-----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, B4uQrHpmt0XrpiAEA6cyxfPSZcjF/Vf865XDIT/URchHei8sF0GF5eWhdSSkJErb /LtBQF2EllgHuug1v2gfsQ== 0000950130-98-003612.txt : 19980723 0000950130-98-003612.hdr.sgml : 19980723 ACCESSION NUMBER: 0000950130-98-003612 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980710 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980721 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 SEC ACT: SEC FILE NUMBER: 001-13663 FILM NUMBER: 98669361 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 1 CURRENT REPORT ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) JULY 10, 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 2. Acquisition or Disposition of Assets ------------------------------------ On July 10, 1998, United Rentals, Inc. (the "Company") acquired the equipment rental businesses of the following three affiliated companies (collectively, "Equipment Supply"): (i) Equipment Supply Company, Inc., (ii) High Reach Company, Inc. and (iii) Rylan, Inc. This acquisition was effected by the Company acquiring all of the outstanding stock of each of High Reach Company, Inc. and Rylan, Inc. and substantially all of the assets of Equipment Supply Company, Inc. Equipment Supply is an equipment rental company and operates 21 rental locations in twelve states: Alabama (1), Delaware (1), Georgia, (1), Indiana (2), Kentucky (2), Maryland (3), Michigan (1), New Jersey (2), North Carolina (2), Ohio (1) Pennsylvania (4) and Virginia (1). Equipment Supply leases the land and buildings comprising its rental locations. The aggregate consideration paid by the Company in respect of the acquisition described above was $133.7 million and consisted of approximately $127.5 million of cash and 179,018 shares of the Company's Common Stock. The consideration for the acquisition was determined through arms-length negotiations between the Company and the former owners of the business acquired. The Company funded the cash portion of the consideration from the proceeds of a $250 million term loan from a group of financial institutions that the Company received in July 1998. Item 7. Financial Statement and Pro Forma Financial Information ------------------------------------------------------- (a) Financial Statements of Businesses Acquired The following financial statements are included herein: I. Combined Financial Statements of Equipment Supply Co., Inc. and Affiliates Report of Independent Certified Public Accountants Combined Balance Sheets--December 31, 1996 and 1997 and March 31, 1998 (unaudited) Combined Statements of Income for the Years Ended December 31, 1995, 1996 and 1997 and for the Three Months Ended March 31, 1997 and 1998 (unaudited) Combined Statements of Stockholders' Equity for the Years Ended December 31, 1995 1996, and 1997 and for the Three Months Ended March 31, 1998 (unaudited) Combined Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and 1997 and for the Three Months Ended March 31, 1997 and 1998 (unaudited) Notes to Combined Financial Statements (b) Pro Forma Financial Information The following pro forma financial information is included herein: I. Pro Forma Consolidated Financial Statements of United Rentals, Inc. Introduction Pro Forma Consolidated Statements of Operations for the Year Ended December 31, 1997, and the Three Months Ended March 31, 1998 2 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 21st day of July, 1998. UNITED RENTALS, INC. By: Michael J. Nolan ------------------------------- Name: Michael J. Nolan Title: Chief Financial Officer 3 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Equipment Supply Co., Inc. and Affiliates Burlington, New Jersey We have audited the accompanying combined balance sheets of Equipment Supply Co., Inc. and Affiliates (see Note 1) as of December 31, 1997 and 1996, and the related combined statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. These combined financial statements are the responsibility of the Company's 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. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Equipment Supply Co., Inc. and Affiliates as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. BDO Seidman, LLP Philadelphia, Pennsylvania June 19, 1998, except for Notes 9 and 15 which are as of July 10, 1998 F-1 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES COMBINED BALANCE SHEETS
DECEMBER 31, ------------------------- MARCH 31, 1997 1996 1998 ------------ ------------ ------------ (UNAUDITED) ASSETS Cash and cash equivalents............... $ 1,038,086 $ 4,015,527 $ 2,253,311 Marketable securities................... -- 1,103,354 -- Accounts receivable, net of allowance for possible losses of $2,241,339, $1,202,790 and $2,241,339......................... 16,087,730 14,592,845 14,599,776 Inventories............................. 3,234,402 3,249,010 3,283,658 Prepaid expenses and other assets....... 2,365,177 389,234 1,474,539 Due from stockholder.................... 4,310,190 1,637,628 4,941,130 Rental equipment, net................... 122,154,888 127,343,198 117,008,554 Property and equipment, net............. 6,548,778 5,401,275 5,544,829 Goodwill and other intangible assets, net.................................... 3,887,945 4,436,997 3,832,040 ------------ ------------ ------------ Total assets........................ $159,627,196 $162,169,068 $152,937,837 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Debt.................................. $ 94,870,512 $107,460,779 $ 91,322,072 Capital lease obligations............. 8,841,236 11,923,889 8,271,490 Accounts payable...................... 4,909,578 4,116,967 3,476,534 Income taxes payable.................. 1,209,251 1,393,548 1,442,884 Deferred income taxes................. 3,884,669 3,996,763 939,847 Deferred leasing costs................ 4,379,594 -- 5,128,033 Deferred rental income................ 2,404,500 2,016,607 1,929,760 Other liabilities..................... 1,599,427 2,335,963 2,534,049 ------------ ------------ ------------ Total liabilities................... 122,098,767 133,244,516 115,044,669 ------------ ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Common stock, no par value Authorized 2,500 shares; Issued and outstanding 581 shares.... 1,500 1,500 1,500 Additional paid-in capital............ 363,808 326,294 363,808 Retained earnings..................... 37,163,121 28,596,758 37,527,860 ------------ ------------ ------------ Total stockholders' equity.......... 37,528,429 28,924,552 37,893,168 ------------ ------------ ------------ Total liabilities and stockholders' equity............................. $159,627,196 $162,169,068 $152,937,837 ============ ============ ============
See accompanying notes to combined financial statements. F-2 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES COMBINED STATEMENTS OF INCOME
