadian prime rate plus 0.5%, (5.25% at March 31, 1997), maturing June 2000. Collateralized by equipment of Subsidiary and guaranteed by the Parent.................................. 608,502 878,339 1,116,680 Mortgage payable to third-party lender, monthly payments of $1,750 including interest at 9%, maturing January 1998. Collateralized by real property at 45 Center Street, Batavia, New York........ 35,398 16,813 1,738 ----------- ----------- ----------- Total debt........................... $19,109,094 $39,782,237 $51,505,595 =========== =========== ===========
F-9 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) BANK LINES-OF-CREDIT The Parent has revolving bank lines-of-credit amounting to $5,000,000 (increased to $6,000,000 on September 1, 1997), which are payable on demand, with interest due monthly at rates varying from 7.50% to 8.00% as of March 31, 1997. The agreements are collateralized by equipment and receivables of the Parent. The outstanding balance on these lines-of-credit agreements amounted to $3,788,341 at March 31, 1997. The Parent also has revolving term lines-of-credit available from various lending institutions which aggregate $63,700,000 as of March 31, 1997. The Company pays interest on the outstanding balances of these agreements at rates which ranged from 6.65% to 9.8% at March 31, 1997. The Subsidiary has a $500,000 (Canadian denomination) revolving line-of- credit available for operating cash requirements and a $2,400,000 (Canadian denomination) term line-of-credit available to finance up to 75% of the cost of equipment acquisitions. The operating line-of-credit is payable on demand, with interest due monthly at the Canadian prime rate of interest plus 0.25%, (5.00% at March 31, 1997). There was not an outstanding balance on the operating line-of-credit agreement as of March 31, 1997. Advances on the equipment line-of-credit are payable over 36 or 48 months, with interest due monthly at Canadian prime plus 0.50%, (5.25% at March 31, 1997). The outstanding balance on the equipment line-of-credit agreement was $878,339 (United States denomination) as of March 31, 1997. The line-of-credit agreements are collateralized by accounts receivable and personal property of the Subsidiary and are guaranteed by the Parent. Current maturities of long-term debt for each of the five years subsequent to March 31, 1997 are as follows:
CAPITAL DEBT LEASE OBLIGATIONS OBLIGATIONS TOTAL DEBT ----------- ----------- ----------- 1998.................................. $12,274,967 $2,283,984 $14,558,951 1999.................................. 7,097,078 2,168,855 9,265,933 2000.................................. 5,099,954 1,869,131 6,969,085 2001.................................. 3,002,236 1,379,399 4,381,635 2002.................................. 1,811,547 896,077 2,707,624 Thereafter............................ 2,031,206 1,492,772 3,523,978 ----------- ---------- ----------- Total payments........................ 31,316,988 10,090,218 41,407,206 Less interest amount.................. -- 1,624,969 1,624,969 ----------- ---------- ----------- Total debt.......................... $31,316,988 $8,465,249 $39,782,237 =========== ========== ===========
CAPITAL LEASE OBLIGATIONS The Company and Affiliate lease rental equipment under various agreements classified as capital leases based on the provisions of Statement of Financial Accounting Standards No. 13. The economic substance of the leases is that the Company is financing the acquisition of the equipment through the leases and, accordingly, they are recorded in the Company's assets and liabilities. These assets are stated on the balance sheet at their capitalized cost, less accumulated depreciation, of $4,115,887, $9,091,782 and $16,275,311 as of March 31, 1996 and 1997 and December 31, 1997, respectively. F-10 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) NOTE 5--OPERATING LEASES The Company leases building, shop and office space, and rental equipment under various long-term and short-term operating lease agreements. Rent expense under the agreements for the years ended September 30, 1994 and 1995, six months ended March 31, 1996, year ended March 31, 1997, and nine months ended December 31, 1996 and 1997 amounted to $328,892, $334,504, $174,189, $825,229, $758,883 and $1,086,219, respectively. The total future minimum rental payments required for noncancellable operating leases as of March 31, 1997 are as follows: 1998........................................................... $ 513,782 1999........................................................... 342,859 2000........................................................... 363,925 2001........................................................... 267,697 2002........................................................... 410,846 Thereafter..................................................... 80,785 ---------- Total...................................................... $1,979,894 ==========
NOTE 6--PROVISIONS FOR INCOME TAXES The Company has provided for income tax based on consolidated net income. Income tax expense is allocated to the Parent and Subsidiary based on the tax liability and expense relating to the respective taxing authorities. The provision for income taxes, calculated according to SFAS No. 109, "Accounting for Income Taxes", amounted to:
YEAR ENDED SIX MONTHS NINE MONTHS ENDED SEPTEMBER 30, ENDED YEAR ENDED DECEMBER 31, --------------------- MARCH 31, MARCH 31, ----------------------- 1994 1995 1996 1997 1996 1997 ---------- ---------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) Current: Federal income tax.... $ 651,914 $ 844,075 $ 336,022 $ 495,887 $ 699,193 $ 835,885 State income tax...... 338,000 296,054 114,774 93,415 268,000 301,000 Canadian business tax... -- 2,544 4,643 45,966 -- 2,108 ---------- ---------- ----------- ----------- ---------- ----------- Total current....... 989,914 1,142,673 455,439 635,268 967,193 1,138,993 Deferred: Federal income tax.... 577,859 455,576 336,121 866,666 849,733 1,320,725 State income tax...... 94,221 89,206 268,291 194,174 64,000 378,575 Canadian business tax... -- 132,000 63,000 90,616 135,140 135,740 ---------- ---------- ----------- ----------- ---------- ----------- Total deferred...... 672,080 676,782 667,412 1,151,456 1,048,873 1,835,040 ---------- ---------- ----------- ----------- ---------- ----------- Total provision for income taxes....... $1,661,994 $1,819,455 $ 1,122,851 $ 1,786,724 $2,016,066 $ 2,974,033 ========== ========== =========== =========== ========== ===========
Deferred taxes are recorded based on differences between the financial statement and tax basis of assets and liabilities. Temporary differences which give rise to a significant portion of deferred tax assets and liabilities F-11 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) were the result of book and tax depreciation and revenue recognition timing differences, allowance for uncollectible accounts, net operating loss carryforwards of the Subsidiary and certain tax credits. The Subsidiary has remaining Canadian net operating loss (NOL) carryforwards of approximately $415,000 as of March 31, 1997 and December 31, 1997. The NOL carryforwards begin to expire in 1998 and will be completely expired in 2001. Application of statutory tax rates to combined pretax income will not be representative of the provision for income taxes. As previously disclosed, the income of the Affiliate is taxed individually at the member level. NOTE 7--RELATED PARTY TRANSACTIONS Officer Loan--The chief executive officer and a stockholder maintains a floating loan with the Company. This loan is charged when personal expenditures are paid by the Company on behalf of the officer. A loan agreement exists between the parties, in which the Company charges interest of 8.5% on the average outstanding balance. The terms provide for the officer to make regular, periodic payments to reduce the outstanding balance. The balance outstanding at March 31, 1996 and 1997 and December 31, 1997 amounted to $420,040, $515,606 and $1,105,994, respectively. The amounts at March 31, 1997 and December 31, 1997 have been reduced in combination by the Affiliate's capital account. Loan Receivable--The Company has a loan receivable which represents cash advances made to companies owned by an employee and the stockholders. The Company charges interest on these loans at an annual rate of 8%. The balance outstanding at March 31, 1996 and 1997 and December 31, 1997 amounted to $1,121,814, $1,860,102 and $2,071,971, respectively. Operating Lease Agreement--The Company leases shop, warehouse space and aircraft from companies owned by an employee and the stockholders. The Company also leases rental equipment from the Affiliate, the effect of which has been eliminated in the combination of the financial statements. The leases are on a month to month basis and require monthly payments of $41,000 for the shop and warehouse space and $250,000 ($325,000 as of September 1, 1997) for rental equipment. The terms of the equipment lease with the Affiliate were modified during the nine months ended December 1997. Sale/Leaseback of Property--On March 31, 1996, the Company sold four buildings to a company owned by the stockholders for $1,725,000. Management estimated that the market value of the property approximated the net book value. The property is provided for in the operating lease, as disclosed above. NOTE 8--CASH FLOW DISCLOSURE INFORMATION For the years ended September 30, 1994 and 1995, six months ended March 31, 1996, year ended March 31, 1997, and nine months ended December 31, 1996 and 1997, total interest paid amounted to $660,902, $1,132,222, $676,546, $2,005,464, $1,447,752 and $2,120,907, respectively. For the years ended September 30, 1994 and 1995, six months ended March 31, 1996, year ended March 31, 1997, and nine months ended December 31, 1996 and 1997, total taxes paid amounted to $887,760, $1,516,861, $584,371, $1,045,652, $791,179 and $298,321, respectively. During the years ended September 30, 1994 and 1995, six months ended March 31, 1996, year ended March 31, 1997, and nine months ended December 31, 1996 and 1997, the Company and Affiliate purchased F-12 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) $7,368,661, $7,127,810, $7,968,504, $28,603,655, $27,336,255 and $21,237,266, respectively, of equipment which was financed. NOTE 9--RETIREMENT PLANS The Parent maintains a defined contribution retirement plan for non-union employees. The plan qualifies as a deferred compensation plan under Section 401(k) of the Internal Revenue Code. Company contributions are based on a 100% match of the employees' elective deferral up to 4%. The Parent also contributes to defined benefit pension plans for employees covered under six union contracts, Locals #15C, #103, #138, #542C, #825 and #832 of the International Union of Operating Engineers. A full description of the membership, benefits and employer and employee obligations to contribute to these plans are described in the Summary Plan Description and Annual Reports of the plans. The actuarial information needed to determine the liabilities and provide the current disclosure information necessary under FASB No. 87 was unavailable. Consequently, the financial statements for the years ended September 30, 1994 and 1995, six months ended March 31, 1996, year ended March 31, 1997 and nine months ended December 1996 and 1997, do not reflect the financial position, results of operations and expanded disclosures in accordance with FASB No. 87. The Subsidiary maintains a non-contributory pension plan, whereby the Subsidiary contributes 4% of employee compensation to the plan. In addition, the Subsidiary will contribute a 100% match of the employees' elective deferral up to a maximum of 2%. The cost of the plans for the years ended September 30, 1994 and 1995, six months ended March 31, 1996, the year ended March 31, 1997, and the nine months ended December 31, 1996 and 1997, amounted to approximately $151,669, $192,541, $110,857, $329,712, $149,568 and $162,150, respectively. NOTE 10--COMMITMENTS AND CONTINGENCIES Access Rentals, Inc. (Parent) guarantees debt obligations of the Subsidiary, Access Lift Equipment, Inc., the Affiliate, Reinhart Leasing, LLC, and another related company owned by the stockholders. At December 31, 1997, the Company had outstanding purchase orders for equipment in the amount of $4,240,564. NOTE 11--CHANGE IN METHOD OF ACCOUNTING AND PRIOR YEAR ADJUSTMENT The accompanying consolidated financial statements for the fiscal year ended September 30, 1994 have been retroactively restated as a result of management's change in method of accounting for rental income. In years prior to the change, the Company recorded revenue for the entire rental period of a contract upon billing. The change in accounting policy removes the portion of rental billings pertaining to periods subsequent to the reporting period. The effect of the restatement resulted in a $265,019 decrease to retained earnings at September 30, 1993. F-13 ACCESS RENTALS, INC. AND SUBSIDIARY AND AFFILIATE NOTES TO FINANCIAL STATEMENTS--(CONTINUED) A restatement of the September 30, 1994 consolidated statement of income is summarized as follows:
