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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One) x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002.
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-14387 United Rentals, Inc.
Commission File Number 1-13663 United Rentals (North America), Inc. (Exact Names of Registrants as Specified in Their Charters)
Delaware 06-1522496 Delaware 06-1493538 State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization Identification Nos.) Five Greenwich Office Park, Greenwich, Connecticut 06830 (Address of Principal Executive Offices) (Zip code)
Registrants’ telephone number, including area code: (203) 622-3131
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on Title of Each Class Which Registered Common Stock, $.01 par value, of United Rentals, Inc. New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). x Yes ¨ No
As of June 30, 2002, there were 76,531,071 shares of United Rentals, Inc. common stock outstanding. The aggregate market value of such common stock held by non-affiliates of the registrant at June 30, 2002 was approximately $1,579.7 million. Such aggregate market value was calculated by using the closing price of such common stock as of such date on the New York Stock Exchange of $21.80.
As of March 7, 2003, there were 76,665,871 shares of United Rentals, Inc. common stock outstanding. There is no market for the common stock of United Rentals (North America), Inc., all outstanding shares of which are owned by United Rentals, Inc.
Documents incorporated by reference: Certain sections of the Proxy Statement of United Rentals, Inc. to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days of the registrant’s fiscal year are incorporated by reference into Part III of this Form 10-K.
This combined Form 10-K is separately filed by (i) United Rentals, Inc. and (ii) United Rentals (North America), Inc. (which is a wholly owned subsidiary of United Rentals, Inc.). United Rentals (North America), Inc. meets the conditions set forth in general instruction (I)(1) (a) and (b) of Form 10-K and is therefore filing this form with the reduced disclosure format permitted by such instruction.
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FORM 10-K REPORT INDEX
10-K Part and Item No. Page No.
PART I Item 1 Business 1 Item 2 Properties 7 Item 3 Legal Proceedings 8 Item 4 Submission of Matters to a Vote of Security Holders 8
PART II Item 5 Market for the Registrant’s Common Equity and Related Stockholder Matters 9 Item 6 Selected Financial Data 10 Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 12 Item 7A Quantitative and Qualitative Disclosures About Market Risk 30 Item 8 Financial Statements and Supplementary Data Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 93
PART III Item 10 Directors and Executive Officers of the Registrant 93 Item 11 Executive and Director Compensation 93 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 93 Item 13 Certain Relationships and Related Transactions 93 Item 14 Controls and Procedures 94
PART IV Item 15 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 94 Table of Contents
Certain statements contained in this Report are forward-looking in nature. Such statements can be identified by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “seek,” “on-track,” “plan,” “intend” or “anticipate,” or the negative thereof or comparable terminology, or by discussions of strategy. You are cautioned that our business and operations are subject to a variety of risks and uncertainties and, consequently, our actual results may materially differ from those projected by any forward-looking statements. Certain of such risks and uncertainties are discussed below under Item 7—“Management’s Discussion and Analysis of Financial Condition and Result of Operations—Factors that May Influence Future Results and Accuracy of Forward-Looking Statements.” We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made.
We file reports and other information with the Securities and Exchange Commission (“SEC”) pursuant to the information requirements of the Securities Exchange Act of 1934. Readers may read and copy any document we file at the SEC’s public reference room in Washington, D.C. Please call the SEC at 1- 800-SEC-0330 for further information on the public reference room. Our filings are also available to the public from commercial document retrieval services and at the SEC’s website at www.sec.gov.
We make available on our internet website free of charge our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports as soon as practicable after we electronically file such reports with the SEC. Our website address is www.unitedrentals.com. The information contained in our website is not incorporated by reference in this Report.
PART I
Unless otherwise indicated, the information under Items 1 and 2 is as of March 1, 2003.
Item 1. Business
General
United Rentals is the largest equipment rental company in the world. We offer for rent over 600 types of equipment—everything from heavy machines to hand tools—through our network of more than 750 rental locations in the United States, Canada and Mexico. Our customers include construction and industrial companies, manufacturers, utilities, municipalities, homeowners and others. In 2002, we added 300,000 new customers increasing our total customer base to 1.7 million, completed over 8.6 million rental transactions and generated revenues of $2.8 billion.
Our fleet of rental equipment, the largest in the world, includes over 500,000 units having an original purchase price of approximately $3.7 billion. The fleet includes:
• General construction and industrial equipment, such as backhoes, skid-steer loaders, forklifts, earth moving equipment, material handling
equipment, compressors, pumps and generators;
• Aerial work platforms, such as scissor lifts and boom lifts;
• General tools and light equipment, such as power washers, water pumps, heaters and hand tools;
• Traffic control equipment, such as barricades, cones, warning lights, message boards and pavement marking systems; and
• Trench safety equipment for below ground work, such as trench shields, aluminum hydraulic shoring systems, slide rails, crossing plates,
construction lasers and line testing equipment.
In addition to renting equipment, we sell used rental equipment, act as a dealer for new equipment and sell related merchandise, parts and service.