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ------------------------------------- ------------------------ 1997 1996 1995 1998 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) REVENUES Equipment rentals..... $78,141,502 $65,226,201 $40,905,725 $17,169,129 $17,769,357 Sales of rental equipment............ 8,102,210 11,935,375 7,968,205 1,442,049 1,566,460 Sales of new equipment, merchandise and other revenues............. 8,314,451 10,129,016 5,246,285 2,335,386 2,025,947 ----------- ----------- ----------- ----------- ----------- TOTAL REVENUES...... 94,558,163 87,290,592 54,120,215 20,946,564 21,361,764 ----------- ----------- ----------- ----------- ----------- COST OF REVENUES Cost of equipment rentals, excluding depreciation......... 23,509,529 19,225,581 14,222,651 6,170,748 4,554,823 Depreciation of rental equipment............ 20,397,030 15,383,114 7,844,434 5,356,340 5,261,674 Cost of rental equipment sold....... 5,049,876 9,834,128 3,291,409 638,780 1,417,600 Cost of new equipment and merchandise...... 6,312,172 6,263,969 2,250,037 2,141,918 1,163,879 ----------- ----------- ----------- ----------- ----------- TOTAL COST OF REVENUES........... 55,268,607 50,706,792 27,608,531 14,307,786 12,397,976 ----------- ----------- ----------- ----------- ----------- GROSS PROFIT............ 39,289,556 36,583,800 26,511,684 6,638,778 8,963,788 ----------- ----------- ----------- ----------- ----------- OPERATING EXPENSES General and administrative expenses............. 17,874,879 15,195,802 10,852,925 5,589,848 4,165,441 Nonrental depreciation and amortization..... 878,342 627,534 237,427 137,119 195,314 ----------- ----------- ----------- ----------- ----------- TOTAL OPERATING EXPENSES........... 18,753,221 15,823,336 11,090,352 5,726,967 4,360,755 ----------- ----------- ----------- ----------- ----------- INCOME FROM OPERATIONS.. 20,536,335 20,760,464 15,421,332 911,811 4,603,033 INTEREST EXPENSE........ (11,185,934) (7,508,226) (3,691,638) (2,360,419) (2,846,530) OTHER INCOME (EXPENSE).. 2,858,438 854,658 (28,356) 21,527 461,618 ----------- ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES.................. 12,208,839 14,106,896 11,701,338 (1,427,081) 2,218,121 PROVISION FOR INCOME TAX EXPENSE (BENEFIT)...... 1,242,142 2,073,617 1,517,539 (2,637,684) 205,373 ----------- ----------- ----------- ----------- ----------- NET INCOME.............. $10,966,697 $12,033,279 $10,183,799 $ 1,210,603 $ 2,012,748 =========== =========== =========== =========== ===========
See accompanying notes to combined financial statements. F-3 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL ------------- PAID-IN RETAINED SHARES AMOUNT CAPITAL EARNINGS TOTAL ------ ------ ---------- ----------- ----------- BALANCE, January 1, 1995.... 581 $1,500 $ -- $14,408,232 $14,409,732 Net income.................. -- -- -- 10,183,799 10,183,799 Stockholders' distributions. -- -- -- (3,861,677) (3,861,677) Capital contributions....... -- -- 170,406 -- 170,406 --- ------ -------- ----------- ----------- BALANCE, December 31, 1995.. 581 1,500 170,406 20,730,354 20,902,260 Net income.................. -- -- -- 12,033,279 12,033,279 Stockholders' distributions. -- -- -- (4,166,875) (4,166,875) Capital contributions....... -- -- 155,888 -- 155,888 --- ------ -------- ----------- ----------- BALANCE, December 31, 1996.. 581 1,500 326,294 28,596,758 28,924,552 Net income.................. -- -- -- 10,966,697 10,966,697 Stockholders' distributions. -- -- -- (2,937,557) (2,937,557) Capital contributions....... -- -- 37,514 -- 37,514 Adjustment related to affiliate with different fiscal year...... -- -- -- 537,223 537,223 --- ------ -------- ----------- ----------- BALANCE, December 31, 1997.. 581 1,500 363,808 37,163,121 37,528,429 Net income (unaudited)...... -- -- -- 1,210,603 1,210,603 Stockholders' distributions (unaudited)................ -- -- -- (845,864) (845,864) --- ------ -------- ----------- ----------- BALANCE, March 31, 1998 (un- audited)................... 581 $1,500 $363,808 $37,527,860 $37,893,168 === ====== ======== =========== ===========
See accompanying notes to combined financial statements. F-4 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES COMBINED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, ---------------------------------------- ------------------------- 1997 1996 1995 1998 1997 ------------ ------------ ------------ ----------- ------------ (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income............. $ 10,966,697 $ 12,033,279 $ 10,183,799 $ 1,210,603 $ 2,012,748 Adjustments to reconcile net income to net cash flows provided by operating activities Depreciation and amortization........ 21,275,372 16,010,648 8,081,861 5,493,459 5,456,988 Provision for bad debts............... 1,038,549 374,056 828,734 -- -- Gain on sale of equipment........... (3,052,334) (2,101,247) (4,555,863) (803,269) (148,859) Gain on sale of marketable securities.......... (390,410) (126,747) (37,345) -- (110,040) Deferred income taxes............... (112,094) 743,691 961,861 (2,944,822) (127,772) Adjustment related to affiliate with different fiscal year................ 537,223 -- -- -- 537,223 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable.......... (2,533,434) (4,603,457) (4,789,132) 1,487,954 1,749,552 (Increase) decrease in inventories...... 14,608 (945,385) (824,220) (49,256) 213,198 (Increase) decrease in prepaid expenses and other assets.... (1,975,943) 122,694 587,072 890,638 (383,992) Increase (decrease) in accounts payable. 792,611 1,436,552 1,560,529 (1,433,044) 1,239,217 Increase (decrease) in income taxes payable............. (184,297) 1,076,242 689,302 233,633 (458,137) Increase in deferred leasing costs....... 4,379,594 -- -- 748,439 -- Increase (decrease) in deferred rental income.............. 387,893 627,699 499,251 (474,740) (170,403) Increase (decrease) in other liabilities......... (736,536) 914,657 1,015,997 934,622 (1,019,955) ------------ ------------ ------------ ----------- ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES... 30,407,499 25,562,682 14,201,846 5,294,217 8,789,768 ------------ ------------ ------------ ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchases of equipment............. (21,445,901) (73,822,654) (32,957,168) (590,746) (11,204,907) Acquisitions of affiliated companies.. -- (11,807,987) (7,829,319) -- -- Proceeds from sale of equipment............. 8,102,210 11,935,375 7,741,552 2,107,330 1,566,460 Sales (purchases) of marketable securities............ 1,493,764 (414,665) 397,153 -- (423,442) ------------ ------------ ------------ ----------- ------------ NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES............. (11,849,927) (74,109,931) (32,647,782) 1,516,584 (10,061,889) ------------ ------------ ------------ ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from debt..... $ 12,869,925 $ 79,950,621 $ 28,777,004 $ 4,148,509 $ 9,010,170 Repayment of capital lease obligations..... (3,341,413) (4,419,085) (2,177,919) (569,746) (1,055,125) Repayment of debt...... (25,460,192) (18,525,872) (4,207,118) (7,696,949) (6,942,171) Payment of loan acquisition fees...... (28,728) (299,978) (88,493) (586) (90,223) (Increase) decrease in due to/from stockholders.......... (2,672,562) (1,673,052) 35,425 (630,940) (1,946,412) Capital contributions.. 