-----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, JS6h9+Eb1/UJgnmNgThTavQVSOuHd8jsd2uasEDTqEJ23UmANK7dKXbadqx5Dnpu 85DX9ljFJMvh1lxZLlDL/A== 0000950130-98-003613.txt : 19980723 0000950130-98-003613.hdr.sgml : 19980723 ACCESSION NUMBER: 0000950130-98-003613 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980609 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/A SEC ACT: SEC FILE NUMBER: 001-13663 FILM NUMBER: 98669364 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 CURRENT REPORT ================================================================================ 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) JUNE 9, 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 Pro Forma Financial Information -------------------------------------------------------- (a) Financial Statements of Businesses Acquired The following financial statements are included herein: I. Financial Statements of Power Rental Co., Inc. Report of Independent Auditors Balance Sheets--July 31, 1997 and April 30, 1998 (unaudited) Statement of Operations for the Year Ended July 31, 1997 and the Nine Months Ended April 30, 1997 and 1998 (unaudited) Statements of Stockholders' Equity for the Year Ended July 31, 1997 and for the Nine Months Ended April 30, 1998 (unaudited) Statements of Cash Flows for the Year Ended December 31, 1997 and the Nine Months Ended April 30, 1997 and 1998 (unaudited) Notes to 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 Balance Sheet-- March 31, 1998 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 AUDITORS Board of Directors and Stockholders Power Rental Co., Inc. We have audited the balance sheet of Power Rental Co., Inc. as of July 31, 1997 and the related statements of operations, 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 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 financial statements referred to above present fairly, in all material respects, the financial position of Power Rental Co., Inc. at July 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP MetroPark, New Jersey June 24, 1998 F-1 POWER RENTAL CO., INC. BALANCE SHEETS
JULY 31, APRIL 30, 1997 1998 ----------- ----------- (UNAUDITED) ASSETS Cash................................................... $ 53,462 $ -- Accounts receivable, net of allowance for doubtful accounts of $200,000 and $185,000 at 1997 and 1998, respectively.. 4,193,529 3,326,134 Due from related parties............................... 612,717 1,113,580 Inventory.............................................. 51,476 63,576 Rental equipment, net.................................. 35,575,067 37,958,651 Property and equipment, net............................ 7,301,836 8,378,203 Prepaid expenses and other assets...................... 1,413,651 1,981,771 Intangible assets, net................................. 378,269 339,587 ----------- ----------- Total assets....................................... $49,580,007 $53,161,502 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable, accrued expenses and other liabili- ties................................................ $ 4,831,620 $ 5,158,682 Debt................................................. 30,841,647 36,548,720 Deferred rent........................................ 72,200 84,800 Deferred income taxes................................ 2,921,231 2,393,231 ----------- ----------- Total liabilities.................................. 38,666,698 44,185,433 Commitments and contingencies Stockholders' equity: Common stock--Class A voting, $1.00 par value, 10,000 shares authorized, 10 issued and outstanding........ 10 10 Common stock--Class B non-voting, $1.00 par value, 90,000 shares authorized, 20,000 issued and outstanding......................................... 20,000 20,000 Additional paid in capital........................... 522,550 522,550 Retained earnings.................................... 10,370,749 8,433,509 ----------- ----------- Total stockholders' equity......................... 10,913,309 8,976,069 ----------- ----------- Total liabilities and stockholders' equity......... $49,580,007 $53,161,502 =========== ===========
See accompanying notes. F-2 POWER RENTAL CO., INC. STATEMENTS OF OPERATIONS