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Industry Overview
Based on industry sources, we estimate that the U.S. equipment rental industry has grown from approximately $6.5 billion in annual rental revenues in 1990 to about $24 billion in 2002. This represents a compound annual growth rate of approximately 11.5%, although in the past two years industry rental revenues decreased by about $2 billion. The recent downturn in industry revenues is a reflection of the significant slowdown in private non-residential construction activity, which declined 16% in 2002 according to Department of Commerce data. Our industry is particularly sensitive to changes in non- residential construction activity because this sector has been the principal user of rental equipment. When non-residential construction activity eventually rebounds, we would expect to see our industry resume its long-term growth trend.
We believe that long-term industry growth, in addition to reflecting general economic expansion, is being driven by the increasing recognition by equipment users of the many advantages that equipment rental may offer compared with ownership. They recognize that by renting they can:
• avoid the large capital investment required for equipment purchases;
• access a broad selection of equipment and select the equipment best suited for each particular job;
• reduce storage and maintenance costs; and
• access the latest technology without investing in new equipment.
While the construction industry has to date been the principal user of rental equipment, industrial companies, utilities and others are increasingly using rental equipment for plant maintenance, plant turnarounds and other functions requiring the periodic use of equipment. We believe that over the long term increasing rentals by the industrial sector could become a more significant factor in driving our industry’s growth.
Competitive Advantages
We believe that we benefit from the following competitive advantages:
Large and Diverse Rental Fleet. Our rental fleet is the largest and most comprehensive in the industry, which allows us to:
• attract customers by providing “one-stop” shopping;
• serve a diverse customer base and reduce our dependence on any particular customer or group of customers; and
• serve customers that require substantial quantities and/or wide varieties of equipment.
Significant Purchasing Power. We purchase large amounts of equipment, merchandise and other items, which enables us to negotiate favorable pricing, warranty and other terms with our vendors.
Operating Efficiencies. We benefit from the following operating efficiencies:
Equipment Sharing Among Branches. We generally group our branches into clusters of 10 to 30 locations that are in the same geographic area. Each branch within a cluster can access all available equipment in the cluster area. This increases equipment utilization because equipment that is idle at one branch can be marketed and rented through other branches. In 2002, the sharing of equipment among branches accounted for approximately 11.3%, or $243 million, of our total rental revenue.
Ability to Transfer Equipment Among Branches. The size of our branch network gives us the ability to take advantage of strength at a particular branch or in a particular region by permanently transferring underutilized equipment from weaker to stronger areas. In 2002, we permanently transferred $890 million of underutilized fleet in this manner.
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Consolidation of Common Functions. We reduce costs through the consolidation of functions that are common to our more than 750 branches, such as payroll, accounts payable, benefits and risk management, information technology and credit and collection, into 17 credit offices and three service centers.
State-of-the-Art Information Technology Systems. We have state-of-the-art information technology systems that facilitate our ability to make rapid and informed decisions, respond quickly to changing market conditions, and share equipment among branches. We have an in-house team of 97 information technology specialists that supports our systems.
Strong Brand Recognition. We have strong brand recognition, which helps us to attract new customers and build customer loyalty.
Geographic and Customer Diversity. We have more than 750 branches in 47 states, seven Canadian provinces and Mexico and serve customers that range from Fortune 500 companies to small companies and homeowners. In 2002, we served more than 1.7 million customers and our top ten customers accounted for less than 3% of our revenues. We believe that our geographic and customer diversity provide us with many advantages including: (1) enabling us to better serve National Account customers with multiple locations, (2) helping us achieve favorable resale prices by allowing us to access used equipment resale markets across the country, (3) reducing our dependence on any particular customer and (4) reducing the impact that fluctuations in regional economic conditions have on our overall financial performance.
National Account Program. Our National Account sales force is dedicated to establishing and expanding relationships with large companies, particularly those with a national or multi-regional presence. We offer our National Account customers the benefits of a consistent level of service across North America, a wide selection of equipment and a single point of contact for all their equipment needs. We currently serve 1,735 National Account customers. As the number of our National Account customers has grown, our revenues from these customers have increased to $422 million in 2002 from $372 million in 2001 and $245 million in 2000.
Strong and Motivated Branch Management. Each of our branches has a full-time branch manager who is supervised by one of our 57 district managers and nine regional vice presidents. We believe that our managers are among the most knowledgeable and experienced in the industry, and we empower them—within budgetary guidelines—to make day-to-day decisions concerning branch matters. Senior management closely tracks branch, district and regional performance with extensive systems and controls, including performance benchmarks and detailed monthly operating reviews. The compensation of branch managers and other branch personnel is linked to their branch’s financial performance and return on assets. This incentivizes branch personnel to control costs, optimize pricing, share equipment with other branches and manage their fleet efficiently.
Employee Training Programs. We have ongoing programs for training our employees in sales and service skills and on methods for maximizing the value of each transaction. In 2002, more than 4,000 of our employees enhanced their skills through 69,400 total hours of internal training.
Risk Management and Safety Programs. We believe that we have one of the most comprehensive risk management and safety programs in the industry. Our risk management department is staffed by 54 experienced professionals and is responsible for implementing our safety programs and procedures, developing our employee and customer training programs and managing any claims against us.
Products and Services
Our principal products and services are described below. For financial information concerning our foreign and domestic operations, see Note 16 of the Notes to Consolidated Financial Statements included elsewhere in this Report.
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Equipment Rental. We offer for rent over 600 different types of equipment on a daily, weekly or monthly basis. The types of equipment that we offer include general construction and industrial equipment; aerial work platforms; traffic control equipment; trench safety equipment; and general tools and light equipment.