37,514 155,887 170,406 -- -- Stockholders' distributions......... (2,937,557) (4,166,875) (3,861,677) (845,864) (928,530) ------------ ------------ ------------ ----------- ------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............. (21,535,013) 51,021,646 18,647,627 (5,595,576) (1,952,291) ------------ ------------ ------------ ----------- ------------ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............ (2,977,441) 2,474,397 201,691 1,215,225 (3,224,412) CASH AND CASH EQUIVALENTS, beginning of year................ $ 4,015,527 $ 1,541,130 $ 1,339,439 $ 1,038,086 $ 4,015,527 ------------ ------------ ------------ ----------- ------------ CASH AND CASH EQUIVALENTS, end of year................... $ 1,038,086 $ 4,015,527 $ 1,541,130 $ 2,253,311 $ 791,115 ============ ============ ============ =========== ============ SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCIAL ACTIVITIES Acquisition of equipment in exchange for capital lease obligations........... $ 260,760 $ 7,121,669 $ 6,997,926 $ -- $ -- Goodwill related to acquisitions.......... $ -- $ -- $ 1,897,761 $ -- $ -- Assets acquired from purchase of companies............. $ -- $ 13,165,000 $ 9,524,479 $ -- $ -- Liabilities assumed from purchase of companies............. $ -- $ 3,357,013 $ 3,151,101 $ -- $ -- ============ ============ ============ =========== ============ OTHER SUPPLEMENTAL DISCLOSURES Taxes paid............. $ 2,226,828 $ 315,814 $ 276,960 $ 92,314 $ 817,831 Interest paid.......... $ 11,116,164 $ 7,250,310 $ 3,568,958 $ 2,447,318 $ 2,861,016 ============ ============ ============ =========== ============
See accompanying notes to combined financial statements. F-5 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) 1. ORGANIZATION AND BASIS OF PRESENTATION The combined financial statements include the accounts of Equipment Supply Co., Inc. ("Equipment Supply") and its affiliated companies: High Reach Co., Inc. ("High Reach") and Rylan, Inc. ("Rylan") (collectively the "Company") which have common ownership and activities. For financial reporting purposes, Equipment Supply has been treated as the parent company and the purchaser of both High Reach and Rylan during 1995. The 1995 acquisitions of the stock of these companies were made by the stockholders of Equipment Supply. The Company rents, sells and services aerial platform equipment throughout the mid-Atlantic region of the United States. The nature of the Company's business is such that short-term obligations are typically met by cash flow generated from long-term assets. Consequently, consistent with industry practice, the accompanying balance sheets are presented on an unclassified basis. All significant intercompany balances and transactions have been eliminated in combination. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Interim Financial Statements The combined balance sheet as of March 31, 1998 and the combined statements of income, stockholders' equity and cash flows for the three months ended March 31, 1998 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 the interim periods are not necessarily indicative of results for the full year. CASH EQUIVALENTS The Company considers all highly liquid instruments with a maturity of three months or less when purchased to be cash equivalents. MARKETABLE SECURITIES Statement of Financial Accounting Standards No. 115, "Accounting for Certain Debt and Equity Securities" requires investments in debt and equity securities to be classified into one of three categories based on the Company's intent. The Company has classified its investments in marketable securities as available for sale which requires the Company to record these investments at fair market value and record the unrealized gain or loss on the original investment as a separate component of stockholders' equity. Such unrealized gains or losses were not material in any period presented. INVENTORIES Inventories consisting of equipment and parts are stated at the lower of average weighted cost or market. DEPRECIATION AND AMORTIZATION All equipment and property is stated at cost. Depreciation of rental equipment is computed, using an estimated 5% residual value, by the straight- line method at rates adequate to allocate the cost of rental equipment over their estimated useful lives, ranging from five to ten years. F-6 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) Depreciation of property and equipment and amortization of leasehold improvements are computed by the straight-line method at rates adequate to allocate the cost of applicable assets over their estimated useful lives. Ordinary maintenance and repair costs are charged to operations as incurred. DEFERRED FINANCING COSTS Deferred financing costs, which are incurred by the Company in connection with debt, are charged to operations over the life of the underlying indebtedness and are included in goodwill and other intangible assets. The net book value of deferred financing costs at December 31, 1997 and 1996 and March 31, 1998 is $369,421, $340,693 and $351,508, respectively. INCOME TAXES The Company adopted in 1995 the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS No. 109 requires a company to recognize deferred income tax liabilities and assets for the expected future tax consequences of events that have been recognized in a company's financial statements or tax returns. Under this method, deferred income tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. For all periods presented, Equipment Supply has elected, with the consent of its stockholders, to be taxed as an S Corporation for federal and certain state reporting purposes. In lieu of federal and certain state corporation income taxes, the stockholders are taxed on their proportionate share of the Company's taxable income. Provision has been made for state income taxes for those states not recognizing S Corporation status. During 1998, Rylan elected, with the consent of its stockholders, to be taxed as an S Corporation for federal and state income tax reporting purposes. Consequently, all applicable federal and state deferred income taxes have been reversed during the three months ended March 31, 1998. As a result, the effect on the 1998 combined statement of income was to increase net income by approximately $2.8 million. During 1997, High Reach elected, with the consent of its stockholders, to be taxed as an S Corporation for federal and state income tax reporting purposes. Provision has been made for state income taxes for those states not recognizing S Corporation status. A provision for federal and state income taxes has been recorded for all periods through September 30, 1997. As of October 1, 1997, all applicable federal and state deferred income taxes approximating $81,000 have been reversed in accordance with SFAS 109 and have been recorded in the statement of income. ACQUISITIONS High Reach On April 1, 1995, the stockholders of Equipment Supply purchased all of the capital stock of High Reach for an aggregate purchase price of approximately $3.1 million, of