AS PREVIOUSLY REPORTED AS RESTATED ----------- ----------- Rental income.......................................... $14,730,347 $15,804,754 Income before taxes and cumulative effect of change in accounting principle.................................. 4,127,869 4,019,441 Provision for income taxes............................. 1,715,048 1,661,994 Income before cumulative effect of change in accounting principle............................................. 2,412,821 2,357,447 Cumulative effect of change in method of accounting for income taxes.......................................... 46,325 46,325 Net income............................................. $ 2,459,146 $ 2,403,772
NOTE 12--ACQUISITION OF SUBSIDIARY Effective February 26, 1995, the Company acquired 100% of the outstanding common stock of Access Lift Equipment, Inc., formerly Upright of Canada, Inc., for approximately $920,000. The acquisition, accounted for in accordance with Accounting Principles Board (APB) Opinion No. 16--Business Combinations, using the purchase method of accounting, has resulted in the inclusion of the operating results of the Subsidiary, from the date of acquisition, in the financial statements of the Company. NOTE 13--STOCKHOLDERS' EQUITY On December 30, 1997, Access Rentals, Inc. (Parent) retired 6 shares of treasury stock then issued its remaining 194 common shares with no par value. Also, on December 30, 1997, Access Rentals, Inc. (Parent) amended its certificate of incorporation to increase the number of authorized shares from 200 common with no par value to 100 Class A Voting common shares with a par value of $1 and 9,900 Class B Non-voting common shares with a par value of $1, effecting a stock split of 50 shares of new stock for each share of stock. The retirement of treasury stock and the stock split were given retroactive effect in the accompanying financial statements. At December 31, 1997 the following common stock shares were authorized, issued and outstanding: Class A Voting, $1 par value....................................... 100 Class B Non-voting, $1 par value................................... 9,900 ------ Total shares................................................... 10,000 ======
NOTE 14--SUBSEQUENT EVENTS On September 1, 1997, the Company and Affiliate acquired certain assets of a company engaged in primarily the same business as Access Rentals, Inc., with operations in Florida. The purchase price, including the covenant not-to- compete, amounted to approximately $4,988,850, for which the same amount of debt was incurred. During January 1998, the Company sold all real estate owned by the Company to a related party company. The sales price was determined based upon appraisals and approximated $605,000. On January 21, 1998, the Company, Affiliate and stockholders entered into a stock purchase agreement with United Rentals, Inc. (URI). Under the terms of the stock purchase agreement, URI purchased all of the issued and outstanding capital stock of the Company and substantially all of the assets of the Affiliate. Also, as part of the transaction all of the stock of Access Lift Equipment, Inc. (Subsidiary) was sold by Access Rentals, Inc., to United Rentals of Canada, Inc., a wholly-owned subsidiary of URI. NOTE 15--RECLASSIFICATIONS Certain reclassifications have been made to previously issued financial statements in order to conform them to current classifications. F-14 REPORT OF INDEPENDENT AUDITORS Board of Directors BNR Group of Companies We have audited the combined balance sheets of BNR Group of Companies as at March 31, 1996 and 1997 and the combined statements of earnings, stockholders' equity and cash flows for the years then ended. These combined financial statements are the responsibility of the companies' management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these combined financial statements present fairly, in all material respects, the combined financial position of BNR Group of Companies as at March 31, 1996 and 1997 and the results of their operations and their cash flows for the years then ended in accordance with generally accepted accounting principles in Canada. Generally accepted accounting principles in Canada vary in certain significant respects from generally accepted accounting principles in the United States. Application of generally accepted accounting principles in the United States would have affected results of operations for the years ended March 31, 1996 and 1997 and stockholders' equity as at March 31, 1996 and March 31, 1997 to the extent summarized in note 14 to the combined financial statements. /s/ KPMG Chartered Accountants Waterloo, Canada February 3, 1998 F-15 BNR GROUP OF COMPANIES COMBINED BALANCE SHEETS (AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
MARCH 31, MARCH 31, DECEMBER 31, 1996 1997 1997 --------- ----------- ------------ (UNAUDITED) ASSETS Current assets: Cash.................................... $ 45,817 $ 62,471 $ 36,157 Trade accounts receivable (note 2)...... 3,807,908 4,692,084 7,281,959 Inventories............................. 1,744,367 1,897,021 2,276,311 Income taxes recoverable................ -- 81,808 -- Prepaid expenses........................ 116,844 128,343 85,937 ----------- ----------- ----------- 5,714,936 6,861,727 9,680,364 Rental equipment (note 3)................. 8,668,609 10,593,547 13,211,100 Fixed assets (note 4)..................... 731,864 716,381 1,054,482 ----------- ----------- ----------- $15,115,409 $18,171,655 $23,945,946 =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Bank indebtedness (note 5).............. $ 120,373 $ 469,860 $ 1,469,042 Short-term borrowings (note 5).......... 1,428,176 1,407,830 1,752,252 Accounts payable........................ 1,950,163 1,957,643 2,081,720 Accrued liabilities..................... 946,688 686,351 433,945 Income taxes payable.................... 67,618 -- 475,417 Current portion of long-term debt (note 6)..................................... 1,618,749 2,390,758 3,233,715 ----------- ----------- ----------- 6,131,767 6,912,442 9,446,091 Long-term debt (note 6)................... 2,250,744 3,467,720 4,369,061 Redeemable shares (note 7)................ 4,534,975 4,424,975 4,424,975 Deferred income taxes..................... 681,518 975,570 1,385,392 Stockholders' equity: Share capital (note 8).................. 83,319 83,319 83,319 Retained earnings....................... 1,433,086 2,307,629 4,237,108 ----------- ----------- ----------- 1,516,405 2,390,948 4,320,427 ----------- ----------- ----------- $15,115,409 $18,171,655 $23,945,946 =========== =========== ===========
See accompanying notes to combined financial statements. F-16 BNR GROUP OF COMPANIES COMBINED STATEMENTS OF EARNINGS (AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
NINE MONTHS NINE MONTHS YEAR ENDED YEAR ENDED ENDED ENDED MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, 1996 1997 1996 1997 ---------- ---------- ------------ ------------ (UNAUDITED) (UNAUDITED) Revenues: Rental revenue............. $ 9,286,562 $10,873,631 $ 9,333,864 $11,481,757 Sales of equipment, parts and supplies.............. 12,276,498 15,829,146 12,292,494 15,836,495 Other...................... 847,000 788,306 682,980 757,443 ----------- ----------- ----------- ----------- 22,410,060 27,491,083 22,309,338 28,075,695 Cost of revenues: Cost of equipment rentals, excluding equipment rental depreciation.............. 4,352,621 5,277,966 4,103,508 5,282,162 Depreciation on rental equipment................. 1,609,690 1,936,254 1,451,671 1,715,542 Cost of sales, equipment, parts and supplies........ 8,883,214 11,818,715 9,303,777 11,832,825 ----------- ----------- ----------- ----------- 14,845,525 19,032,935 14,858,956 18,830,529 ----------- ----------- ----------- ----------- Gross profit................. 7,564,535 8,458,148 7,450,382 9,245,166 Selling, general and adminis- tration..................... 5,728,380 6,386,710 4,528,911 5,623,444 Non-rental depreciation...... 71,748 78,354 56,903 123,246 ----------- ----------- ----------- ----------- Operating earnings........... 1,764,407 1,993,084 2,864,568 3,498,476 Interest expense............. 565,106 691,559 514,503 517,347 ----------- ----------- ----------- ----------- Earnings before income taxes. 1,199,301 1,301,525 2,350,065 2,981,129 Income taxes (note 9): Current.................... 245,436 132,930 480,220 637,328 Deferred................... 118,677 294,052 288,251 409,822 ----------- ----------- ----------- ----------- 364,113 426,982 768,471 1,047,150 ----------- ----------- ----------- ----------- Net earnings................. $ 835,188 $ 874,543 $ 1,581,594 $ 1,933,979 =========== =========== =========== ===========
See accompanying notes to combined financial statements. F-17 BNR GROUP OF COMPANIES COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
SHARE RETAINED CAPITAL EARNINGS TOTAL ------- ---------- ---------- Balances, at March 31, 1995..................... $83,319 $ 597,898 $ 681,217 Net earnings.................................... -- 835,188 835,188 ------- ---------- ---------- Balances, at March 31, 1996..................... 83,319 1,433,086 1,516,405 Net earnings.................................... -- 874,543 874,543 ------- ---------- ---------- Balances, at March 31, 1997..................... 83,319 2,307,629 2,390,948 Net earnings (unaudited)........................ -- 1,933,979 1,933,979 Dividends (unaudited)........................... -- (4,500) (4,500) ------- ---------- ---------- Balances, at December 31, 1997 (unaudited)...... $83,319 $4,237,108 $4,320,427 ======= ========== ==========
See accompanying notes to combined financial statements. F-18 BNR GROUP OF COMPANIES COMBINED STATEMENTS OF CASH FLOWS (AMOUNTS EXPRESSED IN CANADIAN DOLLARS)
NINE MONTHS NINE MONTHS YEAR ENDED YEAR ENDED ENDED ENDED MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, 1996 1997 1996 1997 ---------- ---------- ------------ ------------ (UNAUDITED) (UNAUDITED) Cash flows from operating activities: Net earnings............... $ 835,188 $ 874,543 $ 1,581,594 $ 1,933,979 Items not involving cash: Depreciation and amorti- zation.................. 1,681,438 2,014,608 1,508,574 1,838,788 Gain on disposal of rental equipment........ (639,271) (839,394) (725,213) (764,999) Gain on disposal of fixed assets.................. (44,016) -- -- -- Deferred income taxes.... 118,677 294,052 288,251 409,822 Change in operating assets: Accounts receivable...... (894,464) (884,176) (2,814,394) (2,589,875) Inventories.............. (613,126) (152,654) (186,602) (379,290) Prepaid expenses......... (63,687) (11,499) 3,516 42,406 Accounts payable......... 408,768 7,480 (209,735) 124,077 Accrued liabilities...... 387,747 (260,337) (600,645) (252,406) Income taxes............. 9,712 (149,426) 338,842 557,225 ----------- ----------- ----------- ----------- 1,186,966 893,197 (815,812) 919,727 Cash flows from investing activities: Purchase of rental equip- ment.................... (5,523,247) (7,355,356) (6,419,981) (7,976,473) Proceeds on disposal of rental equipment........ 2,900,664 4,333,558 3,489,908 4,408,377 Purchase of fixed assets. (91,794) (62,871) (50,489) (461,347) Proceeds on disposal of fixed assets............ 52,648 -- -- -- ----------- ----------- ----------- ----------- (2,661,729) (3,084,669) (2,980,562) (4,029,443) Cash flows from financing activities: Net advance (repayment) of bank indebtedness.... 23,618 349,487 1,256,010 344,422 Net borrowings (repayment) on short- term borrowings......... 188,093 (20,346) 338,414 999,182 Borrowings on long-term debt.................... 2,172,871 2,894,173 3,066,515 2,998,826 Payments on long-term debt.................... (673,795) (905,188) (783,925) (1,254,528) Repayment of shareholder loans................... (41,180) -- -- -- Issuance of share capi- tal..................... 69,520 -- -- -- Dividends................ -- -- -- (4,500) Redemption of Class B special shares.......... (229,725) (110,000) (110,000) -- ----------- ----------- ----------- ----------- 1,509,402 2,208,126 3,767,014 3,083,402 ----------- ----------- ----------- ----------- Increase (decrease) in cash...................... 34,639 16,654 (29,360) (26,314) Cash, beginning of period.. 11,178 45,817 45,817 62,471 ----------- ----------- ----------- ----------- Cash, end of period........ $ 45,817 $ 62,471 $ 16,457 $ 36,157 =========== =========== =========== =========== Supplemental Schedule of Cash Flow Information: Cash paid during the pe- riod for interest....... $ 565,106 $ 691,559 $ 514,503 $ 517,347 Cash paid during the pe- riod for income taxes... 231,521 332,816 183,030 143,383 =========== =========== =========== ===========