Our fleet of rental equipment is the largest in the world and includes over 500,000 units having an original purchase price of approximately $3.7 billion. We estimate that each of the following categories accounted for 10% or more of our equipment rental revenues in 2002: (i) aerial lift equipment (approximately 27%), (ii) earth moving equipment (approximately 13%) and (iii) forklifts (approximately 10%).
Our fleet of rental equipment, which currently has a weighted average age of 36 months, is one of the newest and best maintained in the industry. We intend to increase the weighted average age of our fleet to about 42 months by the end of 2003. Over the longer term, we may further increase the average age of our fleet to about 45 months. This plan reflects our belief that the optimum age of our fleet is somewhat higher than where it is today. In estimating the optimum age of our fleet, we have taken into account a number of factors, including our current estimates regarding the relationship between age and reliability and maintenance costs and the capital expenditures required to maintain the fleet at a particular age. We will continue to evaluate these factors and, if our estimates prove inaccurate, may modify our plan.
Used Equipment Sales. We routinely sell used rental equipment and invest in new equipment in order to manage the age, composition and size of our fleet. We also sell used equipment in response to customer demand for this equipment. The rate at which we replace used equipment with new equipment depends on a number of factors, including changing general economic conditions, growth opportunities, the need to adjust fleet composition to meet customer requirements and local demand, and the age of the fleet.
We principally sell used equipment through our national sales force, which can access many resale markets across North America. We also sell used equipment through our website (www.unitedrentals.com), which includes an online database of used equipment available for sale.
New Equipment Sales. We are a dealer for many leading equipment manufacturers. The manufacturers that we represent and the brands that we carry include: Genie and JLG (aerial lifts); Multiquip, Wacker, Bomag, and Honda USA (compaction equipment, generators, and pumps); Sullair (compressors); Skytrak and Lull (rough terrain reach forklifts); Bobcat, Thomas and Takeuchi (skid-steer loaders and mini-excavators); and Terex (off-road dump trucks and telehandlers). Typically, dealership agreements do not have a specific term and may be terminated at any time. The type of new equipment that we sell varies by location.
Related Merchandise, Parts and Other Services. At most of our branches, we sell a variety of supplies and merchandise such as saw blades, fasteners, drill bits, hard hats, gloves and other safety equipment and we also offer repair and maintenance services and sell parts for equipment that is owned by our customers.
We have launched a program to increase merchandise sales across our network by building on the best practices of our strongest retail locations. As part of this program, we are (1) upgrading merchandise displays, (2) adding merchandise sales representatives, and (3) bringing the merchandise to our customers through catalogues and job-site “trailer” stores. Our goal is to double our merchandise sales over the next two to three years.
Our Rentalman™ Software. We have a subsidiary that develops and markets Rentalman TM software for use by equipment rental companies in managing and operating multiple branch locations. This software package developed by this subsidiary is used by many of the largest equipment rental companies.
Customers
Our customer base is highly diversified and ranges from Fortune 500 companies to small businesses and homeowners. Our largest customer accounted for approximately 1% of our revenues in 2002 and our top 10 customers accounted for less than 3% of our revenues in 2002.
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Our customer base varies by branch and is determined by several factors, including the equipment mix and marketing focus of the particular branch and the business composition of the local economy. Our customers include:
• construction companies that use equipment for building and renovating commercial buildings, warehouses, industrial and manufacturing plants,
office parks, airports, residential developments and other facilities;
• industrial companies—such as manufacturers, chemical companies, paper mills, railroads, ship builders and utilities—that use equipment for
plant maintenance, upgrades, expansion and construction;
• municipalities that require equipment for a variety of purposes, such as traffic control and highway construction and maintenance; and
• homeowners and other individuals that use equipment for projects that range from simple repairs to major renovations.
Sales and Marketing
General
We market our products and services through multiple channels as described below.
Sales Force. As of March 7, 2003, we had a total of 2,487 salespeople, including 1,217 store-based sales coordinators and 1,270 field-based salespeople. Our sales force calls on existing and potential customers and assists our customers in planning for their equipment needs.
National Account Program. Our National Account sales force is dedicated to establishing and expanding relationships with large customers, particularly those with a national or multi-regional presence. The National Account team closely coordinates its efforts with the local sales force in each area. Our National Account team currently includes 34 sales professionals.
E-Rental Store™. Our customers can rent or buy equipment online 24 hours a day seven days a week at our E-Rental Store ™, which is part of our website. Our customers can also use our UR data™ application to access up-to-the-minute reports on their business activity with us.
Advertising. We promote our business through local and national advertising in various media, including trade publications, Yellow Pages, the Internet, radio and direct mail. We also regularly participate in industry trade shows and conferences and sponsor a variety of local promotional events.
Sales Training Programs
We have ongoing programs for training our employees in sales and service skills and on methods for maximizing the value of each transaction. As part of this training, our employees are taught to differentiate United Rentals to customers by communicating the benefits we offer—stability, accessibility, equipment knowledge, extensive fleet and high service level.
Suppliers
We have been making ongoing efforts to consolidate our vendor base in order to further increase our purchasing power. We estimate that our largest supplier accounted for approximately 19% of our rental equipment purchases in 2002, and that our top 10 largest suppliers accounted for approximately 70% of our rental equipment purchases during that period. We believe that we have alternative sources of supply for each of our material equipment categories.