which approximately $2.5 million was paid in cash with the balance in the form of a note maturing no later than March 31, 1997, bearing interest at 7% per annum. F-7 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) The High Reach acquisition was accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to the net assets acquired based on their estimated fair values. In accordance with SFAS 109, the Company recorded an additional increase to goodwill of approximately $737,000 and a corresponding increase to a deferred income tax liability, representing the difference between the financial and tax bases of certain assets acquired. The goodwill is being amortized over fifteen years on a straight-line basis. The results of operations of High Reach have been included in the Company's combined financials since the effective date of the acquisition. The stockholders borrowed approximately $2.5 million from the Company and such amounts have been recorded as part of the purchase price. Additionally, other amounts paid by the stockholders in connection with the acquisition have been treated as additional capital contributions and as part of the purchase price. During 1995 and 1996, High Reach was combined using its fiscal year end of September 30. In 1997, the Company reported the results of operations for High Reach on a calendar year basis. Net income for High Reach's three month period ended December 31, 1996 has been reflected as an adjustment to stockholders' equity. No unusual trends or transactions were noted in this three month period. Rylan On April 27, 1995, the stockholders of Equipment Supply purchased all of the capital stock of Rylan for an aggregate cash purchase price of $4.8 million. The Rylan acquisition was accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to the net assets acquired based on their estimated fair values. In accordance with SFAS 109, the Company recorded an additional increase to goodwill of approximately $1.2 million and a corresponding increase to a deferred income tax liability, representing the difference between the financial and tax bases of certain assets acquired. The results of operations of Rylan have been included in the Company's combined financial statement since the effective date of the acquisition. Total goodwill arising from the acquisition, in the amount of approximately $1.9 million, is being amortized over fifteen years on a straight-line basis. The stockholders financed the Rylan acquisition in the amount of $4.8 million by obtaining a term loan from a financial institution. Such debt has been recorded on the Company's financial statements, as the Company has been making the required principal and interest payments on behalf of the stockholders and have guaranteed this debt (see Note 9). Freestate Effective May 1, 1996, Rylan acquired substantially all of the assets and assumed certain liabilities of Freestate Industries, Inc. for approximately $11.8 million in cash. Such amount included payments specified for covenants not to compete for three key employees. The acquisition was accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to the net assets acquired based on their estimated fair values. Total goodwill and other intangible assets, amounting to approximately $2,000,000, are being amortized over a period ranging from five to fifteen years on a straight-line basis. The results of operations of Freestate have been included in the Company's combined financial statements since the effective date of the acquisition. F-8 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) The Company borrowed approximately $10.8 million to finance a portion of the purchase price (see Note 9). REVENUE RECOGNITION The Company rents equipment to its customers under agreements not exceeding one month, consequently the rental agreements are classified as operating leases. Revenues from rental leases are recognized over the term of the respective agreements. Revenues from product sales are recognized when the product is shipped. Revenue from equipment repairs is recognized at the time of service. Revenues from maintenance contracts are recognized over the term of the respective contracts as service is provided. Amounts billed in advance are recorded as prebilled rentals which is classified as deferred rental income on the combined balance sheet. DEFERRED LEASING COSTS The Company receives volume rebates for leasing and purchasing certain equipment. The rebates related to operating leases are recognized as a reduction in lease expense over the terms of the respective leases, generally five years. Rebates related to purchased equipment are treated as a reduction in the cost of equipment. The Company amortizes the costs of its leases on a straight-line basis over the respective lease terms. 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. LONG-LIVED ASSETS The Company follows the provisions of Statement of Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. The Company reviews the carrying values of its long-lived and identifiable intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable based on undiscounted estimated future operating cash flows. As of December 31, 1997, the Company has determined that no impairment has occurred. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued two new disclosure standards which are effective for financial statements for periods beginning after December 15, 1997. F-9 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 131, "Disclosure about Segments of a Business Enterprise and Related Information," which supersedes SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise," establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS No. 131 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company believes that its operations compose a single segment and there are no components of comprehensive income. 3. FINANCIAL INVESTMENTS AND CONCENTRATIONS OF CREDIT RISK Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of periodic temporary investments of excess cash and trade receivables. The Company places its temporary excess cash investments in high quality short-term money market instruments and the carrying value approximates market value. A significant portion of the Company's rental sales and equipment sales are to customers in the construction industry and, as such, the Company is directly affected by the well-being of that industry. However, the credit risk associated with trade receivables is minimal due to the Company's large customer base, geographical dispersion and ongoing control procedures which monitor the credit worthiness of its customers. 4. DUE FROM STOCKHOLDERS From time to time, the Company makes advances to its stockholders. Generally, there are no formal repayment terms and the amounts are noninterest-bearing. 5. RENTAL EQUIPMENT Rental equipment consists of the following:
DECEMBER 31, ------------------------- MARCH 31, 1997 1996 1998 ------------ ------------ ------------ Rental equipment.................... $168,047,372 $156,891,144 $165,411,311 Less accumulated depreciation....... 45,892,484 29,547,946 48,402,757 ------------ ------------ ------------ $122,154,888 $127,343,198 $117,008,554 ============ ============ ============