See accompanying notes to combined financial statements. F-19 BNR GROUP OF COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS (AMOUNTS EXPRESSED IN CANADIAN DOLLARS) MARCH 31, 1996 AND 1997 (The information as at December 31, 1997 and for the nine months ended December 31, 1996 and 1997 is unaudited) 1. SIGNIFICANT ACCOUNTING POLICIES: (a) Basis of presentation: The accompanying combined financial statements are presented in accordance with accounting principles generally accepted in Canada (Canadian GAAP). The combined financial statements include the accounts of BNR Equipment Limited (BNR Kitchener), 754643 Ontario Limited (BNR Ottawa), 650310 Ontario Limited (BNR Barrie), 766903 Ontario Inc. (BNR Owen Sound) and BNR Equipment, Inc. (BNR Amherst). As more fully described in note 15, on January 22, 1998, all of the aforementioned companies were acquired by United Rentals, Inc. in a single common transaction and, accordingly, these financial statements have been prepared on a combined basis. Each of the companies rents and sells industrial supplies and power equipment. All significant intercompany accounts and transactions have been eliminated on combination. These financial statements are prepared on the basis of their predecessor historical costs and do not include any adjustments that may result on the acquisition of the BNR Group of Companies by United Rentals, Inc. as more fully described in note 15. (b) Interim financial statements: The accompanying combined balance sheets and statements of stockholders' equity at December 31, 1997 and the combined statements of earnings, stockholders' equity and cash flows for the nine month periods ended December 31, 1996 and 1997 are unaudited and have been prepared on a basis that is consistent with the audited combined financial statements included herein. In the opinion of management, such unaudited combined financial statements include all adjustments necessary to present fairly the information set forth therein, which consist solely of normal recurring adjustments. The results of operations for such interim periods are not necessarily indicative of results for the full year. (c) Revenue recognition: Revenue related to the sale of industrial supplies and power equipment is recognized at the point of sale. Revenue related to the rental of industrial power equipment is recognized ratably over the contract term. The companies generally rent equipment under short-term agreements of one month or less. (d) Inventories: Inventories consisting primarily of power tools, industrial supplies and power equipment are valued at the lower of cost (first-in, first-out basis) and net realizable value. (e) Foreign currency translation: Monetary assets and liabilities of the companies, which are denominated in foreign currencies, are translated into Canadian dollars at exchange rates prevailing at the balance sheet date. Exchange gains and losses resulting from the translation of these amounts are reflected in the combined statement of earnings in the period in which they occur. F-20 BNR GROUP OF COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS EXPRESSED IN CANADIAN DOLLARS) (f) Rental equipment, fixed assets and depreciation: Rental equipment and fixed assets are stated at acquisition cost. Depreciation is provided using the following methods and annual rates:
ASSET BASIS RATE ----- ----- ---- Rental equipment...................................... Declining balance 15% Buildings............................................. Declining balance 5% Office and shop equipment............................. Declining balance 20% Signs................................................. Declining balance 20% Vehicles.............................................. Declining balance 20% Parking lot........................................... Declining balance 8% Leasehold improvements................................ Straight-line 20%
(g) Deferred income taxes: The companies account for income taxes on the deferred tax allocation method. Under this method, timing differences between reported and taxable income result in provisions for taxes not currently payable. Such timing differences arise principally as a result of claiming depreciation and other amounts for tax purposes at amounts differing from those charged to income. (h) Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. TRADE ACCOUNTS RECEIVABLE: Trade accounts receivable are net of allowances for doubtful accounts of $nil at March 31, 1996, $68,966 at March 31, 1997 and $215,591 at December 31, 1997. 3. RENTAL EQUIPMENT:
MARCH 31, MARCH 31, DECEMBER 31, 1996 1997 1997 ----------- ----------- ------------ (UNAUDITED) Rental equipment........................ $18,335,170 $22,133,208 $26,466,262 Less accumulated depreciation........... 9,666,561 11,539,661 13,255,162 ----------- ----------- ----------- $ 8,668,609 $10,593,547 $13,211,100 =========== =========== ===========
F-21 BNR GROUP OF COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS EXPRESSED IN CANADIAN DOLLARS) 4. FIXED ASSETS:
MARCH 31, MARCH 31, DECEMBER 31, 1996 1997 1997 ---------- ---------- ------------ (UNAUDITED) Land..................................... $ 201,600 $ 201,600 $ 201,600 Buildings................................ 617,977 617,977 623,066 Office and shop equipment................ 319,208 337,252 363,774 Signs.................................... 17,426 19,163 23,884 Vehicles................................. 53,020 53,020 388,361 Parking lot.............................. -- 7,560 26,448 Leasehold improvements................... 145,646 181,176 251,962 ---------- ---------- ---------- 1,354,877 1,417,748 1,879,095 Less accumulated depreciation and amorti- zation.................................. 623,013 701,367 824,613 ---------- ---------- ---------- $ 731,864 $ 716,381 $1,054,482 ========== ========== ==========
5. BANK INDEBTEDNESS AND SHORT-TERM BORROWINGS: Bank indebtedness and short-term borrowings bear interest rates between prime plus .50% to prime plus .75% and are secured by a general assignment of book debts, security agreement over all inventories, first collateral mortgages and demand debenture over land and buildings, a fixed charge and a chattel mortgage over certain equipment and an assignment of fire insurance over buildings and equipment. 6. LONG-TERM DEBT:
MARCH 31, MARCH 31, DECEMBER 31, 1996 1997 1997 ---------- ---------- ------------ (UNAUDITED) Bank loans, various term loans with combined monthly payments of $123,078 (as at December 31, 1997) including interest ranging from prime plus 1% to prime plus 1.75% due from 1998 through 2001. Collateralized by certain equipment and fixed assets............ $1,662,704 $2,406,572 $2,021,641 Lien notes, various notes with combined monthly payments of $300,956 (as at December 31, 1997) including interest ranging from prime plus 1.25% to prime plus 2%, due from 1998 through 2001. Collateralized by specific equipment . 2,136,540 3,288,692 5,062,094 Other notes, various notes with combined monthly payments of $26,106 (as at December 31, 1997) including interest ranging from 2.9% to 10%, due from 1998 through 2000. Collateralized by specific equipment and vehicles.... 70,249 163,214 519,041 ---------- ---------- ---------- 3,869,493 5,858,478 7,602,776 Current portion of long-term debt...... 1,618,749 2,390,758 3,233,715 ---------- ---------- ---------- $2,250,744 $3,467,720 $4,369,061 ========== ========== ==========
F-22 BNR GROUP OF COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS EXPRESSED IN CANADIAN DOLLARS) 6. LONG-TERM DEBT (CONTINUED): Annual principal payments over each of the next four years are as follows:
MARCH 31, DECEMBER 31, 1997 1997 ----------- ------------ (UNAUDITED) 1998............ $ 2,390,758 $ 3,233,715 1999............ 1,878,097 2,696,223 2000............ 1,280,955 1,448,045 2001............ 308,668 224,793 ----------- ----------- $ 5,858,478 $ 7,602,776 =========== ===========
7. REDEEMABLE SHARES:
MARCH 31, MARCH 31, DECEMBER 31, 1996 1997 1997 ----------------- ----------------- ----------------- ------- (UNAUDITED) # $ # $ # $ ------- --------- ------- --------- ------- --------- BNR EQUIPMENT LIMITED (BNR KITCHENER) Authorized: Unlimited number of Class A special shares, non-voting, redeemable Unlimited number of Class B special shares, non-voting, redeemable Issued: Class B special shares.............. 875,975 875,975 765,975 765,975 765,975 765,975 754643 ONTARIO LIMITED (BNR OTTAWA) Authorized: Unlimited number of special shares, non- voting, redeemable Issued: Special shares....... 159,000 159,000 159,000 159,000 159,000 159,000 650310 ONTARIO LIMITED (BNR BARRIE) Authorized: Unlimited number of Class C special shares, non-voting, redeemable Unlimited number of Class D special shares, non-voting, redeemable Issued: Class C special shares.............. 1,000 2,315,000 1,000 2,315,000 1,000 2,315,000 Class D special shares.............. 185,000 185,000 185,000 185,000 185,000 185,000 766903 ONTARIO INC. (BNR OWEN SOUND) Authorized: Unlimited number of Class C special shares, non-voting, redeemable Issued: Class C special shares.............. 1,000 1,000,000 1,000 1,000,000 1,000 1,000,000 --------- --------- --------- 4,534,975 4,424,975 4,424,975 ========= ========= =========
F-23 BNR GROUP OF COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS EXPRESSED IN CANADIAN DOLLARS) 7. REDEEMABLE SHARES (CONTINUED) (a) Certain of the BNR Group of Companies have issued special shares, Class B special shares and Class D special shares which are redeemable at the holders option at $1 per share. Under Canadian generally accepted accounting principles, these shares are presented as liabilities in the combined financial statements at their redemption amounts. (b) Certain of the BNR Group of Companies have issued Class C special shares which are redeemable at the holders option at a fixed amount which is in excess of their stated capital amounts. Under Canadian generally accepted accounting principles, these Class C special shares are presented as liabilities in the combined financial statements at their redemption amounts. The excess of their redemption amounts over their paid-up capital amounts of $3,314,990 has been charged to retained earnings. (c) The special shares, Class B special shares, Class C special shares and Class D special shares have no fixed redemption date and are redeemable at the option of the holder. Dividends on these shares are discretionary. In the event of liquidation, dissolution, or wind up of the companies, holders of these shares are entitled to receive, in priority to all other classes, an amount equal to the redemption amount plus any declared and unpaid dividends. (d) Between May 8, 1995 and January 18, 1996, BNR Equipment Limited (BNR Kitchener) redeemed 229,725 Class B special shares for $229,725. Between April 18, 1996 and July 15, 1996, BNR Equipment Limited (BNR Kitchener) redeemed 110,000 Class B special shares for $110,000. F-24 BNR GROUP OF COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS EXPRESSED IN CANADIAN DOLLARS) 8. SHARE CAPITAL:
MARCH 31, MARCH 31, DECEMBER 31, 1996 1997 1997 ------------ ------------ ------------ ------- (UNAUDITED) # $ # $ # $ ----- ------ ----- ------ ----- ------ BNR EQUIPMENT LIMITED (BNR KITCHENER) Authorized: Unlimited number of common shares Issued: Common shares................. 6,000 13,693 6,000 13,693 6,000 13,693 754643 ONTARIO LIMITED (BNR OT- TAWA) Authorized: Unlimited number of common shares Issued: Common shares................. 100 100 100 100 100 100 650310 ONTARIO LIMITED (BNR BARRIE) Authorized: Unlimited number of Class A common shares................ Unlimited number of Class B convertible common shares Issued: Class B convertible common shares....................... 600 1 600 1 600 1 766903 ONTARIO INC. (BNR OWEN SOUND) Authorized: Unlimited number of Class A common shares................ Unlimited number of Class B convertible common shares Issued: Class B convertible common shares....................... 1,000 5 1,000 5 1,000 5 BNR EQUIPMENT INC. (BNR AMHERST) Authorized: Unlimited number of common shares Issued: Common shares................. 100 69,520 100 69,520 100 69,520 ------ ------ ------ 83,319 83,319 83,319 ====== ====== ======
The Class B convertible common shares are convertible into an equivalent number of Class A common shares for no additional consideration. F-25 BNR GROUP OF COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS EXPRESSED IN CANADIAN DOLLARS) 9. INCOME TAXES: The effective income tax rate differs from the statutory rate that would be obtained by applying the combined basic federal, state and provincial tax rate to earnings before income taxes. These differences result from the following items:
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, 1996 1997 1996 1997 --------- --------- ------------ ------------ (UNAUDITED) (UNAUDITED) Combined basic federal, state and provincial tax rate..... 44.6% 44.6% 44.6% 44.6% Increase (decrease) in income tax rate resulting from: Tax reductions to certain private companies........... (12.0) (9.9) (11.3) (10.0) Other permanent differences.. (2.2) (1.9) (.6) .5 ----- ---- ----- ----- Effective income tax rate.... 30.4% 32.8% 32.7% 35.1% ===== ==== ===== =====
10. COMMITMENTS: The companies are committed to payments under operating leases for equipment, vehicles and buildings. Annual payments over each of the next five years are as follows:
MARCH 31, DECEMBER 31, 1997 1997 ---------- ------------ (UNAUDITED) 1998............ $ 789,000 $ 620,000 1999............ 446,000 522,000 2000............ 275,000 361,000 2001............ 122,000 238,000 2002............ 54,000 148,000 ---------- ---------- $1,686,000 $1,889,000 ========== ==========
11. FINANCIAL INSTRUMENTS: The carrying value of the companies' trade accounts receivable, bank indebtedness, accounts payable, accrued liabilities, short-term borrowings and redeemable shares approximate their fair values due to their demand nature or relatively short periods to maturity. The fair value of the companies' long-term debt have been determined to be equal to their carrying values, as the current financing arrangements represent the borrowing rate presently available to the companies for loans with similar terms and maturities. 12. RELATED PARTY TRANSACTIONS: (a) The companies rent certain premises from officers and stockholders of the companies. The following are the amounts that have been expensed in each of the periods: March 31, 1997.................. $202,081 December 31, 1997 (unaudited)... 164,498
(b) Included in note 10 are operating lease commitments with a company controlled by certain stockholders: The following are the amounts that have been expensed in each of the periods: March 31, 1997................... $57,523 December 31, 1997 (unaudited).... 57,391
F-26 BNR GROUP OF COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS EXPRESSED IN CANADIAN DOLLARS) 13. NATURE OF OPERATIONS AND SEGMENT INFORMATION: The companies only significant activity is the rental and sale of industrial supplies and power equipment. Geographically segmented information is as follows:
CANADA UNITED STATES TOTAL MARCH 31, MARCH 31, MARCH 31, ----------------------- --------------------- ----------------------- YEAR ENDED 1996 1997 1996 1997 1996 1997 ------------------------ ----------- ----------- --------- ---------- ----------- ----------- Revenues................ $21,812,899 $24,746,282 $ 597,161 $2,744,801 $22,410,060 $27,491,083 Operating earnings (loss)................. 1,922,641 1,996,754 (158,234) (3,670) 1,764,407 1,993,084 Identifiable net assets. 1,307,530 1,821,554 208,875 569,394 1,516,405 2,390,948
CANADA UNITED STATES TOTAL DECEMBER 31, DECEMBER 31, DECEMBER 31, ------------ ------------- ------------ NINE MONTHS ENDED 1997 1997 1997 ------------------------------------- ------------ ------------- ------------ (UNAUDITED) (UNAUDITED) (UNAUDITED) Revenues............................. $24,447,526 $3,628,169 $28,075,695 Operating earnings................... 3,137,274 361,202 3,498,476 Identifiable net assets.............. 3,251,422 1,069,005 4,320,427
14. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: The companies follow Canadian generally accepted accounting principles which are different in some respects from those applicable in the United States. (a) Since redemption of the shares described in note 7 is outside the control of the companies, the shares are classified as liabilities under Canadian GAAP. For U.S. GAAP purposes, such redeemable shares can be classified outside stockholders' equity and below liabilities. This classification difference has no impact on net income or stockholders' equity for U.S. GAAP purposes. (b) The income tax provision is based on the deferral method and adjustments are generally not made for changes in income tax rates. Under U.S. GAAP, deferred tax liabilities are measured using the enacted tax rate expected to apply to taxable income in the periods in which the deferred tax liability is expected to be settled. The deferred income tax liability under U.S. GAAP as compared to Canadian GAAP consists of the following temporary differences:
YEAR YEAR NINE MONTHS ENDED ENDED ENDED MARCH 31, MARCH 31, DECEMBER 31, 1996 1997 1997 ---------- ---------- ------------ (UNAUDITED) Rental Equipment and Fixed Assets-- Tax depreciation in excess of book depreciation-- For U.S. GAAP........................... $1,257,257 $1,518,790 $1,833,228 For Canadian GAAP....................... 681,518 975,570 1,385,392
(c) The following table presents a reconciliation of net earnings from Canadian GAAP to U.S. GAAP:
YEAR YEAR NINE MONTHS NINE MONTHS ENDED ENDED ENDED ENDED MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, 1996 1997 1996 1997 --------- --------- ------------ ------------ (UNAUDITED) (UNAUDITED) Net earnings under Canadian GAAP......................... $835,188 $874,543 $1,581,594 $1,933,979 Income tax adjustment under the asset and liability method....................... (66,853) 32,519 56,922 95,384 -------- -------- ---------- ---------- Net earnings under U.S. GAAP.. $768,335 $907,062 $1,638,516 $2,029,363 ======== ======== ========== ==========
F-27 BNR GROUP OF COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (AMOUNTS EXPRESSED IN CANADIAN DOLLARS) 14. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED): (d) The following table presents stockholders' equity under U.S. GAAP:
YEAR YEAR NINE MONTHS ENDED ENDED ENDED MARCH 31, MARCH 31, DECEMBER 31, 1996 1997 1997 ---------- ---------- ------------ (UNAUDITED) Stockholders' equity under Canadian GAAP.................................. $1,516,405 $2,390,948 $4,320,427 Income tax adjustment under the asset and liability method.................. (575,739) (543,220) (447,836) Stockholders' equity under U.S. GAAP... 940,666 1,847,728 3,872,591
15. SUBSEQUENT EVENT: On January 22, 1998, all of the outstanding capital stock was acquired by United Rentals, Inc. All of the shares described in note 7 and all of the shares described in note 8, except for the shares of the U.S. company BNR Equipment, Inc. (BNR Amherst) were cancelled and these Canadian companies of the BNR Group of Companies amalgamated with United Rentals of Canada, Inc. on January 30, 1998. Subsequent to December 31, 1997 and prior to the acquisition by United Rentals, Inc., land and buildings with a carrying value of approximately $500,000 were acquired by certain of the BNR Group of Companies' stockholders for cash of $665,000 which was used by the companies to repay the companies' debt. At the same time, the companies entered into operating lease agreements with the stockholders with respect to these land and buildings. F-28 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Mission Valley Rentals, Inc. We have audited the balance sheets of Mission Valley Rentals, Inc. as of June 30, 1996 and 1997 and the related statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mission Valley Rentals, Inc. at June 30, 1996 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP MetroPark, New Jersey January 23, 1998 F-29 MISSION VALLEY RENTALS, INC. BALANCE SHEETS
JUNE 30 --------------------- DECEMBER 31, 1996 1997 1997 ---------- ---------- ------------ (UNAUDITED) ASSETS ------ Cash........................................ $ 144,491 $ 527,922 $ 505,541 Accounts receivable, net.................... 470,736 662,006 721,252 Inventory................................... 37,539 58,949 88,965 Rental equipment, net....................... 3,004,111 5,158,789 5,667,659 Property and equipment, net................. 124,597 155,001 138,343 Prepaid expenses and other assets........... 34,850 180,875 165,599 Intangible assets, net...................... 776,003 765,841 ---------- ---------- ---------- Total assets............................ $3,816,324 $7,519,545 $8,053,200 ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Liabilities: Accounts payable, accrued expenses and other liabilities........................ $ 246,536 $ 404,689 $ 805,462 Income taxes payable...................... 53,303 (54,283) Debt...................................... 1,512,074 5,102,143 5,536,280 Deferred income taxes..................... 188,774 319,869 235,744 ---------- ---------- ---------- Total liabilities....................... 2,000,687 5,826,701 6,523,203 Commitments and contingencies Stockholders' equity: Common stock, no par value and $1.00 stated value, 10,000 shares authorized, 1,000 issued and outstanding at June 30, 1996 and 1997, and December 31, 1997..... 1,000 1,000 1,000 Retained earnings......................... 1,814,637 1,691,844 1,528,997 ---------- ---------- ---------- Total stockholders' equity.............. 1,815,637 1,692,844 1,529,997 ---------- ---------- ---------- Total liabilities and stockholders' equity................................. $3,816,324 $7,519,545 $8,053,200 ========== ========== ==========
See accompanying notes. F-30 MISSION VALLEY RENTALS, INC. STATEMENTS OF OPERATIONS
SIX MONTHS ENDED YEAR ENDED JUNE 30 DECEMBER 31 ---------------------- ---------------------- 1996 1997 1996 1997 ---------- ---------- ---------- ---------- (UNAUDITED) Revenues: Equipment rentals........... $4,851,942 $6,798,752 $3,365,276 $4,419,275 Sales of rental equipment... 96,987 413,481 346,540 74,642 Sales of parts and supplies. 399,156 558,034 264,193 329,496 ---------- ---------- ---------- ---------- Total revenues............ 5,348,085 7,770,267 3,976,009 4,823,413 Cost of revenues: Cost of equipment rentals, excluding depreciation..... 1,893,655 2,876,589 1,392,173 1,952,185 Depreciation of rental equipment.................. 738,229 1,599,457 586,675 733,558 Cost of rental equipment sales...................... 61,810 413,481 346,540 55,168 Cost of sales of parts and supplies................... 214,802 377,047 153,444 171,949 ---------- ---------- ---------- ---------- Total cost of revenues.... 2,908,496 5,266,574 2,478,832 2,912,860 ---------- ---------- ---------- ---------- Gross profit.................. 2,439,589 2,503,693 1,497,177 1,910,553 Selling, general and administrative expenses...... 1,640,442 2,222,524 1,086,303 1,926,386 Non-rental depreciation....... 25,355 30,154 15,117 16,658 ---------- ---------- ---------- ---------- Operating income (loss)....... 773,792 251,015 395,757 (32,491) Interest expense.............. 139,925 390,047 171,923 215,848 Other (income), net........... (58,767) (62,016) (31,956) (31,209) ---------- ---------- ---------- ---------- Income (loss) before provision (benefit) for income taxes 692,634 (77,016) 255,790 (217,130) Provision (benefit) for income taxes........................ 299,259 45,777 64,295 (54,283) ---------- ---------- ---------- ---------- Net income (loss)............. $ 393,375 $ (122,793) $ 191,495 $ (162,847) ========== ========== ========== ==========