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Information Technology Systems
We have advanced information technology systems, which facilitate rapid and informed decision-making and enable us to respond quickly to changing market conditions. Each branch is equipped with one or more workstations that are electronically linked to our other locations and to our AS/400 system located at our data center. All rental transactions are entered at these workstations and processed on a real-time basis. Management and branch personnel can access the systems 24 hours a day.
These systems:
• allow management to obtain a wide range of operating and financial data;
• enable branch personnel to (1) determine equipment availability, (2) access all equipment within a geographic region and arrange for equipment to be delivered from anywhere in the region directly to the customer, (3) monitor business activity on a real-time basis and (4) obtain customized reports
on a wide range of operating and financial data, including equipment utilization, rental rate trends, maintenance histories and customer transaction histories; and
• permit customers to access their accounts online.
Our information technology systems and our website are supported by our in-house group of 97 information technology specialists. This group trains our personnel at the branch location; upgrades and customizes our systems; provides hardware and technology support; operates a support desk to assist branch personnel in the day-to-day use of the systems; extends the systems to newly acquired locations; and manages our website.
We have a back-up facility designed to enable business continuity in the event that our main computer facility becomes inoperative. This backup facility also allows us to perform system upgrades and maintenance without interfering with the normal ongoing operation of our information technology systems.
Competition
The equipment rental industry is highly fragmented and competitive. Our competitors primarily include small, independent businesses with one or two rental locations; regional competitors which operate in one or more states; public companies or divisions of public companies; and equipment vendors and dealers who both sell and rent equipment directly to customers. We believe that, in general, large companies enjoy significant competitive advantages compared to smaller operators, including greater purchasing power, a lower cost of capital, the ability to provide customers with a broader range of equipment and services and with newer and better maintained equipment, and greater flexibility to transfer equipment among locations in response to customer demand. For additional information, see “—Competitive Advantages.”
Environmental and Safety Regulations
There are numerous federal, state and local laws and regulations governing environmental protection and occupational health and safety. Under these laws, an owner or lessee of real estate may be liable on a no-fault basis for, among other things, (1) the costs of removal or remediation of hazardous or toxic substances located on, in, or emanating from, the real estate, as well as related costs of investigation and property damage and substantial penalties, and (2) environmental contamination at facilities where its waste is or has been disposed. Activities that are or may be affected by these laws include our use of hazardous materials to clean and maintain equipment and our disposal of solid and hazardous waste and wastewater from equipment washing. We also dispense petroleum products from underground and aboveground storage tanks located at certain locations, and at times we must remove or upgrade tanks to comply with applicable laws. We have acquired or lease certain locations, which have or may have been contaminated by leakage from underground tanks or other sources, and we are in the process of assessing the nature of the required remediation. Based on the conditions currently known to us, we believe that any unreserved environmental remediation and compliance costs required with respect to those conditions will not have a material adverse effect on our business. However, we cannot be certain that we will not identify adverse environmental conditions that are not currently known to us, that all potential releases from underground storage tanks removed in the past have been identified, or that environmental and safety requirements will not become more stringent or be interpreted and applied more
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Employees
We have 12,937 employees. Of these employees, 3,869 are salaried personnel and 9,068 are hourly personnel. Collective bargaining agreements relating to 79 separate locations cover 1,063 of our employees. We consider our relationship with our employees to be satisfactory.
Item 2. Properties
We currently operate 751 locations. Of these locations, 669 are in the United States, 81 are in Canada and one is in Mexico. The number of locations in each state or province is shown below.
United States •Alabama (12) •Louisiana (8) •Oklahoma (6) •Alaska (5) •Maine (2) •Oregon (28) •Arizona (20) •Maryland (20) •Pennsylvania (14) •Arkansas (3) •Massachusetts (13) •Rhode Island (3) •California (102) •Michigan (8) •South Carolina (8) •Colorado (18) •Minnesota (14) •South Dakota (5) •Connecticut (12) •Mississippi (2) •Tennessee (8) •Delaware (5) •Missouri (12) •Texas (55) •Florida (36) •Montana (2) •Utah (9) •Georgia (22) •Nebraska (5) •Virginia (12) •Idaho (2) •Nevada (12) •Washington (35) •Illinois (15) •New Hampshire (2) •Wisconsin (7) •Indiana (18) •New Jersey (10) •Wyoming (2) •Iowa (14) •New Mexico (4) •Kansas (7) •New York (20) •Kentucky (7) •North Carolina (19) •North Dakota (10) •Ohio (16)
Canada Mexico •Alberta (5) •Nuevo Leon (1) •British Columbia (19) •Manitoba (2) •Newfoundland (9) •Ontario (34) •Quebec (10) •Saskatchewan (2)
Our branch locations generally include facilities for displaying equipment and, depending on the location, may include separate equipment service areas and storage areas.
We own 102 of our rental locations and lease the other locations. In addition to our rental locations we also lease non-rental locations, for example district offices, region offices and service centers. Our leases provide for varying terms and include 43 leases that are on a month-to-month basis and 36 leases that provide for a remaining term of less than one year and do not provide a renewal option. We are currently negotiating renewals for most of the leases that provide for a remaining term of less than one year.