F-10 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) Depreciation expense amounted to $18,948,184, $14,385,916, $7,332,808, $4,947,931 and $4,982,873 for the years ended December 31, 1997, 1996 and 1995 and the three months ended March 31, 1998 and 1997, respectively. 6. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
DECEMBER 31, ---------------------- MARCH 31, 1997 1996 1998 LIVES ----------- ---------- ----------- ----------- Shop equipment.................. $ 834,355 $ 760,669 $ 517,651 5-7 years Transportation equipment........ 9,134,757 6,887,232 8,065,840 5 years Furniture and fixtures.......... 1,288,479 962,474 1,020,384 5-7 year Building and lease hold improve- ments.......................... 635,895 590,132 635,895 15-39 years ----------- ---------- ----------- Total......................... 11,893,486 9,200,507 10,239,770 Less accumulated depreciation and amortization............... 5,344,708 3,799,232 4,694,941 ----------- ---------- ----------- $ 6,548,778 $5,401,275 $ 5,544,829 =========== ========== ===========
Depreciation and amortization amounted to $1,749,408, $1,180,285, $625,324, $489,037 and $330,505 for the years ended December 31, 1997, 1996 and 1995 and the three months ended March 31, 1998 and 1997, respectively. 7. CAPITAL LEASE OBLIGATIONS Capitalized leased assets include machinery and transportation equipment. Interest on the respective capital lease obligations range from 7.3% to 11.4% at December 31, 1997 and 1996 and March 31, 1998. Capital lease obligations, all of which are collateralized by the leased equipment, consist of the following:
DECEMBER 31, ---------------------- MARCH 31, 1997 1996 1998 ---------- ----------- ---------- Various equipment capital lease obligations, lease terms of 60 months with monthly lease payments of $512 to $52,463 ending April 1999 to June 2001.......................... $6,451,715 $8,807,391 $6,100,436 Various vehicle capital lease obligations, lease terms of 60 months with monthly lease payments of $590 to $10,751 ending August 1998 to April 2002......................... 2,204,559 2,826,490 2,016,170 Various vehicle capital lease obligations lease terms of 48 months with monthly lease payments of $578 to $4,049 ending January 1999 to June 2000.......................... 184,962 290,008 154,884 ---------- ----------- ---------- $8,841,236 $11,923,889 $8,271,490 ========== =========== ==========
F-11 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) The future minimum lease payments under capital leases, together with the present value of the net minimum lease payments as of December 31, 1997 is as follows:
YEAR ENDING DECEMBER 31, AMOUNT -------- ----------- 1998........................................................ $ 3,628,913 1999........................................................ 3,416,347 2000........................................................ 2,478,665 2001........................................................ 845,860 2002........................................................ 9,965 ----------- Total minimum lease payments................................. 10,379,750 Less amount representing interest............................ 1,538,514 ----------- Capital lease obligations.................................... $ 8,841,236 ===========
The net book value of equipment under capital leases at December 31, 1997 and 1996 and March 31, 1998 amounted to $11,165,421, $13,800,349 and $10,719,521, respectively. 8. NOTES PAYABLE, BANK At March 31, 1998 and December 31, 1997, the Company had a line of credit with a bank for $1,500,000. Borrowings under the lines bear interest at a rate of 1/2% above the bank's prime rate (9%, at December 31, 1997 and March 31, 1998) and are secured by certain Company assets. At December 31, 1997 and March 31, 1998, $-0- and $1,128,250 was outstanding under this line, respectively. F-12 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) 9. DEBT Debt consists of the following:
DECEMBER 31, ------------------------ MARCH 31, 1997 1996 1997 ----------- ------------ ----------- Notes payable to banks and finance compa- nies with fixed interest rates ranging from prime plus .5% to prime plus 2% (9% and 10.5% at December 31, 1997) due in monthly installments ranging from $546 to $211,242 ending in September 1999 to De- cember 2001 including interest. Collater- alized either by a specific security in- terest in equipment, a general lien on equipment or by all assets owned or here- after acquired by the Company............ $51,164,326 $ 64,098,599 $50,343,550 Term note payable to a finance company with interest of 9.93% due in monthly in- stallments of $221,314, including inter- est, through April 2002. Collateralized by a specific security interest in equip- ment and guaranteed by the President of the Company. (During 1998, the balance of the loan was converted to and is included in the note payable to a finance company noted below.)............................ 9,310,102 -- -- Note payable, bank, in connection with Rylan acquisition, due in monthly in- stallments of $99,519, including interest at 9.25%: collateralized by certain as- sets of Rylan and guaranteed by the stockholders and the Company; final pay- ment due July 2000....................... 391,362 2,041,928 -- Note payable, sellers in connection with the High Reach acquisition, due in monthly installments of $10,213 plus in- terest at 7% with final payment of $377,844 made during March 1997.......... -- 408,523 -- Note payable, bank (see Note 8).......... -- -- 1,128,250 Note payable to a finance company with an interest rate of LIBOR plus 3.25% (9.41% at December 31, 1997) due in varying monthly installments. Collateralized by a specific security interest in equipment and guaranteed by the President of the Company.................................. 34,004,722 40,911,729 39,850,272 ----------- ------------ ----------- $94,870,512 $107,460,779 $91,322,072 =========== ============ ===========
F-13 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) At December 31, 1997, the aggregate maturities of debt are as follows:
YEARS ENDING DECEMBER 31, AMOUNT ------------ ------------ 1998.......................................................... $ 26,007,808 1999.......................................................... 25,586,393 2000.......................................................... 23,492,367 2001.......................................................... 18,116,590 2002.......................................................... 1,208,650 Thereafter.................................................... 458,704 ------------ $ 94,870,512 ============