NINE MONTHS ENDED YEAR ENDED APRIL 30, JULY 31, ------------------------ 1997 1997 1998 ----------- ----------- ----------- (UNAUDITED) Revenues: Equipment rentals..................... $34,943,308 $25,404,600 $24,479,049 Sales of rental equipment............. 4,484,056 3,233,915 3,456,557 Sales of parts and supplies........... 1,462,391 1,099,033 1,025,287 ----------- ----------- ----------- Total revenues...................... 40,889,755 29,737,548 28,960,893 Cost of revenues: Cost of equipment rentals, excluding equipment rental depreciation........ 11,392,273 7,920,625 8,771,442 Depreciation, equipment rentals....... 9,753,507 7,335,000 8,710,280 Cost of sales of rental equipment..... 2,915,751 2,229,820 1,693,212 Cost of sales of parts and supplies... 1,316,267 915,469 857,161 ----------- ----------- ----------- Total cost of revenues.............. 25,377,798 18,400,914 20,032,095 ----------- ----------- ----------- Gross profit............................ 15,511,957 11,336,634 8,928,798 Selling, general and administrative expenses............................... 11,865,623 8,710,834 9,392,256 Non-rental depreciation................. 1,214,796 824,300 1,076,331 ----------- ----------- ----------- Operating income (loss)................. 2,431,538 1,801,500 (1,539,789) Interest expense........................ 2,171,959 1,404,334 1,884,720 Interest income......................... (176,612) (87,866) (133,707) Other (income), net..................... (398,159) (328,319) (165,562) ----------- ----------- ----------- Income (loss) before provision (benefit) for income taxes....................... 834,350 813,351 (3,125,240) Provision (benefit) for income taxes.... 317,053 309,070 (1,188,000) ----------- ----------- ----------- Net income (loss)....................... $ 517,297 $ 504,281 $(1,937,240) =========== =========== ===========
See accompanying notes. F-3 POWER RENTAL CO., INC. STATEMENTS OF STOCKHOLDERS' EQUITY
CLASS A CLASS B ADDITIONAL ------------- -------------- PAID IN RETAINED SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ------ ------ ------ ------- ---------- ---------- Balance at August 1, 1996.. 10 $10 20,000 $20,000 $522,550 $9,853,452 Net income............... 517,297 --- --- ------ ------- -------- ---------- Balance at July 31, 1997... 10 10 20,000 20,000 522,550 10,370,749 Net loss (unaudited)..... (1,937,240) --- --- ------ ------- -------- ---------- Balance at April 30, 1998 (unaudited)............... 10 $10 20,000 $20,000 $522,550 $8,433,509 === === ====== ======= ======== ==========
See accompanying notes. F-4 POWER RENTAL CO., INC. STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED YEAR ENDED APRIL 30, JULY 31, -------------------------- 1997 1997 1998 ------------ ------------ ------------ (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)................... $ 517,297 $ 504,281 $ (1,937,240) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization..... 11,018,848 8,190,183 9,825,293 Gain on equipment sales........... (1,294,474) (815,756) (1,603,959) Gain on property and equipment sales............................ (29,468) (47,940) (27,709) Deferred income taxes............. 87,846 86,530 (528,000) Changes in assets and liabilities: (Increase) decrease in accounts receivable..................... (135,231) 612,691 867,395 Decrease (increase) in inventory...................... 8,973 (21,226) (12,100) Increase in prepaid expenses and other assets................... (648,001) (194,009) (568,120) Increase (decrease) in accounts payable, accrued expenses and other liabilities 622,048 (109,060) 327,062 Increase in deferred rent....... 40,800 29,000 12,600 ------------ ------------ ------------ Total adjustments............. 9,671,341 7,730,413 8,292,462 ------------ ------------ ------------ Cash provided by operating activities......................... 10,188,638 8,234,694 6,355,222 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of rental equipment........ (1,769,523) (2,519,442) (245,790) Purchase of property and equipment.. (2,757,539) (2,115,320) (846,317) Intangibles associated with purchase of certain assets.................. (110,000) (110,000) Proceeds from sale of rental equipment.......................... 3,882,235 2,956,554 3,243,356 Proceeds from sale of property and equipment.......................... 139,723 65,562 204,980 ------------ ------------ ------------ Cash provided by (used in) investing activities......................... (615,104) (1,722,646) 2,356,229 CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on debt.......... (9,810,236) (7,115,253) (9,574,050) Principal payments on credit facility........................... (26,748,605) (19,096,555) (17,625,000) Borrowings on debt.................. 207,000 207,000 220,000 Borrowings under credit facility.... 26,726,605 19,579,955 18,715,000 Repayments from related parties..... 681,553 352,200 824,504 Advances to related parties......... (599,788) (461,550) (1,325,367) ------------ ------------ ------------ Cash used in financing activities... (9,543,471) (6,534,203) (8,764,913) ------------ ------------ ------------ Increase (decrease) in cash......... 30,063 (22,155) (53,462) Cash balance at beginning of period. 23,399 23,399 53,462 ------------ ------------ ------------ Cash balance at end of period....... $ 53,462 $ 1,244 $ -- ============ ============ ============