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We maintain a fleet of approximately 10,400 vehicles. These vehicles are used for delivery, maintenance and sales functions. We own a portion of this fleet and lease a portion.
Our corporate headquarters are located in Greenwich, Connecticut, where we occupy approximately 40,000 square feet under leases for (1) approximately 12,000 square feet that extends until 2003 and (2) approximately 28,000 square feet that extends until 2004 (subject to extension rights). The 28,000 square feet portion is sufficient for our needs and, accordingly, we do not plan to renew the lease for the 12,000 square feet that expires in 2003.
Item 3. Legal Proceedings
We are party to various litigation matters, in most cases involving ordinary and routine claims incidental to our business. We cannot estimate with certainty our ultimate legal and financial liability with respect to such pending litigation matters. However, we believe, based on our examination of such matters, that our ultimate liability will not have a material adverse effect on our financial position, results of operations or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of 2002, no matter was submitted to a vote of our security holders.
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PART II
Item 5. Market For Registrant’s Common Equity and Related Stockholder Matters
Price Range of Common Stock
Our common stock trades on the New York Stock Exchange under the symbol “URI.” The following table sets forth, for the periods indicated, the high and low sale prices for our common stock, as reported by the New York Stock Exchange.
High Low
2002: First Quarter $ 30.83 $ 19.30 Second Quarter 28.87 20.80 Third Quarter 19.40 8.40 Fourth Quarter 10.86 5.88 2001: First Quarter $ 19.44 $ 13.19 Second Quarter 26.25 15.19 Third Quarter 25.48 16.46 Fourth Quarter 24.49 16.97
As of March 7, 2003, there were approximately 443 holders of record of our common stock. We believe that the number of beneficial owners is substantially greater than the number of record holders, because a large portion of our common stock is held of record in broker “street names.”
Dividend Policy
We intend to retain all earnings for the foreseeable future for use in the operation and expansion of our business and, accordingly, we currently have no plans to pay dividends on our common stock. The payment of any future dividends will be determined by the Board of Directors in light of conditions then existing, including our earnings, financial condition and capital requirements, restrictions in financing agreements, business conditions and other factors. Under the terms of certain agreements governing our outstanding indebtedness, we are prohibited or restricted from paying dividends on our common stock. In addition, under Delaware law, we are prohibited from paying any dividends unless we have capital surplus or net profits available for this purpose.
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Item 6. Selected Financial Data
You should read the following data together with our Consolidated Financial Statements and related Notes included elsewhere in this Report and Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
We completed a number of acquisitions during the periods presented below. We accounted for certain of these acquisitions as poolings-of-interests. This means that, for accounting and financial reporting purposes, the acquired company is treated as having been combined with us at all times since the inception of the acquired company. Accordingly, we have restated our accounts to include the accounts of the businesses that we acquired in these pooling-of-interests transactions, except in one case where the transaction was not material. We accounted for our other acquisitions as purchases. This means that the results of operations of the acquired company are included in our financial statements only from the date of acquisition. We believe that our results for the periods presented below are not directly comparable because of the impact of the acquisitions accounted for as purchases. For additional information, see Note 3 of the Notes to Consolidated Financial Statements included elsewhere in this Report.
Year Ended December 31
1998 1999 2000 2001 2002
(in thousands, except per share data) Income statement data: Total revenues $ 1,220,282 $ 2,233,628 $ 2,918,861 $ 2,886,605 $ 2,820,989 Total cost of revenues 796,834 1,408,710 1,830,291 1,847,135 1,934,712
Gross profit 423,448 824,918 1,088,570 1,039,470 886,277 Selling, general and administrative expenses 195,620 352,595 454,330 441,751 438,918 Goodwill impairment 247,913 Restructuring charge 28,922 28,262 Merger-related expenses 47,178 Non-rental depreciation and amortization 35,248 62,867 86,301 106,763 59,301
Operating income 145,402 409,456 547,939 462,034 111,883 Interest expense 64,157 139,828 228,779 221,563 195,961 Preferred dividends of a subsidiary trust 7,854 19,500 19,500 19,500 18,206 Other (income) expense, net (4,906) 8,321 (1,836) 6,421 (900)
Income (loss) before provision for income taxes, extraordinary items and cumulative effect of change in accounting principle 78,297 241,807 301,496 214,550 (101,384) Provision for income taxes 43,499 99,141 125,121 91,977 8,102
Income (loss) before extraordinary items and cumulative effect of change in accounting principle 34,798 142,666 176,375 122,573 (109,486) Extraordinary items, net (1) 21,337 11,317 Cumulative effect of change in accounting principle, net (2) (288,339)
Net income (loss) $ 13,461 $ 142,666 $ 176,375 $ 111,256 $ (397,825)
Pro forma provision for income taxes before extraordinary items (3) $ 44,386 Pro forma income before extraordinary items (3) 33,911 Basic earnings (loss) before extraordinary items and cumulative effect of change in accounting principle per share $ 0.53 $ 2.00 $ 2.48 $ 1.70 $ (1.45) Diluted earnings (loss) before extraordinary items and cumulative effect of change in accounting principle per share $ 0.48 $ 1.53 $ 1.89 $ 1.30 $ (1.45) Basic earnings (loss) per share (4) $ 0.20 $ 2.00 $ 2.48 $ 1.54 $ (5.25) Diluted earnings (loss) per share (4) $ 0.18 $ 1.53 $ 1.89 $ 1.18 $ (5.25) Other financial data: Depreciation and amortization $ 211,158 $ 343,508 $ 414,432 $ 427,726 $ 384,849 Dividends on common stock — — — — —