Certain agreements require the Company to maintain specified minimum net worth and working capital and certain financial ratios. At December 31, 1997, the Company was in violation of certain covenants, including obtaining a specified level of minimum tangible net worth and a debt service coverage ratio. From the proceeds of the sale, more fully described in Note 15, the Company repaid substantially all of its debt. 10. INCOME TAXES Deferred income taxes reflect the net tax effect of differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred income taxes relate primarily to depreciation and amortization, differences in the accounting treatment of capital leases and bases of certain assets of acquired businesses. The components of income tax expense are summarized as follows:
YEAR ENDED DECEMBER 31, MARCH 31, --------------------------------- --------------------- 1997 1996 1995 1998 1997 ---------- ---------- ---------- ----------- -------- CURRENT INCOME TAXES Federal............... $ 482,568 $ 928,915 $ 277,900 $ -- $232,612 State................. 871,648 401,011 277,778 307,138 100,532 ---------- ---------- ---------- ----------- -------- TOTAL CURRENT INCOME TAX EXPENSE........ 1,354,216 1,329,926 555,678 307,138 333,144 ---------- ---------- ---------- ----------- -------- DEFERRED INCOME TAXES (BENEFIT) Federal............... 393,018 133,507 452,061 -- 311,611 State................. (424,092) 610,184 509,800 (20,000) (439,382) Reversal of deferred income taxes relating to sub S elections... (81,000) -- -- (2,924,822) -- ---------- ---------- ---------- ----------- -------- TOTAL DEFERRED INCOME TAX EXPENSE (BENEFIT).......... (112,074) 743,691 961,861 (2,944,822) (127,771) ---------- ---------- ---------- ----------- -------- TOTAL INCOME TAX EXPENSE (BENEFIT).. $1,242,142 $2,073,617 $1,517,539 $(2,637,684) $205,373 ========== ========== ========== =========== ========
F-14 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) Differences which give rise to a significant portion of deferred income taxes are as follows:
DECEMBER 31, MARCH 31, ----------------------- ----------- 1997 1996 1998 ----------- ----------- ----------- DEFERRED INCOME TAX (ASSETS) LIABILITIES Depreciation and amortization....... $ 2,256,399 $ 2,393,302 $ 1,072,381 Reserves and allowances............. (269,491) (294,300) (132,534) Difference in basis of certain acquired assets.................... 1,897,761 1,897,761 -- ----------- ----------- ----------- $ 3,884,669 $ 3,996,763 $ 939,847 =========== =========== ===========
The differences between the income tax provision and the tax that would have resulted from applying federal statutory rates on income before taxes is primarily due to Equipment Supply being taxed as an S Corporation and High Reach being taxed as an S Corporation for the three months ended December 31, 1997. The effect of Rylan's conversion to an S Corporation in 1998 was for the Company to recognize a deferred income tax benefit of approximately $2.9 million. 11. RETIREMENT PLANS The Company participates in several defined contribution plans covering substantially all nonunion employees. The Plans allow matching contributions based on a percentage of the employees' contributions. The Company contributions for the years ended December 31, 1997, 1996 and 1995 and the three months ended March 31, 1998 and 1997 amounted to $139,572, $96,931, $30,821, $44,951 and $36,023, respectively. Additionally, the Company participates in a multi-employer plan that provides defined contributions to the Company's union employees. For collectively bargained, multi-employer pension plans, contributions are made in accordance with negotiated labor contracts and generally are based on the number of hours worked. With the passage of the Multi-Employer Pension Plan Amendments Act of 1980 (the "Act"), the Company may, under certain circumstances, become subject to liabilities in excess of contributions made under collective bargaining agreements. Generally, these liabilities are contingent upon the termination, withdrawal or partial withdrawal from the plans. Company contributions for the years ended December 31, 1997, 1996 and 1995 and the three months ended March 31, 1998 and 1997 amounted to $96,737, $75,930, $62,372, $28,465 and $12,415, respectively. On January 1, 1998, the Company terminated its defined contribution plans for Equipment Supply, High Reach and Rylan and established a combined defined contribution plan covering substantially all nonunion employees. The plan allows employees to make voluntary contributions processed through payroll deductions. For the three months ended March 31, 1998, the Company contributed approximately $51,700 to the Plan. 12. COMMITMENTS AND CONTINGENCIES AND RELATED PARTY TRANSACTIONS The Company leases various facilities under lease agreements, including those with related parties. Some of these leases require the Company to pay property taxes and other related costs. F-15 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) Future minimum lease payments, by year, and in the aggregate for noncancelable operating leases, including those with related parties, with initial or remaining terms of one year or more are as follows at December 31, 1997:
FACILITIES LEASES YEAR ENDED (SUBSTANTIALLY WITH EQUIPMENT TOTAL OPERATING DECEMBER 31, RELATED PARTIES) LEASES LEASES ------------ ------------------- ----------- --------------- 1998....................... $ 2,120,949 $11,035,372 $13,156,321 1999....................... 1,938,559 10,001,175 11,939,734 2000....................... 1,921,804 7,768,161 9,689,965 2001....................... 1,917,196 6,567,617 8,484,813 2002....................... 1,912,170 4,870,393 6,782,563 Thereafter................. 876,000 -- 876,000 ----------- ----------- ----------- $10,686,678 $40,242,718 $50,929,396 ----------- ----------- -----------
Rent expense under noncancelable operating leases for the years ended December 31, 1997, 1996 and 1995 and the three months ended March 31, 1998 and 1997 amounted to $10,210,657, $6,674,413, $1,179,277, $3,647,863 and $3,073,931, respectively. The following related party transactions including rent expense is summarized as follows:
YEAR ENDED THREE MONTHS DECEMBER 31, ENDED MARCH 31, ------------------------- ----------------- 1997 1996 1995 1998 1997 -------- -------- ------- -------- -------- Rent expense................... $963,600 $756,000 $18,168 $264,000 $241,500 Other expense.................. 79,190 109,173 58,689 18,060 29,889