See accompanying notes. F-31 MISSION VALLEY RENTALS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK -------------- RETAINED SHARES AMOUNTS EARNINGS ------ ------- ---------- Balance at July 1, 1995.............................. 1,000 $1,000 $1,421,262 Net income......................................... 393,375 ----- ------ ---------- Balance at June 30, 1996............................. 1,000 1,000 1,814,637 Net loss........................................... (122,793) ----- ------ ---------- Balance at June 30, 1997............................. 1,000 1,000 1,691,844 Net loss (unaudited)............................... (162,847) ----- ------ ---------- Balance at December 31, 1997 (unaudited)............. 1,000 $1,000 $1,528,997 ===== ====== ==========
See accompanying notes. F-32 MISSION VALLEY RENTALS, INC. STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED YEAR ENDED JUNE 30 DECEMBER 31 --------------------- ------------------- 1996 1997 1996 1997 --------- ---------- -------- --------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)................. $ 393,375 $ (122,793) $191,495 $(162,847) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization... 763,584 1,646,105 611,009 760,378 Gain on equipment sales......... (35,177) (19,474) Deferred taxes.................. 81,859 131,318 87,014 (84,125) Changes in assets and liabilities: Increase in accounts receivable. (81,581) (191,270) (206,289) (59,246) Increase in inventory........... (10,437) (21,410) (48,417) (30,016) (Decrease) increase in prepaid expenses and other assets...... 50,884 (146,248) (104,458) 15,276 Increase in accounts payable, accrued expenses and other liabilities.................... 119,054 158,153 65,881 400,773 (Decrease) increase in income taxes payable.................. 53,303 (53,303) 10,992 (54,283) --------- ---------- -------- --------- Total adjustments................. 941,489 1,523,345 415,732 929,283 --------- ---------- -------- --------- Cash provided by operating activities..................... 1,334,864 1,400,552 607,227 766,436 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of rental equipment...... (388,116) Proceeds from sale of rental equipment........................ 96,987 413,481 346,540 74,642 --------- ---------- -------- --------- Cash provided by (used in) investing activities........... (291,129) 413,481 346,540 74,642 CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on debt........ (957,424) (4,567,552) (741,982) (863,459) Principal payments on capital lease obligations................ (32,258) Borrowings under credit facility.. 3,169,208 --------- ---------- -------- --------- Cash used in financing activities..................... (957,424) (1,430,602) (741,982) (863,459) --------- ---------- -------- --------- Increase (decrease) in cash....... 86,311 383,431 211,785 (22,381) Cash balance at beginning of year........................... 58,180 144,491 144,491 527,922 --------- ---------- -------- --------- Cash balance at end of year..... $ 144,491 $ 527,922 $356,276 $ 505,541 ========= ========== ======== =========
See accompanying notes. F-33 MISSION VALLEY RENTALS, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 1996 AND 1997 (THE INFORMATION AS OF DECEMBER 31, 1997 AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1997 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Activity Mission Valley Rentals, Inc. (the "Company") rents, sells and repairs construction equipment for use by contractor, industrial and homeowner markets. The rentals are on a daily, weekly or monthly basis. The Company has four locations in Northern California and its principal market area is the entire Bay Area and the San Joaquin Valley. The nature of the Company's business is such that short-term obligations are typically met by cash flow generated from long-term assets. Consequently, consistent with industry practice, the balance sheets are presented on an unclassified basis. On September 1, 1996, the Company acquired for $2,320,000 a substantial amount of rental equipment and fixed assets from Rental World, Inc. and assumed all operations. The Company utilized the funds available under its line of credit to finance the purchase. The acquisition has been accounted for as a purchase and, accordingly, at such date the Company recorded the assets acquired at their estimated fair values. The acquired assets have been recorded at their estimated fair value at the date of the acquisition of $1,527,503 with the excess purchase price of $792,497 being recorded as goodwill. Interim Financial Statements The accompanying balance sheet at December 31, 1997 and the statements of income, stockholders' equity and cash flows for the six-month periods ended December 31, 1996 and 1997 are unaudited and have been prepared on the same basis as the audited financial statements included herein. In the opinion of management, such unaudited financial statements include all adjustments necessary to present fairly the information set forth therein, which consist solely of normal recurring adjustments. The results of operations for such interim period are not necessarily indicative of results for the full year. Inventory Inventory consists primarily of general replacement parts and fuel for the equipment and are stated at the lower of cost, determined under the first-in, first-out method, or market. Rental Equipment Rental equipment is recorded at cost. Depreciation for rental equipment is computed using the straight-line method over an estimated five-year useful life with a 10% salvage value. Ordinary maintenance and repair costs are charged to operations as incurred. Proceeds from the disposal and the related net book value of the equipment are recognized in the period of disposal and reported as revenue from sales of equipment and cost of sales of equipment, respectively, in the statements of operations. Property and Equipment Property and equipment is stated at cost. Depreciation of property and equipment is computed on the straight-line method over estimated useful lives of 5 to 10 years. F-34 MISSION VALLEY RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Ordinary maintenance and repair costs are charged to operations as incurred. The cost of assets sold, retired, or otherwise disposed of, and the related accumulated depreciation is eliminated from the accounts and any resulting gain or loss is included in operations. Intangible assets Intangible assets are recorded at cost and consist of goodwill, which is being amortized by the straight line method over its estimated useful life of forty years. Accumulated amortization at June 30, 1997 and December 31, 1997 is $16,494 and $26,656, respectively. Rental Revenue Rental revenue is recorded as earned under the operating method. Advertising Costs The Company advertises primarily through phone directories and the distribution of promotional items. All advertising costs are expensed as incurred. Advertising expenses amounted to approximately $63,800 and $104,500 in the years ended June 30, 1996 and 1997, respectively, and $52,000 and $42,000 for the six months ended December 31, 1996 and 1997, respectively. Income Taxes The Company uses the "liability method" of accounting for income taxes. Accordingly, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. CONCENTRATIONS OF CREDIT RISK The Company maintains cash balances with a quality financial institution and, consequently, management believes funds maintained there are secure. Concentrations of credit risk with respect to customer receivables are limited due to the large number of customers comprising the Company's customer base and its credit policy. 3. RENTAL EQUIPMENT Rental equipment and related accumulated depreciation consisted of the following:
JUNE 30 --------------------- DECEMBER 31, 1996 1997 1997 ---------- ---------- ------------ (UNAUDITED) Rental equipment....................... $6,384,287 $9,793,816 $10,454,616 Less accumulated depreciation.......... 3,380,176 4,635,027 4,786,957 ---------- ---------- ----------- Rental equipment, net.................. $3,004,111 $5,158,789 $ 5,667,659 ========== ========== ===========
F-35 MISSION VALLEY RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 4. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
JUNE 30 ----------------- DECEMBER 31, 1996 1997 1997 -------- -------- ------------ (UNAUDITED) Furniture and fixtures..................... $237,744 $273,686 $273,686 Leasehold improvements..................... 268,939 293,557 293,557 -------- -------- -------- 506,683 567,243 567,243 Less accumulated depreciation.............. 382,086 412,242 428,900 -------- -------- -------- Total.................................... $124,597 $155,001 $138,343 ======== ======== ========
5. DEBT AND CAPITAL LEASE OBLIGATIONS Debt and capital lease obligations consist of the following:
JUNE 30 --------------------- DECEMBER 31, 1996 1997 1997 ---------- ---------- ------------ (UNAUDITED) Ingersoll-Rand--Various notes with combined monthly payments of $3,514 including interest from 7.9% to 10%................. $ 53,296 $ 100,980 $ 167,744 Clark Equipment Credit Co.--Various notes with combined monthly payments of $5,217 including interest from 7.9% to 9.9%...... 35,443 194,304 156,550 Fremont Bank--Various notes with combined monthly payments of $52,073 including interest from 8.75% to 9.35%.............. 784,633 2,874,127 3,017,141 Ford Motor Credit--Various notes with combined monthly payments of $1,908 including interest from 8.75% to 9.25%.... 64,948 333,237 374,384 Ford New Holland--Various notes with combined monthly payments of $3,849 including interest 10.5%.................. 123,539 79,366 55,493 Orix Credit--Various notes with combined monthly payments of $3,864 including interest from 6.3% to 9.3%................ 10,264 71,764 51,293 Case Credit--Various notes with combined monthly payments of $20,216 including interest from 7.7% to 7.9%................ 209,397 567,827 486,188 Caterpillar Financial Services--Various notes with combined monthly payments of $3,615 including interest of 6.6%......... -- 150,936 133,994 Country Ford--Various leases with combined monthly payments of $6,685 including interest of 8.0%.......................... -- 351,683 325,197 John Deere--Three notes with combined monthly payments of $3,038 including interest of 4.9%.......................... 14,073 53,471 45,788 Associates--Various notes with combined monthly payments of $5,314 including interest from 7.5% to 8.98%............... 147,925 182,165 366,594 GMAC--One note with a monthly payment of $886 including interest of 9.99%.......... -- 20,627 16,254 AEL Lease--Two notes with a combined monthly payment of $2,736 including interest of 8.25%......................... 3,244 40,705 82,129 M.E.L. Enterprises--One note with a monthly payment of $2,595 including interest of 9.0%...................................... 65,312 38,984 24,909 AT&T Finance Corp.--Three notes with a combined monthly payment of $4,028 including interest of 7.35%............... -- -- 194,253 Other...................................... -- 41,967 38,369 ---------- ---------- ---------- $1,512,074 $5,102,143 $5,536,280 ========== ========== ==========
F-36 MISSION VALLEY RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Substantially all rental equipment collateralize the above notes. Subsequent to June 30, 1997, the Company paid $2,766,372 on certain amounts outstanding under the debt and capital lease agreements. The remaining balance of $2,335,771 is scheduled for payment in fiscal year 1998. 6. CAPITAL LEASES The Company leases certain rental equipment under leases accounted for as capital leases. The following is an analysis of the leased property.