See accompanying notes. F-5 POWER RENTAL CO., INC. NOTES TO FINANCIAL STATEMENTS JULY 31, 1997 (THE INFORMATION AS OF APRIL 30, 1998 AND FOR THE NINE MONTHS ENDED APRIL 30, 1997 AND 1998 IS UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business Activity Power Rental Co., 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 eighteen locations and their principal market area is the Pacific Northwest 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 balance sheets are presented on an unclassified basis. These financial statements are prepared on a historical cost basis and do not include any adjustments that may result from the acquisition of the Company by United Rentals, Inc. ("United") as more fully described in Note 10. Interim Financial Statements The accompanying balance sheet at April 30, 1998 and the statements of operations, stockholders' equity and cash flows for the nine-month periods ended April 30, 1997 and 1998 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 Inventories consist primarily of general replacement parts 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 no 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 statement 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 ranging from three to seven years. Leasehold improvements are amortized using the straight-line method over the estimated lives of the improvements or the remaining life of the lease, whichever is shorter. F-6 POWER RENTAL CO., INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) JULY 31, 1997 (THE INFORMATION AS OF APRIL 30, 1998 AND FOR THE NINE MONTHS ENDED APRIL 30, 1997 AND 1998 IS UNAUDITED) 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 of $372,480 and covenants not to compete of $207,000. Accumulated amortization at July 31, 1997 and April 30, 1998 is $201,211 and $239,893, respectively. Goodwill is being amortized by the straight-line method over its estimated useful life of forty years. The covenants not to compete reflect agreements made regarding confidentiality and restricting competitive activity and are being amortized by the straight-line method over the period of the agreements, which is 5 years. Amortization expense was $50,545, $30,883 and $38,682 for the year ended July 31, 1997 and for the nine months ended April 30, 1997 and 1998, respectively. Rental Revenue Rental revenue is recorded as earned under the operating method. Advertising Costs The Companies advertise primarily through sponsorships, trade journals, trade associations and phone directories. All advertising costs are expensed as incurred. Advertising expense amounted to approximately $714,680, $551,700 and $597,810 in the year ended July 31, 1997 and for the nine months ended April 30, 1997 and 1998, 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 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. F-7 POWER RENTAL CO., INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) JULY 31, 1997 (THE INFORMATION AS OF APRIL 30, 1998 AND FOR THE NINE MONTHS ENDED APRIL 30, 1997 AND 1998 IS UNAUDITED) 3. RENTAL EQUIPMENT Rental equipment and related accumulated depreciation consisted of the following:
JULY 31, APRIL 30, 1997 1998 ----------- ----------- (UNAUDITED) Rental equipment.................................. $61,168,264 $68,578,382 Less accumulated depreciation..................... 25,593,197 30,619,731 ----------- ----------- Rental equipment, net............................. $35,575,067 $37,958,651 =========== ===========
4. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
JULY 31, APRIL 30, 1997 1998 ----------- ----------- (UNAUDITED) Transportation equipment........................... $ 5,143,693 $ 5,984,589 Office and shop equipment.......................... 2,236,792 2,643,613 Leasehold improvements............................. 3,573,110 4,401,822 ----------- ----------- 10,953,595 13,030,024 Less accumulated depreciation and amortization..... 3,651,759 4,651,821 ----------- ----------- Property and equipment, net........................ $ 7,301,836 $ 8,378,203 =========== ===========
5. DEBT Debt consists of the following:
JULY 31, APRIL 30, 1997 1998 --------- ----------- (UNAUDITED) Caterpillar Credit-Note with a monthly payment of $1,668 including interest of 5.6%............................. $ 24,020 $ 9,758 Ingersoll Rand--Various non-interest bearing notes with combined monthly payments of $100,064 and $2,850 in 1997 and 1998, respectively............................ 289,690 33,025 Allegro Escrow--Two notes with combined monthly payments of $4,297 including interest of 9.0%................... 175,653 148,018 Associates Commercial--Various notes with combined monthly payments of $24,451 including interest from 7.6% to 8.9%........................................... 905,505 4,163,677 Case Credit--Various notes with combined monthly payments of $211,021 including interest from 4.9% to 8.9%................................................... 3,823,564 3,216,130 J.D. Fulwiler--Note with monthly payment of $3,134 including interest of 8.0%............................. 27,285 -- Concord Commercial--Various notes with combined monthly payments of $143,858 including interest from 8.1% to 8.9%................................................... 4,019,259 3,466,002 John Deere Credit--Various notes with combined monthly payments of $133,615 including interest from 6.9% to 9.7%................................................... 2,399,434 1,647,305 Ford Motor Credit--Various notes with combined monthly payments of $121,192 including interest from 8.2% to 9.2%................................................... 1,918,226 1,823,173
F-8 POWER RENTAL CO., INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) JULY 31, 1997 (THE INFORMATION AS OF APRIL 30, 1998 AND FOR THE NINE MONTHS ENDED APRIL 30, 1997 AND 1998 IS UNAUDITED)
JULY 31, APRIL 30, 1997 1998 ----------- ----------- (UNAUDITED) AT&T Credit--Note with monthly payment of $2,599 including interest of 10.6%........................... $ 101,393 $ 77,829 Navistar Financial--Various notes with combined monthly payments of $53,762 including interest from 7.3% to 9.0%.................................................. 1,271,686 958,393 Seafirst Bank--Various notes with combined monthly payments of $523,962 including interest from 7.3% to 8.5%.................................................. 12,075,932 13,975,794 Seafirst Bank--Line of credit up to $19,000,000, expiring in February 1999 with interest payable monthly at 8.5%....................................... 3,810,000 4,900,000 JCB Finance--Note with monthly payment of $8,529 including interest of 8.51%........................... -- 243,440 Pacific Atlantic--Note with monthly payment of $2,610 including interest of 10.9%........................... -- 76,108 PACCAR Financial--Note with monthly payment of $3,663 including interest of 7.8%...................................... -- 150,654 Deutsche Financial--Note with monthly payment of $28,932 including interest of 8.13%..................................... -- 1,439,414 Notes payable to related party--due on demand including interest of 8.5%...................................... -- 220,000 ----------- ----------- $30,841,647 $36,548,720 =========== ===========
Substantially all rental equipment collateralize the above notes. All debt was paid off in June 1998 in connection with the acquisition discussed in Note 10. 6. INCOME TAXES The provision (benefit) for income taxes consists of the following:
YEAR ENDED NINE MONTHS ENDED JULY 31, APRIL 30, 1997 1997 1998 ---------- -------- ----------- (UNAUDITED) Current: Federal................................. $229,197 $222,530 $ (660,000) State................................... 10 10 -------- -------- ----------- 229,207 222,540 (660,000) Deferred: Federal................................. 34,832 34,612 (493,200) State................................... 53,014 51,918 (34,800) -------- -------- ----------- 87,846 86,530 (528,000) -------- -------- ----------- $317,053 $309,070 $(1,188,000) ======== ======== ===========
F-9 POWER RENTAL CO., INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) JULY 31, 1997 (THE INFORMATION AS OF APRIL 30, 1998 AND FOR THE NINE MONTHS ENDED APRIL 30, 1997 AND 1998 IS UNAUDITED) Significant components of the Company's deferred tax liability at July 31, 1997 and April 30, 1998 are as follows: JULY 31, APRIL 30, 1997 1998 ---------- ----------- (UNAUDITED) Net operating loss carryforward................... $ (469,000) $(1,125,000) Cumulative tax depreciation in excess of book..... 3,390,231 3,518,231 ---------- ----------- Deferred tax liability, net....................... $2,921,231 $ 2,393,231 ========== ===========