December 31
1998 1999 2000 2001 2002
(dollars in thousands) Balance sheet data: Cash and cash equivalents $ 20,410 $ 23,811 $ 34,384 $ 27,326 $ 19,231 Rental equipment, net 1,143,006 1,659,733 1,732,835 1,747,182 1,845,675 Goodwill, net (5) 922,065 1,853,279 2,215,532 2,199,774 1,705,191 Total assets 2,634,663 4,497,738 5,123,933 5,061,516 4,690,557 Total debt 1,314,574 2,266,148 2,675,367 2,459,522 2,512,798 Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust 300,000 300,000 300,000 300,000 226,550 Series A and B preferred stock (6) 430,800 430,800 Stockholders’ equity 726,230 966,686 1,115,143 1,625,510 1,331,505
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(1) The charge in 1998 resulted from the early extinguishment of certain debt and primarily reflected prepayment penalties. The charge in 2001 resulted from the refinancing of certain debt and primarily reflected the write-off of deferred financing fees. (2) The cumulative effect of change in accounting principle in 2002 resulted from a goodwill impairment charge recognized upon the adoption of a new accounting standard. See Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Changes in Accounting Treatment for Goodwill and Other Intangible Assets” and Note 4 to the Notes to Consolidated Financial Statements included elsewhere in this Report. (3) A company that we acquired in a pooling-of-interests transaction was taxed as a Subchapter S Corporation until being acquired by us in 1998. In general, the income or loss of a Subchapter S Corporation is passed through to its owners rather than being subjected to taxes at the entity level. Pro forma provision for income taxes before extraordinary items and pro forma income before extraordinary items reflect a provision for income taxes as if such company was liable for federal and state income taxes as a taxable corporate entity for all periods presented. (4) Our earnings during 1998 were impacted by merger-related expenses of $47.2 million ($33.2 million net of tax or $0.45 per diluted share), a $4.8 million ($0.07 per diluted share) charge to recognize deferred tax liabilities of a company acquired in a pooling-of-interests transaction and an extraordinary item (net of tax) of $21.3 million ($0.30 per diluted share). Our earnings during 1999 were impacted by $18.2 million ($10.8 million net of tax or $0.12 per diluted share) of expenses incurred related to a terminated tender offer. Our earnings during 2001 were impacted by a restructuring charge of $28.9 million ($19.2 million net of tax or $0.20 per diluted share), a $7.8 million ($5.2 million net of tax or $0.06 per diluted share) charge, recorded in other expense, relating to refinancing costs of a synthetic lease and an extraordinary item (net of tax) of $11.3 million ($0.12 per diluted share). Our earnings during 2002 were impacted by a restructuring charge of $28.3 million ($17.3 million net of tax or $0.23 per share), a $247.9 million goodwill impairment charge ($198.8 million net of tax or $2.62 per share), a $1.6 million charge ($0.9 million net of tax or $0.01 per share) recorded in other expense relating to refinancing costs, and a cumulative effect of change in accounting principle (net of tax) of $288.3 million ($3.80 per share). (5) Goodwill is defined as the excess of cost over the fair value of identifiable net assets of businesses acquired. Until January 1, 2002, goodwill was being amortized on a straight-line basis over forty years. Beginning January 1, 2002, in accordance with the adoption of a new accounting standard, goodwill was no longer amortized. See Item 7—“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Changes in Accounting Treatment for Goodwill and Other Intangible Assets” and Note 4 to the Notes to Consolidated Financial Statements included elsewhere in this Report. (6) We issued series A and B perpetual convertible preferred stock in 1999 and included such preferred stock in stockholders’ equity. In July 2001, the SEC issued guidance to all public companies as to when redeemable preferred stock may be classified as stockholders’ equity. Under this guidance, the series A and B preferred would not be included in stockholders’ equity because this stock would be subject to mandatory redemption on a hostile change of control. On September 28, 2001, we entered into an agreement effecting the exchange of new series C and D perpetual convertible preferred stock for the series A and B preferred. The series C and D preferred is not subject to mandatory redemption on a hostile change of control, and is included in stockholders’ equity under the recent SEC guidance. The effect of the foregoing is that our perpetual convertible preferred stock is included in stockholders’ equity as of September 28, 2001 and thereafter, but is outside of stockholders’ equity for earlier dates.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
We are the largest equipment rental company in the world. Our revenues are divided into three categories:
• Equipment rentals—This category includes our revenues from renting equipment. This category also includes related revenues such as the fees we
charge for equipment delivery, fuel, repair of rental equipment and damage waivers.
• Sales of rental equipment—This category includes our revenues from the sale of used rental equipment.
• Sales of equipment and merchandise and other revenues—This category principally includes our revenues from the following sources: (i) the sale of new equipment, (ii) the sale of supplies and merchandise, (iii) repair services and the sale of parts for equipment owned by customers, and
(iv) the operations of our subsidiary that develops and markets software for use by equipment rental companies in managing and operating multiple branch locations.