JUNE 30 DECEMBER 31, 1997 1997 -------- ------------ (UNAUDITED) Rental equipment.................................... $383,874 $383,874 Less accumulated amortization....................... 39,688 59,688 -------- -------- Net............................................... $344,186 $324,186 ======== ========
Total depreciation expense on assets under capital leases was $39,688 and $20,000 in the year ended June 30, 1997 and for the six months ended December 31, 1997, respectively. The following is a schedule by years of future lease payments under capital leases together with the present value of the net minimum lease payments as of June 30, 1997: Year ended June 30, 1998........................................ $ 80,223 1999.......................................................... 80,233 2000.......................................................... 80,223 2001.......................................................... 80,223 2002.......................................................... 80,223 Thereafter.................................................... 33,426 -------- Net minimum lease payment....................................... 434,541 Less amount representing interest............................... 82,858 -------- Present value of net minimum lease payments..................... $351,683 ========
7. OPERATING LEASES The Company leases four store locations on long term leases. The Company is responsible for all operating expenses of the facilities including property taxes, assessments, insurance, repairs and maintenance. Rent expense under these leases totaled $216,725 and $334,725 for the years ended June 30, 1996 and 1997 and $166,363 and $169,963 for the six months ended December 31, 1996 and 1997, respectively. Under the lease agreements, aggregate rent is payable in monthly installments of approximately $28,560. Under certain lease agreements, the rent shall be increased annually to reflect the then current fair market rent for the premises, provided that each annual increase shall not exceed a specific percentage, as defined in the agreements, of the previous year's rental rate. Future minimum rent commitments are $342,725 each for years ended June 30, 1998 to June 30, 2004 and $217,563 and $21,000 for fiscal 2005 and 2006 respectively, provided there is no increase in fair market rent for the premises. F-37 MISSION VALLEY RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 8. INCOME TAXES The provision (benefit) for income taxes consists of the following:
JUNE 30 DECEMBER 31 ----------------- ------------------ 1996 1997 1996 1997 -------- -------- -------- -------- (UNAUDITED) Current:. Federal................................ $184,790 $(85,541) $(22,719) $ 29,842 State.................................. 32,610 -- -- -------- -------- -------- -------- 217,400 (85,541) (22,719) 29,842 Deferred:. Federal................................ 69,580 111,620 74,407 (71,507) State.................................. 12,279 19,698 12,607 (12,618) -------- -------- -------- -------- 81,859 131,318 87,014 (84,125) -------- -------- -------- -------- Total.................................. $299,259 $ 45,777 $ 64,295 $(54,283) ======== ======== ======== ========
Significant components of the Company's deferred tax liability at June 30, 1996 and 1997 and December 31, 1997 (unaudited) are as follows:
JUNE 30 ------------------ DECEMBER 31, 1996 1997 1997 -------- -------- ------------ (UNAUDITED) Difference in basis of accounting............. $(33,025) $(41,185) $ -- Cumulative tax depreciation in excess of book................ 188,774 319,869 235,744 -------- -------- -------- Deferred tax liability, net.................... $155,749 $278,684 $235,744 ======== ======== ========
Deferred tax assets at June 30, 1996 and 1997, are included in prepaid expenses and other assets on the accompanying balance sheet. 9. SUPPLEMENTAL CASH FLOW INFORMATION For the years ended June 30, 1996 and 1997 and the six months ended December 31, 1996 and 1997, total interest paid was $139,925 and $367,561 and $171,923 and $238,334, respectively. For the years ended June 30, 1996 and 1997 and the six months ended December 31, 1996 and 1997, total taxes paid were $120,000 and $127,611 and $84,358 and $ -- , respectively. For the years ended June 30, 1996 and 1997 and for the six months ended December 31, 1996 and 1997, the Company purchased $857,779, $3,844,300, $3,156,404 and $1,297,596, respectively, of equipment which was financed. For the year ended June 30, 1997 and the six months ended December 31, 1996, the Company entered into capital lease agreements for rental equipment totaling $383,874. 10. EMPLOYEE BENEFIT PLAN On January 1, 1996, the Company established a defined contribution 401(k) retirement plan which covers substantially all full time employees. The employees may contribute up to 15% of their weekly gross pay. The Company matches 20% of the employees contribution. Effective September 1997, the Company's match F-38 MISSION VALLEY RENTALS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) increased to 70%. Company contributions to the plan were $7,674, $15,211, $7,807 and $33,159 for the years ended June 30, 1996 and 1997 and for the six month periods ended December 31, 1996 and 1997, respectively. 11. SUBSEQUENT EVENT On January 13, 1998, the Company entered into a stock purchase agreement with United Rentals, Inc. ("United"). Under the terms of the stock purchase agreement, United purchased all of the issued and outstanding capital stock of the Company. F-39 UNITED RENTALS, INC. PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The accompanying unaudited pro forma consolidated balance sheet of the Company as of December 31, 1997 gives effect to the acquisitions of Access Rentals, Inc. and affiliates, BNR Equipment Ltd. and affiliates, and Mission Valley Rentals, Inc. (the "Acquired Companies") completed by the Company subsequent to such date and the financing of each such acquisition, as if all such transactions had occurred on December 31, 1997. The accompanying unaudited pro forma consolidated statements of operations of the Company for the year ended December 31, 1997 gives effect to the acquisition of each of the Acquired Companies and the financing thereof, as if all such transactions had occurred at the beginning of the period. The pro forma consolidated financial statements are based upon certain assumptions and estimates which are subject to change. These statements are not necessarily indicative of the actual results of operations that might have occurred, nor are they necessarily indicative of expected results in the future. The pro forma consolidated financial statements should be read in conjunction with the Company's historical Consolidated Financial Statements and related Notes filed as an Exhibit hereto. F-40 UNITED RENTALS, INC. PRO FORMA CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 (UNAUDITED)
UNITED ACCESS BNR GROUP MISSION VALLEY PRO FORMA PRO FORMA RENTALS, INC. RENTALS, INC. OF COMPANIES RENTALS, INC. ADJUSTMENTS CONSOLIDATED ------------- ------------- ------------ -------------- ------------ ------------ ASSETS Cash and cash equiva- lents................. $ 68,607,528 $ 362,817 $ 25,306 $ 505,541 $(69,451,192)(a) $ 50,000 Accounts receivable, net................... 7,494,636 10,557,474 5,096,644 721,252 23,870,006 Inventory............. 3,827,446 2,511,326 1,593,190 88,965 8,020,927 Rental equipment, net................... 33,407,561 63,636,491 9,246,449 5,667,659 (147,217)(b) 111,810,943 Property and equipment, net........ 2,272,683 5,386,167 738,032 138,343 (1,162,542)(c) 7,372,683 Intangible assets, net................... 50,533,736 2,212,368 765,841 53,630,338 (d) 107,142,283 Prepaid expenses and other assets.......... 2,966,822 3,934,801 60,147 165,599 7,127,369 ------------ ----------- ----------- ---------- ------------ ------------ Total Assets....... $169,110,412 $88,601,444 $16,759,768 $8,053,200 $(17,130,613) $265,394,211 ============ =========== =========== ========== ============ ============ LIABILITIES AND STOCK- HOLDERS' EQUITY Accounts payable...... $ 5,697,830 $ 7,160,756 $ 1,456,996 $ 805,462 $ 15,121,044 Debt.................. 1,074,474 51,505,595 7,575,767 5,536,280 $(64,617,642)(e) 67,674,130 66,599,656 (f) Accrued expenses and other liabilities..... 4,608,077 7,821,732 5,016,579 181,461 17,627,849 ------------ ----------- ----------- ---------- ------------ ------------ Total liabilities.. 11,380,381 66,488,083 14,049,342 6,523,203 1,982,014 100,423,023 ------------ ----------- ----------- ---------- ------------ ------------ Stockholders' equity Common stock......... 238,991 10,000 58,315 1,000 (69,315)(g) 242,394 3,403 (h) Additional paid-in capital.............. 157,457,418 (1,101,494) 1,101,494 (h) 164,695,172 7,237,754 (f) Retained earnings (deficit)............ 33,622 23,204,855 2,652,111 1,528,997 (27,385,963)(g) 33,622 ------------ ----------- ----------- ---------- ------------ ------------ Total stockholders' equity............. 157,730,031 22,113,361 2,710,426 1,529,997 (19,112,627) 164,971,188 ------------ ----------- ----------- ---------- ------------ ------------ Total liabilities and stockholders' equity............. $169,110,412 $88,601,444 $16,759,768 $8,053,200 $(17,130,613) $265,394,211 ============ =========== =========== ========== ============ ============
F-41 UNITED RENTALS, INC. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED)
UNITED RENTALS, ACCESS BNR GROUP MISSION VALLEY PRO FORMA PRO FORMA INC. RENTALS, INC. OF COMPANIES RENTALS, INC. ADJUSTMENTS CONSOLIDATED ------------------------ ------------ -------------- ----------- ------------ Revenues Equipment rentals........... $ 7,018,564 $42,316,423 $9,402,842 $7,852,751 $ 66,590,580 Sales of equipment and merchandise and other revenue..... 3,614,834 9,942,738 14,612,355 764,920 28,934,847 ----------- ----------- ---------- ------------ ------------ Total revenues.. 10,633,398 52,259,161 24,015,197 8,617,671 95,525,427 Cost of revenues Cost of equipment rentals, excluding depreciation...... 3,203,009 12,415,655 4,662,325 3,436,601 23,717,590 Rental equipment depreciation...... 1,038,947 8,480,016 1,588,710 1,746,340 $(3,231,083)(a) 9,622,930 Cost of sales and other operating expenses.......... 2,580,162 8,861,832 10,360,520 517,661 (57,068)(b) 22,263,107 ----------- ----------- ---------- ------------ ----------- ------------ Total cost of revenues........ 6,822,118 29,757,503 16,611,555 5,700,602 (3,288,151) 55,603,627 ----------- ----------- ---------- ------------ ----------- ------------ Gross profit....... 3,811,280 22,501,658 7,403,642 2,917,069 3,288,151 39,921,800 Selling, general and administrative expenses........... 3,311,669 10,439,727 5,402,206 3,062,607 (3,619,268)(c) 19,257,160 Non-rental 660,219 (d) depreciation and amortization....... 262,102 1,354,639 104,486 31,695 1,796,686 (e) 3,549,608 ----------- ----------- ---------- ------------ ----------- ------------ Operating income... 237,509 10,707,292 1,896,950 (177,233) 4,450,514 17,115,032 Interest expense... 454,072 3,700,559 501,428 433,972 (4,084,431)(f) 5,270,023 Other (income) 4,264,423 (g) expense, net....... (270,701) (809,146) 0 (61,269) 0 (1,141,116) ----------- ----------- ---------- ------------ ----------- ------------ Income before provision for income taxes....... 54,138 7,815,879 1,395,522 (549,936) 4,270,522 12,986,125 Provision for income taxes....... 20,516 2,744,691 458,302 (72,801) 2,043,743 (h) 5,194,451 ----------- ----------- ---------- ------------ ----------- ------------ Net income......... $ 33,622 $ 5,071,188 $ 937,220 $ (477,135) $ 2,226,779 $ 7,791,674 =========== =========== ========== ============ =========== ============ Basic Earnings per share.............. $ 0.00 $ 0.32 =========== ============ Diluted Earnings per share.......... $ 0.00 $ 0.30 =========== ============
The accompanying notes are an integral part of these pro forma consolidated financial statements F-42 UNITED RENTALS, INC. NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS 1. BACKGROUND United Rentals, Inc. was formed in September 1997 for the purpose of creating a large geographically diversified equipment rental company in the United States and Canada. The Company rents a broad array of equipment to a diverse customer base that includes construction industry participants, industrial companies, homeowners and other individuals. The Company also engages in related activities such as selling used rental equipment, acting as a distributor for certain new equipment, and selling related merchandise and parts. 2. HISTORICAL FINANCIAL STATEMENTS The historical financial data presented in these pro forma consolidated financial statements represent the financial position and results of operations of (i) the Company as of December 31, 1997 and for the period from inception to December 31, 1997 and (ii) each of the Acquired Companies as of and for the year ended December 31, 1997. Such data is derived from the respective financial statements of the Company and each of the Acquired Companies. The historical financial statements of the BNR Group of Companies are stated in Canadian dollars and prepared in accordance with Canadian generally accepted accounting principles. The historical financial data for the BNR Group of Companies presented in these pro forma consolidated financial statements reflect the translation of these statements into US dollars and have been adjusted to conform to US generally accepted accounting principles. 3. ACQUISITIONS The aggregate consideration paid by the Company for the Acquired Companies (the "Acquisition Consideration") was 78.7 million and consisted of approximately $71.4 million in cash, 370,321 shares of Common Stock, and warrants to purchase an aggregate of 30,000 shares of Common Stock. Based upon management's preliminary estimates, it is estimated that the carrying value of the assets and liabilities of the Acquired Companies approximates fair value, with the exception of rental equipment and other property and equipment, which required adjustments to reflect fair market value. The following table presents the allocation of purchase prices of each of the Acquired Companies:
ACCESS BNR GROUP RENTALS, OF MISSION VALLEY COMBINED INC. COMPANIES RENTALS, INC. TOTAL ----------- ----------- -------------- ------------ Purchase price.......... $46,488,114 $15,490,704 $16,695,545 $78,674,363 Net assets acquired..... 22,113,361 2,710,426 1,529,997 26,353,784 Fair value adjustments: Rental equipment...... (909,859) 1,061,690 (299,048) (147,217) Property and equipment............ (1,136,167) (38,032) 11,657 (1,162,542) ----------- ----------- ----------- ------------ Intangibles recognized.. $26,420,779 $11,756,620 $15,452,939 $53,630,338 =========== =========== =========== ============
F-43 4. PRO FORMA ADJUSTMENTS Balance sheet adjustments: a. Records the portion of the Acquisition Consideration and debt repayment paid from available cash on hand. b. Adjusts the carrying value of rental equipment to fair market value. c. Adjusts the carrying value of property and equipment to fair market value. d. Records the excess of the Acquisition Consideration over the estimated fair value of net assets acquired. e. Records the repayment of certain indebtedness of the Acquired Companies. f. Records the portion of the Acquisition Consideration and debt repayment funded by borrowing under the Company's Credit Facility. g. Records the elimination of the stockholders' equity of the Acquired Companies. h. Records the portion of the Acquisition Consideration paid in the form of Common Stock and warrants. Statement of operations adjustments: a. Adjusts the depreciation of rental equipment and other property and equipment based upon adjusted carrying values utilizing the following lives (subject to a salvage value ranging from 0 to 10%): Rental equipment.............................................. 2-9 years Other property and equipment.................................. 2-15 years