At July 31, 1998, the Company has net operating loss carryforwards of $1,142,326 for income tax purposes that expire in 2012. 7. RELATED PARTY TRANSACTIONS During the year ended July 31, 1997 and the nine months ended April 30, 1997 and 1998, the Company paid $628,533, $515,765 and $497,049 for advertising expenses to a partnership controlled by the Company's president and principal stockholder. The accompanying financial statements at July 30, 1997 and April 30, 1998, reflect amounts receivable of $509,473 and $659,174, respectively, from the president of the Company. These advances are made within the framework of a special drawing and loan account which bears interest at 8%. In addition, the Company is owed amounts from relatives of and related entities controlled by the president of the Company totaling $103,244 and $454,406 at July 31, 1997 and April 30, 1998, respectively. These advances are non-interest bearing. The Company conducts its operations primarily from various separate facilities under noncancellable lease agreements. Three of these facilities are owned either by the Company's president and principal stockholder or related entities controlled by the president of the Company. Another facility is leased to a limited partnership in which the general partner is the Company's president and principal stockholder. These leases expire at various dates through the year 2001. All of these agreements require the payment by the Company of property taxes, maintenance and insurance. Total rent expense paid to related parties and charged to current operations totaled $630,000, $480,100 and $628,500 for the year ended July 31, 1997 and nine months ended April 30, 1997 and 1998, respectively. In connection with the acquisition discussed in Note 10, the lease terms with related parties have been renegotiated. The remaining lease agreements are with unrelated third parties. These leases expire at various dates through the year 2006. Most of these agreements contain certain renewal options and provide for first right of refusal toward purchase. These agreements generally require the Company to pay all utilities, insurance, taxes and maintenance. Total rent expense charged to operations on unrelated F-10 POWER RENTAL CO., INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) JULY 31, 1997 (THE INFORMATION AS OF APRIL 30, 1998 AND FOR THE NINE MONTHS ENDED APRIL 30, 1997 AND 1998 IS UNAUDITED) third party leases for the year ended July 31, 1997 and nine months ended April 30, 1997 and 1998 were $786,928, $526,118 and $589,620, respectively. Some leases include scheduled base rent increases over the term of the leases. The total amount of the base rent payments is being charged to expense on a straight-line method over the terms of the leases. The Company recorded a liability for deferred rent to reflect the excess of rent expense over cash payments which is included in the accompanying balance sheets. The future minimum lease commitments under all unrelated third party operating leases that have noncancellable lease terms in excess of one year are as follows: Fiscal 1998.............. $ 868,660 1999.................. 667,360 2000.................. 586,600 2001.................. 449,440 2002.................. 317,940 Thereafter............ 399,030 ---------- $3,289,030 ==========
At July 31, 1997 and April 30, 1998 the Company was contingently liable as a guarantor on bank loans in the amount of $1,662,098 and $1,544,070, respectively, owed to the bank by its president and principal stockholder. These bank loans are also secured by substantial personal and real property assets of such stockholder. 8. SUPPLEMENTAL CASH FLOW INFORMATION For the year ended July 31, 1997 and the nine months ended April 30, 1997 and 1998, total interest paid was $2,019,792, $1,398,861 and $1,887,730, respectively. For the year ended July 31, 1997 and the nine months ended April 30, 1997 and 1998, total taxes paid was $899,655, $899,655 and $0, respectively. For the year ended July 31, 1997 and the nine months ended April 30, 1997 and 1998, the Company purchased $17,555,968, $12,365,796 and $13,971,123, respectively, of equipment which was financed. 9. EMPLOYEE BENEFIT PLAN The Company has a defined contribution 401(k) pension plan which covers substantially all employees. The Company makes discretionary contributions. Company contributions to the plan were $300,000, $300,000 and $0 for the year ended July 31, 1997 and for the nine months ended April 30, 1997 and 1998, respectively. 10. SUBSEQUENT EVENT On June 8, 1998, under the terms of the stock purchase agreement, United purchased all of the issued and outstanding capital stock of the Company. F-11 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-12 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-13 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-14 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-15 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-16
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-17 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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