Our cost of operations consists primarily of: (i) depreciation costs relating to the rental equipment that we own and lease payments for the rental equipment that we hold under operating leases, (ii) the cost of repairing and maintaining rental equipment, (iii) the cost of the items that we sell including new and used equipment and related parts, merchandise and supplies and (iv) personnel costs, occupancy costs and supply costs.
We record rental equipment expenditures at cost and depreciate equipment using the straight-line method over the estimated useful life (which ranges from two to ten years), after giving effect to an estimated salvage value of 0% to 10% of cost.
Selling, general and administrative expenses primarily include sales commissions, bad debt expense, advertising and marketing expenses, management salaries, and clerical and administrative overhead.
Non-rental depreciation and amortization includes (i) depreciation expense associated with equipment that is not offered for rent (such as vehicles, computers and office equipment) and amortization expense associated with leasehold improvements, (ii) the amortization of deferred financing costs and (iii) the amortization of other intangible assets. Our other intangible assets consist of non-compete agreements. As described below, effective January 1, 2002, we no longer amortize goodwill.
We completed acquisitions in each of 2000, 2001 and 2002. See Note 3 to the Notes to our Consolidated Financial Statements included elsewhere in this Report. In view of the fact that our operating results for these years were affected by acquisitions, we believe that our results for these periods are not directly comparable.
Change in Accounting Treatment for Goodwill and Other Intangible Assets
Effective January 1, 2002, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” issued by the Financial Accountants Standards Board (“FASB”). Under this standard, our goodwill, which we previously amortized over 40 years, is no longer amortized. We amortized approximately $58.4 million of goodwill in 2001. Our approximately $17.0 million of other intangible assets will continue to be amortized over their estimated useful lives. Under the new accounting standard, we are required to periodically review our goodwill for impairment. In general, this means that we must determine whether the fair value of the goodwill, calculated in accordance with applicable accounting standards, is at least equal to the recorded value shown on our balance sheet. If the fair value of the goodwill is less than the recorded value, we are required to write off the excess goodwill as an expense.
We completed our initial impairment analysis in the first quarter of 2002 and recorded a non-cash charge of approximately $348.9 million ($288.3 million, net of tax). We completed a subsequent impairment analysis in the fourth quarter of 2002 and recorded an additional non-cash impairment charge of approximately
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$247.9 million ($198.8 million, net of tax). The first impairment charge, net of tax benefit, was recorded on our statement of operations as a “Cumulative Effect of Change in Accounting Principle.” This charge appears below the operating income line and, accordingly, does not impact operating income. The second impairment charge was recorded on our statement of operations as “goodwill impairment.” This charge appears above the operating income line and, accordingly, does impact operating income. Our stockholders’ equity was reduced by the amount of both charges.
We will be required to review our goodwill for further impairment at least annually. Any future goodwill impairment charge would be recorded on our statement of operations as “goodwill impairment” and would reduce operating income.
We test for goodwill impairment on a branch-by-branch basis rather than on an aggregate basis. This means that a goodwill write-off is required even if only one or a limited number of our branches has impairment and even if there is no impairment for all our branches on an aggregate basis. Factors that may cause future impairment at a particular branch, in addition to macroeconomic factors that affect all our branches, include changes in local demand and local competitive conditions. The fact that we test for impairment on a branch-by-branch basis increases the likelihood that we will be required to take additional non-cash goodwill write-offs in the future, although we cannot quantify at this time the magnitude of any future write-offs.
Critical Accounting Policies
We prepare our financial statements in accordance with accounting principles generally accepted in the United States. A summary of our significant accounting policies is contained in Note 2 to the Notes to our Consolidated Financial Statements included elsewhere in this Report. In applying many accounting principles, we need to make assumptions, estimates and/or judgments. These assumptions, estimates and judgments are often subjective and may change based on changing circumstances or changes in our analysis. Material changes in these assumptions, estimates and judgments have the potential to materially alter our results of operations. We have identified below those of our accounting policies that we believe could potentially produce materially different results were we to change underlying assumptions, estimates and judgments.
Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts. These allowances reflect our estimate of the amount of our receivables that we will be unable to collect. Our estimate could require change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase or decrease our allowance.
Useful Lives of Rental Equipment and Property and Equipment. We depreciate rental equipment and property and equipment over their estimated useful lives, after giving effect to an estimated salvage value of 0% to 10% of cost. The useful life of an asset is determined based on our estimate of the period the asset will generate revenues, and the salvage value is determined based on our estimate of the minimum value we could realize from the asset after such period. We may be required to change these estimates based on changes in our industry or other changing circumstances. If these estimates change in the future, we may be required to recognize increased or decreased depreciation expense for these assets.
Impairment of Goodwill. As described above, we must periodically determine whether the fair value of our goodwill is at least equal to the recorded value shown on our balance sheet. See “—Change in Accounting Treatment for Goodwill and Other Intangible Assets.” We must make estimates and assumptions in evaluating the fair value of goodwill. We may be required to change these estimates and assumptions based on changes in economic conditions, changes in our business prospects or other changing circumstances. If these estimates change in the future, we may be required to record additional impairment charges for goodwill.