The Company has guaranteed a personal loan of the stockholders, which is included as a liability in the financial statements. The loan proceeds were used to purchase Rylan (see Note 9). From time to time, the Company is a defendant in various lawsuits incident to the ordinary course of business. It is not possible to determine with any precision the probable outcome or the amount of liability, if any, under these lawsuits; however, in the opinion of the Company and its counsel, the disposition of these lawsuits will not have a material adverse effect on the Company's financial position, results of operations, or cash flows. 13. FINANCIAL INSTRUMENTS The carrying amounts reported in the balance sheet for accounts receivable, accounts payable and other liabilities approximate fair value due to the immediate to short-term maturity of these financial instruments. The fair value of debt approximates cost as interest rates approximate market. 14. SUPPLIER CONCENTRATION During 1997, two suppliers accounted for approximately 73% of total purchases and leased equipment costs. During 1996, three suppliers (of which two were the same in 1997) accounted for approximately 84% of total purchases and lease costs. During 1995, three suppliers (of which two were the same in 1996 and 1997) accounted for approximately 68% of total purchases and lease costs. F-16 EQUIPMENT SUPPLY CO., INC. AND AFFILIATES NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) (INFORMATION AS OF MARCH 31, 1998 AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 IS UNAUDITED) During 1997, volume activities with one vendor generated approximately $2 million in marketing rebates. Such amount has been recorded as other income. 15. SUBSEQUENT EVENT Sale of Business Operations Subsequent to December 31, 1997, the Company sold its principal business operations, a substantial portion of its net assets and certain stock for approximately $225 million. Additionally, the Company anticipates paying approximately $1.5 million in bonuses to certain of its employees. F-17 UNITED RENTALS, INC. PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The accompanying unaudited pro forma consolidated balance sheet of the Company as of March 31, 1998 gives effect to the acquisition of Power Rental Co., Inc. ("Power") and Equipment Supply Co., and affiliates ("Equipment Supply") completed by the Company subsequent to such date and the financing of each such acquisition, as if all such transactions had occurred on March 31, 1998. 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 Access Rentals, Inc. and affiliates, BNR Equipment Ltd. and affiliates, Mission Valley Rentals, Inc., Power and Equipment Supply (the "Acquired Companies") and the financing thereof, as if all such transactions had occurred at the beginning of the period. The unaudited pro forma consolidated statements of operations of the Company for the three months ended March 31, 1998, gives effect to the acquisition of Access Rentals, Inc. and affiliates, Power and Equipment Supply 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. F-18 UNITED RENTALS, INC. PRO FORMA CONSOLIDATED BALANCE SHEETS MARCH 31, 1998 (UNAUDITED)
EQUIPMENT UNITED POWER SUPPLY CO., AND PRO FORMA PRO FORMA RENTALS, INC. RENTAL CO., INC AFFILIATES ADJUSTMENTS CONSOLIDATED ------------- --------------- ---------------- ------------- ----------------- ASSETS Cash and cash $ 54,785,007 $ 49,538 $ 2,253,311 $ (53,087,856) (a) $ 4,000,000 equivalents Accounts receivable, net 31,443,000 6,468,737 14,599,776 52,511,513 Inventory 14,933,813 63,500 3,283,658 18,280,971 Rental equipment, net 140,743,703 37,807,396 117,008,554 (665,688) (b) 294,893,965 Property and equipment, net 11,900,686 8,154,964 5,544,829 (199,793) (c) 25,400,686 Intangible assets, net 186,314,455 3,832,040 148,706,132 (d) 338,852,627 Prepaid expenses and other assets 10,006,519 1,959,167 6,415,669 18,381,355 ------------ ----------- ------------ ------------ ------------ TOTAL ASSETS $450,127,183 $54,503,302 $152,937,837 $ 94,752,795 $752,321,117 ============ =========== ============ ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable $ 28,149,318 $ 3,565,505 $ 3,476,534 $ 35,191,357 Debt 26,494,068 34,932,278 99,593,562 $(134,525,840) (e) 286,948,576 260,454,508 (f) Accrued expenses and other liabilities 10,850,519 6,538,653 11,974,573 29,363,745 ------------ ----------- ------------ ------------ ------------ TOTAL LIABILITIES 65,493,905 45,036,436 115,044,669 125,928,668 351,503,678 ------------ ----------- ------------ ------------- ----------- Stockholders' Equity Common stock 333,137 20,010 1,500 (21,510) (g) 339,361 6,224 (h) Additional paid-in Capital 381,629,839 522,550 363,808 (886,358) (g) 397,807,776 16,177,937 (h) Retained earnings (deficit) 2,670,302 8,924,306 37,527,860 (46,452,166) (g) 2,670,302 ------------ ----------- ------------ ------------- ------------ TOTAL STOCKHOLDERS' EQUITY 384,633,278 9,466,866 37,893,168 (31,175,873) 400,817,439 ------------ ----------- ------------ ------------- ------------ Total liabilities and stockholders' equity $450,127,183 $54,503,302 $152,937,837 $94,752,795 $752,321,117 ============ =========== ============ ============= ============
F-19 UNITED RENTALS, INC. PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 (UNAUDITED)
UNITED ACCESS BNR GROUP MISSION VALLEY POWER RENTALS, INC. RENTALS, INC. OF COMPANIES RENTALS, INC. RENTAL CO. INC. -------------- ------------- ------------ -------------- ---------------- REVENUES Equipment Rentals $ 7,018,564 $42,316,423 $ 9,402,842 $7,852,751 $35,382,557 Sales of equipment and merchandise and other revenue 3,614,834 9,942,738 14,612,355 764,920 5,153,898 ------------- ------------ ----------- ----------- ----------- Total revenues 10,633,398 52,259,161 24,015,197 8,617,671 40,536,455 Cost of revenues Cost of equipment rentals, excluding depreciation 3,203,009 12,415,655 4,662,325 3,436,601 12,677,711 Rental equipment depreciation 1,038,947 8,480,016 1,588,710 1,746,340 9,706,225 Cost of sales and other operating expenses 2,580,162 8,861,832 10,360,520 517,661 3,648,399 ------------- ----------- ----------- ---------- ----------- Total cost of revenues 6,822,118 29,757,503 16,611,555 5,700,602 26,032,335 ------------- ----------- ---------- ----------- ----------- Gross profit 3,811,280 22,501,658 7,403,642 2,917,069 14,504,120 Selling, general and administrative expenses 3,311,669 10,439,727 5,402,206 3,062,607 12,146,632 Non-rental depreciation and amortization 262,102 1,354,639 104,486 31,695 1,226,484 ------------- ----------- ---------- ----------- ----------- Operating income (loss) 237,509 10,707,292 1,896,950 (177,233) 1,131,004 Interest expense 454,072 3,700,559 501,428 433,972 2,344,269 Other (income) expense, net (270,701) (809,146) (61,269) (370,604) ------------- ----------- ---------- ----------- ----------- Income (loss) before provision (benefit) for income taxes 54,138 7,815,879 1,395,522 (549,936) (842,661) Provision (benefit) for income taxes 20,516 2,744,691 458,302 (72,801) 0 ------------- ----------- ----------- ---------- ----------- Net income (loss) $ 33,622 $ 5,071,188 $ 937,220 $(477,135) $(842,661) =========== =========== =========== ========== =========== Basic earnings per $0.00 share ===== Diluted earnings per $0.00 share =====