b. Adjusts the method of accounting for inventory at one of the Acquired Companies from the LIFO method to the FIFO method. c. Adjusts the compensation to former owners and executives of the Acquired Companies to current levels of compensation. d. Adjusts the lease expense for real estate utilized by the Acquired Companies to current lease agreements. e. Records the amortization of the excess of cost over net assets acquired attributable to the acquisitions of the Acquired Companies using an estimated life of 40 years. f. Eliminates interest expense related to the outstanding indebtedness of the Acquired Companies which was repaid by the Company. g. Records interest expense relating to the portion of the Acquisition Consideration funded through borrowing under the Company's Credit Facility using a rate per annum of 7.3%. h. Records a provision for income taxes at an estimated rate of 40%. 5. EARNINGS PER SHARE Earnings per share is calculated by dividing the net income by the weighted average outstanding shares during the period. The weighted average outstanding shares during the period is calculated as follows: Basic: Shares outstanding at December 31, 1997....................... 23,899,119 Shares issued for acquisitions................................ 370,321 ---------- 24,269,440 ========== Dilutive: Shares outstanding at December 31, 1997....................... 23,899,119 Shares issued for acquisitions................................ 370,321 Common stock equivalents (based on the initial public offering price of $13.50 per share)................................... 1,882,980 ---------- 26,152,420 ==========
F-44 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized on this 3rd day of February, 1998. UNITED RENTALS, INC. By: Michael J. Nolan ------------------------------- Name: Michael J. Nolan Title: Chief Financial Officer EXHIBIT INDEX 99.1 Consolidated financial statement of United Rentals, Inc. for the period from August 14, 1997 (inception) to December 31, 1997 EX-99.1 2 REPORT OF INDEPENDENT AUDITORS EXHIBIT 99.1 REPORT OF INDEPENDENT AUDITORS Board of Directors United Rentals, Inc. We have audited the accompanying consolidated balance sheet of United Rentals, Inc. as of December 31, 1997 and the related consolidated statements of operations, stockholders' equity and cash flows from August 14, 1997 (Inception) to December 31, 1997. These financial statements are the responsibility of the management of United Rentals, Inc. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Rentals, Inc. at December 31, 1997, and the results of its operations and its cash flows from August 14, 1997 (Inception) to December 31, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP MetroPark, New Jersey January 30, 1998 1 UNITED RENTALS, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 1997 ASSETS Cash and cash equivalents......................................... $ 68,607,528 Accounts receivable, net of allowance for doubtful accounts of $1,161,000....................................................... 7,494,636 Inventory......................................................... 3,827,446 Prepaid expenses and other assets................................. 2,966,822 Rental equipment, net............................................. 33,407,561 Property and equipment, net....................................... 2,272,683 Intangible assets, net of accumulated amortization of $241,000.... 50,533,736 ------------ $169,110,412 ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable................................................ $ 5,697,830 Debt............................................................ 1,074,474 Deferred taxes.................................................. 198,249 Accrued expenses and other liabilities.......................... 4,409,828 ------------ Total liabilities............................................. 11,380,381 Commitments and contingencies Stockholders' equity: Preferred stock--$.01 par value, 5,000,000 shares authorized, no shares issued and outstanding.................................. -- Common stock--$.01 par value, 75,000,000 shares authorized, 23,899,119 shares issued and outstanding....................... 238,991 Additional paid-in capital...................................... 157,457,418 Retained earnings............................................... 33,622 ------------ Total stockholders' equity.................................... 157,730,031 ------------ $169,110,412 ============
See accompanying notes. 2 UNITED RENTALS, INC. CONSOLIDATED STATEMENT OF OPERATIONS AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31, 1997 Revenues: Equipment rentals............................................... $ 7,018,564 Sales of rental equipment....................................... 1,011,071 Sales of new equipment, merchandise and other revenues.......... 2,603,763 ----------- Total revenues.................................................... 10,633,398 Cost of revenues: Cost of equipment rentals, excluding depreciation............... 3,203,209 Depreciation of rental equipment................................ 1,038,747 Cost of rental equipment sales.................................. 527,523 Cost of new equipment and merchandise sales and other operating costs.......................................................... 2,052,639 ----------- Total cost of revenues............................................ 6,822,118 ----------- Gross profit...................................................... 3,811,280 Selling, general and administrative expenses...................... 3,311,669 Non-rental depreciation and amortization.......................... 262,102 ----------- Operating income.................................................. 237,509 Interest expense.................................................. 454,072 Other (income) expense............................................ (270,701) ----------- Income before provision for income taxes.......................... 54,138 Provision for income taxes........................................ 20,516 ----------- Net income........................................................ $ 33,622 =========== Basic earnings per share.......................................... $ 0.00 =========== Diluted earnings per share........................................ $ 0.00 ===========
See accompanying notes. 3 UNITED RENTALS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31 , 1997
COMMON STOCK ------------------- ADDITIONAL NUMBER PAID-IN RETAINED OF SHARES AMOUNT CAPITAL EARNINGS ---------- -------- ------------ -------- Balance, August 14, 1997 (Incep- tion)............................... -- $ -- $ -- $ -- Issuance of common stock and war- rants............................. 23,899,119 238,991 157,457,418 Net income......................... 33,622 ---------- -------- ------------ ------- Balance, December 31, 1997........... 23,899,119 $238,991 $157,457,418 $33,622 ========== ======== ============ =======
See accompanying notes. 4 UNITED RENTALS, INC. CONSOLIDATED STATEMENT OF CASH FLOWS AUGUST 14, 1997 (INCEPTION) TO DECEMBER 31, 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net income....................................................... $ 33,622 Adjustments to reconcile net income to net cash provided by oper- ating activities: Depreciation and amortization.................................. 1,300,849 Gain on sale of rental equipment............................... (483,548) Deferred taxes................................................. (2,204) Changes in operating assets and liabilities: Accounts receivable.......................................... 609,529 Inventory.................................................... 631,484 Prepaid expenses and other assets............................ (755,545) Accounts payable............................................. 281,056 Accrued expenses and other liabilities....................... (512,507) ------------ Net cash provided by operating activities.................. 1,102,736 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of rental equipment.................................... (1,886,533) Purchases of property and equipment.............................. (819,557) Proceeds from sales of rental equipment.......................... 1,011,071 In-process acquisition costs..................................... (128,523) Purchase of other companies...................................... (51,451,634) ------------ Net cash used in investing activities...................... (53,275,176) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock and warrants, net of issuance costs.................................................. 154,788,110 Proceeds from debt............................................... 35,000,000 Repayment of debt................................................ (68,222,252) Payment of debt financing costs.................................. (785,890) ------------ Net cash provided by financing activities.................. 120,779,968 ------------ Net increase in cash and cash equivalents........................ 68,607,528 Cash and cash equivalents at beginning of period................. -- ------------ Cash and cash equivalents at end of period................. $ 68,607,528 ============ Supplemental disclosure of cash flow information: Cash paid for interest......................................... $ 446,559 ============ 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................................. $ 98,876,932 Liabilities assumed.......................................... (43,300,749) Less: Amounts paid in common stock............................... (3,824,549) Amount paid through issuance of convertible note........... (300,000) ------------ Net cash paid.................................................. $ 51,451,634 ============
See accompanying notes. 5 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 1. ORGANIZATION AND BASIS OF PRESENTATION United Rentals, Inc. (together with its subsidiaries the "Company") was incorporated in August 1997 for the purpose of creating a large, geographically diversified equipment rental company in the United States and Canada. The Company rents a broad array of equipment to a diverse customer base that includes construction industry participants, industrial companies, homeowners and others. The Company also engages in related activities such as selling used rental equipment, acting as a distributor for certain new equipment and selling related merchandise and parts. The nature of the Company's business is such that short-term obligations are typically met by cash flow generated from long-term assets. Consequently, consistent with industry practice, the accompanying balance sheet is presented on an unclassified basis. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. 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 average weighted cost or market. 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 useful lives estimated by management for rental equipment is two to ten years. Rental equipment is depreciated to a salvage value of zero to ten percent of cost. Rental equipment having a cost of $500 or less is expensed at the time of purchase. Ordinary maintenance and repair costs are charged to operations as incurred. Revenue Recognition Revenue related to the sale of equipment is recognized at the point of sale. Revenue related to rental equipment is recognized over the contract term. Property and Equipment Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. The range of useful lives estimated by management for property and equipment is two to ten years. Ordinary maintenance and repair costs are charged to operations as incurred. Intangible Assets Intangible assets consist of the excess of cost over the value of identifiable net assets of businesses acquired and are being amortized on a straight line basis over their estimated useful lives of forty years. Fair Value of Financial Instruments The carrying amounts reported in the balance sheet for accounts receivable, accounts payable, accrued expenses and other liabilities approximate fair value due to the immediate to short-term maturity of these financial instruments. The fair value of notes payable is determined using current interest rates for similar instruments as of December 31, 1997 and approximates the carrying value of these notes due to the fact that the underlying instruments include provisions to adjust note balances and interest rates to approximate fair market value. Advertising Expense The Company expenses the cost of advertising as incurred. The Company incurred $146,000 in advertising costs for the period August 14, 1997 (Inception) to December 31, 1997. 6 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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 of realization in future periods. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Concentrations of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments and accounts receivable. The Company maintains cash and cash equivalents with high quality financial institutions. Concentrations of credit risk with respect to accounts receivable are limited because a large number of geographically diverse customers make up the Company's customer base. No single customer represents greater than 10% of total accounts receivable. The Company controls credit risk through credit approvals, credit limits, and monitoring procedures. Stock-Based Compensation The Company accounts for its stock based compensation arrangements under the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees." Since stock options will be 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 will be recognized. Computation of Earnings Per Share Earnings per share is calculated under the provisions of recently issued Statement 128, Earnings Per Share. Common Stock issued for consideration below the initial public offering price ("IPO price") of $13.50 per share at which shares were sold in the Company's initial public offering (the "IPO"), and stock options and warrants granted with exercise prices below the IPO price per share during the twelve months preceding the date of the initial filing of the registration statement for the IPO are included in the calculation of common equivalent shares at the IPO price per share. Impact of Recently Issued Accounting Standards In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company is required to adopt the provisions of these Statements in fiscal year 1998. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a primary financial statement. The Company is currently evaluating the reporting formats recommended under this Statement. SFAS No. 131 establishes a new method by which companies will report operating segment information. This method is based on the manner in which management organizes the segments within a company for making operating decisions and assessing performance. The Company continues to evaluate the provisions of SFAS No. 131 and, upon adoption, the Company may report operating segments. 7 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 3. ACQUISITIONS During October 1997, the Company purchased all of the outstanding stock of the following six equipment rental companies for the indicated consideration:
COMPANY CONSIDERATION ------- ------------- A & A Tool Rentals and Sales, Inc........................... $ 8,593,520 Bronco High-Lift, Inc....................................... 7,949,568 Coran Enterprises, Inc...................................... 15,264,337 J & J Rental Services, Inc.................................. 3,824,549 Mercer Equipment Company.................................... 14,933,242 Rent-It Center, Inc......................................... 6,400,000
All of the consideration paid for the acquisitions was in cash, with the exception of Rent-It Center, Inc. which included a $300,000 convertible note and J & J Rental Services, Inc. where all of the consideration was paid through the issuance of 318,712 shares of the Company's Common Stock. These shares are subject to adjustment so that their value will equal $3.8 million based upon the average daily closing price of the Company's Common Stock during the 60 day period beginning December 18, 1997. Contingent consideration is due on the J & J Rental Services, Inc. acquisition based upon a percentage of revenues up to a maximum of $2.8 million. These acquisitions have been accounted for as purchases and, accordingly, the results of their operations have been included in the Company's results of operations from their respective acquisition dates. The purchase prices have been allocated to the assets acquired and liabilities assumed based on their respective fair values at their respective acquisition dates. Contingent purchase price is capitalized when earned and amortized over the remaining life of the related asset. The Company has not completed its valuation of the 1997 purchases and 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, 1997 and 1996 as though each acquisition described above was made on January 1, for each of the periods.