EQUIPMENT SUPPLY CO. AND PRO FORMA PRO FORMA AFFILIATES ADJUSTMENTS CONSOLIDATED --------------- ----------- ------------ REVENUES Equipment Rentals Sales of equipment and merchandise and $78,141,502 $180,114,639 other revenue 16,416,661 50,505,406 ----------- ------------ TOTAL REVENUES 94,558,163 230,620,045 Cost of revenues Cost of equipment rentals, excluding depreciation 23,509,529 59,904,830 Rental equipment depreciation Cost of sales and 20,397,030 $(7,903,828)(a) 35,053,440 other operating expenses 11,362,048 37,330,622 ----------- ------------ ------------ TOTAL COST OF REVENUES 55,268,607 (7,903,828) 132,288,892 ----------- ------------ ------------ Gross profit 39,289,556 7,903,828 98,331,153 Selling, general and administrative expenses 17,874,879 (6,591,388)(b) 46,306,551 Non-rental 660,219 (c) depreciation and amortization 878,342 5,388,647 (d) 9,246,395 ----------- ------------ ------------ Operating income 20,536,335 8,446,350 42,778,207 Interest expense 11,185,934 (17,614,634)(e) 25,283,913 Other (income) 24,278,313 (f) expense, net (2,858,438) (4,370,158) ----------- ------------ ------------ Income before provision for income taxes 12,208,839 1,782,671 21,864,452 Provision for income taxes 1,242,142 4,571,575 (g) 8,964,425 ----------- ------------ ------------ NET INCOME $10,966,697 $ (2,788,904) $ 12,900,027 =========== ============ ============ Basic earnings per $0.52 share ===== Diluted earnings per $0.49 share =====
The accompanying notes are an integral part of these pro forma consolidated financial statements. F-20 UNITED RENTALS, INC. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
EQUIPMENT UNITED ACCESS POWER SUPPLY CO. PRO FORMA PRO FORMA RENTALS, INC. RENTALS, INC. RENTAL CO., INC. AND AFFILIATES ADJUSTMENTS CONSOLIDATED -------------- -------------- --------------- ----------------- ----------- ------------ REVENUES Equipment Rentals $26,779,850 $2,312,580 $ 6,294,665 $17,169,129 $52,556,224 Sales of equipment and merchandise and other revenue 12,410,316 841,485 1,555,176 3,777,435 18,584,412 ---------- ---------- --------- ---------- ---------- ---------- TOTAL REVENUES 39,190,166 3,154,065 7,849,841 20,946,564 71,140,636 Cost of revenues Cost of equipment rentals, excluding depreciation 11,221,504 1,131,353 3,415,560 6,170,748 21,939,165 Rental equipment depreciation 4,583,832 401,688 2,987,280 5,356,340 $(1,924,998)(a) 11,404,142 Cost of sales and other operating expenses 9,231,322 741,458 637,889 2,780,698 13,391,367 ---------- ---------- --------- ---------- ---------- ---------- TOTAL COST OF REVENUES 25,036,658 2,274,499 7,040,729 14,307,786 (1,924,998) 46,734,674 ----------- ----------- --------- ---------- ----------- ---------- GROSS PROFIT 14,153,508 879,566 809,112 6,638,778 1,924,998 24,405,962 Selling, general and administrtive expenses Non-rental 7,806,931 835,763 3,200,016 5,589,848 (1,247,565)(b) 16,184,993 depreciation and amortization 1,086,424 22,892 303,699 137,119 1,064,959 (d) 2,615,093 ---------- --------- ---------- ---------- ----------- ----------- Operating income (loss) 5,260,153 20,911 (2,694,603) 911,811 2,107,604 5,605,876 Interest expense 1,172,718 147,387 631,587 2,360,419 (3,139,393)(e) 6,610,960 Other (income) 5,438,242 (f) expense, net (380,703) (52,224) (94,971) (21,527) (549,425) --------- --------- ---------- ----------- ----------- ------------- Income (loss) before provision (benefit) for income taxes 4,468,138 (74,252) (3,231,219) (1,427,081) (191,245) (455,659) Provision (benefit) for income taxes 1,829,787 (2,637,684) 621,077 (g) (186,820) ----------- ----------- ----------- ----------- ----------- ------------- NET INCOME (LOSS) $ 2,638,351 $ (74,252) $(3,231,219) $ 1,210,603 $ (812,322) $ (268,839) =========== =========== =========== =========== ========== ========== Basic earnings per share $0.10 $(0.01) Diluted earnings per ===== ====== share $0.09 $(0.01) ===== ======
The accompanying notes are an integral part of these pro forma consolidated financial statements. F-21 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 the pro forma consolidated balance sheet represent the financial position of the Company, Power and Equipment Supply as of March 31, 1998. The historical financial data presented for the year ended December 31, 1997 in the pro forma consolidated statements of operations represent the results of operations of (i) the Company for the period from August 14, 1997 (inception) to December 31, 1997 and (ii) each of the Acquired Companies for the year ended December 31, 1997. The historical financial data presented in the pro forma consolidated statements of operations for the three months ended March 31, 1998 represent the results of operations of (i) the Company, Power and Equipment Supply for the three months ended March 31, 1998 and (ii) Access Rentals, Inc. and affiliate for the period from January 1, 1998 to January 21, 1998 (date of acquisition). BNR Group of Companies and Mission were acquired effective January 1, 1998. 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 Power and Equipment Supply (the "Acquisition Consideration") was $195.2 million and consisted of approximately $179.0 million in cash and 496,063 shares of Common Stock. Based upon management's preliminary estimates, it is estimated that the carrying value of the assets and liabilities of Power and Equipment Supply 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 Power and Equipment Supply: F-22
EQUIPMENT POWER SUPPLY CO., AND RENTAL CO., INC. AFFILIATES TOTAL --------------- ---------- ----- Purchase price $61,509,001 $133,691,684 $195,200,685 Net assets acquired 9,466,866 37,893,168 47,360,034 Fair value adjustments: Rental equipment 2,164,456 (2,830,144) (665,688) Property and Equipment (154,964) (44,829) (199,793) --------------- --------------- --------------- Intangibles recognized $50,032,643 $ 98,673,489 $148,706,132 =============== =============== ===============
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 Power and Equipment Supply. 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 Power and Equipment Supply. h. Records the portion of the Acquisition Consideration paid in the form of Common Stock. Statement of operations adjustments: a. Adjusts the depreciation of rental equipment and other property and equipment based upon adjusted carrying values utilizing the following lives (subject to a salvage value ranging from 0 to 10%): Rental equipment...............................2-10 years Other property and equipment ..................2-15 years b. Adjusts the compensation to former owners and executives of the Acquired Companies to current levels of compensation. F-23 c. Adjusts the lease expense for real estate utilized by the Acquired Companies to current lease agreements. d. 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. e. Eliminates interest expense related to the outstanding indebtedness of the Acquired Companies which was repaid by the Company. f. 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%. g. Records a provision for income taxes at an estimated rate of 41%. 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 periods are calculated as follows:
December 31, 1997 March 31, 1998 ----------------- -------------- Basic: Shares outstanding 23,899,119 33,313,708 Shares issued for acquisitions 866,384 496,063 ---------- ---------- 24,765,503 33,809,771 ========== ========== Dilutive: Shares outstanding 23,899,119 33,313,708 Shares issued for acquisitions 866,384 496,063 Common stock equivalents (based on the initial public 1,792,942 4,165,446 offering price of $13.50 per share for 1997) ---------- ---------- 26,558,445 37,975,217 ========== ==========
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