1997 1996 ----------- ----------- Revenues............................................ $59,832,952 $51,889,258 Net income.......................................... 2,607,127 3,462,371 Basic earnings per share............................ $ 0.16 $ 0.22 Diluted earnings per share.......................... $ 0.14 $ 0.20
The unaudited pro forma results are based upon certain assumptions and estimates which are subject to change. These results are not necessarily indicative of the actual results of operations that might have occurred, nor are they necessarily indicative of expected results in the future. 4. RENTAL EQUIPMENT Rental equipment and related accumulated depreciation consists of the following: Rental equipment................................................ $34,444,129 Less accumulated depreciation................................... (1,036,568) ----------- Rental equipment, net........................................... $33,407,561 ===========
8 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5. PROPERTY AND EQUIPMENT A summary of property and equipment is as follows: Furniture, fixtures and office equipment........................ $2,294,277 Less accumulated depreciation................................... (21,594) ---------- Property and equipment, net..................................... $2,272,683 ========== 6. DEBT Debt consists of the following: Subordinated convertible notes.................................. $ 500,000 Equipment notes, interest at 7.0% to 10.6%, payable in various monthly installments through 2001, secured by equipment........ 574,474 ---------- Total debt...................................................... $1,074,474 ==========
The Company's credit facility with a group of financial institutions, for which Bank of America National Trust and Savings Association acts as agent, enables the Company to borrow up to $155 million on a revolving basis (the "Credit Facility"). The facility terminates on October 8, 2000, at which time all outstanding indebtedness is due. Up to $10 million of the Credit Facility is available in the form of letters of credit. Borrowings under the Credit Facility accrue interest, at the Company's option, at either (a) the Floating Rate (which is equal to the greater of (i) the Federal Funds Rate plus 0.5% and (ii) Bank of America's reference rate, in each case, plus a margin ranging from 0% to 0.25% per annum) or (b) the Eurodollar Rate (which is equal to Bank of America's reserve adjusted eurodollar rate plus a margin ranging from 1.5% to 2.5% per annum). As of December 31, 1997, there was no outstanding indebtedness under the Credit Facility. The Credit Facility contains certain covenants that require the Company to, among other things, satisfy certain financial tests relating to: (a) maintenance of minimum net worth, (b) the ratio of debt to net worth, (c) interest coverage ratio, (d) the ratio of funded debt to cash flow, and (e) the ratio of senior debt to tangible assets. The Credit Facility also contains certain covenants that restrict the Company's ability to, among other things, (i) incur additional indebtedness, (ii) permit liens to attach to its assets, (iii) enter into operating leases requiring payments in excess of specified amounts, (iv) declare or pay dividends or make other restricted payments with respect to its equity securities (including the Common Stock) or subordinated debt, (v) sell assets, (vi) make acquisitions unless certain financial conditions are satisfied, and (vii) engage in any line of business other than the equipment rental industry. The Credit Facility provides that the failure by any two of certain of its executive officers to continue to hold executive positions with the Company for a period of 30 consecutive days constitutes an event of default under the Credit Facility unless replacement officers satisfactory to the lenders are appointed. The Credit Facility is also subject to other customary events of default. The Credit Facility is secured by substantially all of the assets of United Rentals, Inc. and by the stock and assets of its subsidiaries. The subordinated convertible notes consists of two notes; $300,000 in principal bearing interest at 7% per annum and $200,000 in principal bearing interest at 7 1/2% per annum. The $200,000 note was converted into 14,814 shares of Common Stock during January 1998. The $300,000 note is repayable in equal quarterly installments of principal and interest through October, 2002, is convertible into the Company's Common Stock at a conversion rate of $16.20 per share and is subordinated to the Company's Credit Facility. 9 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Maturities of the Company's debt for each of the next five years at December 31, 1997 are as follows: 1998.............................................................. $ 244,260 1999.............................................................. 340,916 2000.............................................................. 239,020 2001.............................................................. 181,676 2002.............................................................. 68,602 ---------- $1,074,474 ========== 7. INCOME TAXES The provision for federal and state income taxes is as follows: Current State....................................................... $22,720 Deferred State...................................................... 3,041 Deferred Federal.................................................... (5,245) ------- $20,516 ======= A reconciliation of the provision for income taxes and the amount computed by applying the statutory federal income tax rate of 34% to income before provision for income taxes is as follows: Computed tax benefit at statutory tax rate.......................... $18,407 Increase in tax benefit: Tax-exempt interest income........................................ (91,971) Non-deductible expense............................................ 77,078 State income taxes, net of Federal benefit........................ 17,002 ------- $20,516 ======= The components of deferred income tax assets are as follows: Accrual liabilities.............................................. $ 957,619 Net operating loss carryforward.................................. 313,719 Property & equipment............................................. 43,908 ---------- $1,315,246 ========== The components of deferred income tax liabilities are as follows: Intangibles and other............................................... $633,132 ======== The Company has net short-term deferred tax assets in the amount of $880,363, which are reported in the balance sheet in prepaid expenses and other assets. The Company has net operating loss carryforwards ("NOLs") of $845,681 for income tax purposes that expire in 2012. 10 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. CAPITAL STOCK Preferred Stock: The Company's board of directors has the authority to designate 5,000,000 shares of $.01 par value preferred stock in series, to establish as to each series the designation and number of shares to be issued and the rights, preferences, privileges and restrictions of the shares of each series, and to determine the voting powers, if any, of such shares. At December 31, 1997, the Company's Board of Directors had not designated any shares. As of December 31, 1997 there are outstanding warrants to purchase an aggregate of 6,344,058 shares of Common Stock. Each warrant provides for an exercise price of $10.00 per share and may be exercised at any time until September 12, 2007. The Board of Directors has adopted the Company's 1997 Stock Option Plan (the "Stock Option Plan") which provides for the granting of options to purchase not more than an aggregate of 5,000,000 shares of Common Stock. All officers, employees and others who render services to the Company are eligible to participate in the Stock Option Plan. Each option granted pursuant to the Stock Option Plan must provide for an exercise price per share that is at least equal to the fair market value per share of Common Stock on the date of grant. No options may be granted under the Stock Option Plan after August 21, 2007. The exercise price of each option, the period during which each option may be exercised and the other terms and conditions of each option are determined by the Board of Directors (or by a committee appointed by the Board). During 1997, 904,583 options to purchase shares of the Company's Common Stock were granted and remain outstanding at December 31, 1997. The weighted average exercise price per share of such options was $12.76. Such options had exercise prices ranging from $10 to $30 per share. Of such options, 818,583 provided for an exercise price per share in the range of $10.00 to $19.99 (the weighted average exercise price and weighted average remaining life of the options in this range being $11.84 and 9.9 years, respectively) and 86,000 provided for an exercise price per share in the range of $20.01 to $30.00 (the weighted average exercise price and weighted average remaining life of the options in this range being $21.51 and 9.9 years, respectively). The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for stock-based employee compensation arrangements whereby no compensation cost related to stock options is deducted in determining net income. Had compensation cost for the Company's stock option plans been determined pursuant to Financial Accounting Standards Board Statement No. 123 ("SFAS No. 123"), "Accounting for Stock- Based Compensation," the Company's net income and earnings per share would have differed. The Black-Scholes option pricing model estimates fair value of options using subjective assumptions which can materially affect fair value estimates and, therefore, do not necessarily provide a single measure of fair value of options. Using the Black-Scholes option pricing model and a risk-free interest rate of 5.8%, a volatility factor for the market price of the Company's Common Stock of .315 and a weighted-average expected life of options of approximately three years, the Company's net loss, basic earnings per share and diluted earnings per share would have been $(43,731), $0.00 and $0.00, respectively. For purposes of these pro forma disclosures, the estimated fair value of options is amortized over the options' vesting period. Since the number of options granted and their fair value may vary significantly from year to year, the pro forma compensation expense in future years may be materially different. At December 31, 1997 there are 6,344,058 shares of Common Stock reserved for the exercise of warrants, 5,000,000 shares of Common Stock reserved for issuance pursuant to options granted, and that may be granted in the future, under the Company's 1997 Stock Option Plan and 33,332 shares of Common Stock reserved for the future conversion of convertible debt. 11 UNITED RENTALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 9. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share: Numerator: Net income....................................................... $ 33,622 =========== Denominator: Denominator for basic earnings per share--weighted-average shares.......................................................... 16,319,193 Effect of dilutive securities: Employee stock options.......................................... 116,061 Warrants........................................................ 1,736,899 ----------- Dilutive potential common shares Denominator for diluted earnings per share--adjusted weighted- average shares................................................. 18,172,173 =========== Basic earnings per share........................................... $ 0.00 =========== Diluted earnings per share......................................... $ 0.00 ===========
10. COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases rental equipment, real estate and certain office equipment under operating leases. Certain real estate leases require the Company to pay maintenance, insurance, taxes and certain other expenses in addition to the stated rentals. Future minimum lease payments, by year and in the aggregate, for noncancellable operating leases with initial or remaining terms of one year or more are as follows at December 31, 1997: 1998.............................................................. $2,676,494 1999.............................................................. 1,860,615 2000.............................................................. 1,213,003 2001.............................................................. 1,155,995 2002.............................................................. 816,400 Thereafter........................................................ 1,929,430 ---------- $9,651,937 ==========
Rent expense under non-cancellable operating leases for the period August 14, 1997 (Inception) to December 31, 1997 was $524,752. 11. SUBSEQUENT EVENTS Subsequent to December 31, 1997, the Company completed the acquisition of 14 equipment rental companies (the "Acquisitions") and the aggregate consideration paid by the Company for the Acquisitions was $116.4 million and consisted of approximately $100.9 million in cash, 804,875 shares of Common Stock and warrants to purchase 30,000 shares of Common Stock. The Company funded a portion of the cash consideration for these acquisitions with cash on hand and the balance with borrowings under the Credit Facility. 12 -----END PRIVACY-ENHANCED MESSAGE-----