Impairment of Long-Lived Assets. We review the valuation of our long-lived assets on an ongoing basis and assess the carrying value of such assets if facts and circumstances suggest they may be impaired. If this
13 Table of Contents review indicates that the carrying value of these assets may not be recoverable, then the carrying value is reduced to its estimated fair value. The determination of recoverability is based upon a nondiscounted cash flow analysis over the asset’s remaining useful life. We must make estimates and assumptions when applying the nondiscounted cash flow analysis. These estimates and assumptions may prove to be inaccurate due to factors such as changes in economic conditions, changes in our business prospects or other changing circumstances. If these estimates change in the future, we may be required to recognize write- downs on our long-lived assets.
Restructuring. During 2002 and 2001, we recorded reserves in connection with the restructuring plans described below. These reserves include estimates pertaining to workforce reduction costs and costs of vacating facilities and related settlements of contractual obligations. Although we do not anticipate significant changes, the actual costs may differ from these estimates and we may be required to record additional expense not previously recorded.
Restructuring Plans in 2001 and 2002
We adopted a restructuring plan in April 2001 and a second restructuring plan in October 2002 as described below. These plans were adopted in response to adverse changes in economic conditions and in branch performance in certain of our markets. In connection with these plans, we recorded a restructuring charge of $28.9 million in 2001 (including a non-cash component of approximately $10.9 million) and $28.3 million in the fourth quarter of 2002 (including a non-cash component of approximately $2.5 million).
The 2001 plan involved the following principal elements: (i) 31 underperforming branches and five administrative offices were closed or consolidated with other locations, (ii) the reduction of our workforce by 489 through the termination of branch and administrative personnel, and (iii) certain information technology hardware and software was no longer used.
The 2002 plan involved the following key elements: (i) 42 underperforming branches and five administrative offices will be closed or consolidated with other locations (including 26 closed or consolidated as of December 31, 2002); (ii) our workforce will be reduced by 412 (including 232 terminated as of December 31, 2002), and (iii) a certain information technology project was abandoned. We expect to close or consolidate the remainder of the branches and complete the workforce reduction during 2003.
The aggregate annual revenues from the 42 branches that are being eliminated as part of the 2002 restructuring amounted to approximately $80 million. We estimate that we will retain a substantial portion of these revenues because we expect to: (i) redeploy most of the rental equipment of the eliminated branches to other branches that we project will be able to use this equipment to increase revenues and (ii) shift a portion of the customer base of the eliminated branches to other locations. We cannot, however, be certain that redeployed equipment will generate increased revenues in line with our projections or that we will not lose more customers than we expect. Assuming that the retained revenues are in line with our estimate, we project that the net savings from the 2002 restructuring will increase our annual operating income by about $20 million.
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The table below provides certain information concerning our restructuring charges. For additional information, see Note 5 to the Notes to our Consolidated Financial Statements included elsewhere herein.
Components of Balance Balance Restructuring Charge December 31, 2001(1) Amount of 2002 Charge Activity in 2002(2) December 31, 2002(3)
(in thousands) Costs to vacate facilities(4) $ 3,538 $ 24,569 $ 5,849 $ 22,258 Workforce reduction costs(5) 2,055 2,776 1,369 3,462 Information technology costs(6) 1,417 917 939 1,395
Total $ 7,010 $ 28,262 $ 8,157 $ 27,115
(1) Represents the cash component of the 2001 charge that had not been paid as of December 31, 2001. (2) Represents (i) the non-cash component of the 2002 charge that relates to the elements of the 2002 restructuring plan that were implemented through the end of 2002 and (ii) the cash components of the 2001 and 2002 charges that were paid in 2002. (3) Represents (i) the non-cash component of the 2002 charge that relates to the elements of the 2002 restructuring plan that will be implemented after 2002 and (ii) the cash components of the 2001 and 2002 charges that were not paid as of December 31, 2002. (4) These costs primarily represent (i) payment of obligations under leases offset by estimated sublease opportunities, (ii) the write-off of capital improvements made to such facilities and (iii) the write-off of related goodwill (only in 2001). (5) These costs primarily represent severance. (6) These costs primarily represent the abandonment of certain information technology projects and the payment of obligations under equipment leases relating to such projects.
As indicated in table above, the aggregate balance of the 2001 and 2002 charges was $27.1 million as of December 31, 2002. We estimate that approximately $13.4 million of the remaining 2001 and 2002 charges will be incurred by December 31, 2003 (comprised of approximately $12.4 million of the cash component and approximately $1.0 million of the non-cash component) and approximately $13.7 million in future periods. These payments will not affect our future earnings because the charges associated with these payments have already been recorded in our 2002 or 2001 results. We expect to make these payments with cash from our operations.
Debt Refinancings and Extraordinary Item
We refinanced approximately $199.4 million of indebtedness in December 2002. In connection with this transaction, we recorded a $1.6 million charge ($0.9 million, net of tax) for the write-off of deferred financing fees attributable to the debt that was refinanced. For additional information concerning this transaction, see “—Liquidity and Capital Resources—Financing Transaction in 2002.”
We refinanced an aggregate of $1,695.7 million of indebtedness and other obligations in April 2001. In connection with this transaction, we recorded the following charges: (i) a pre-tax extraordinary charge of $18.1 million ($11.3 million, net of tax) that relates to the refinancing of indebtedness and primarily reflects the write-off of deferred financing fees attributable to the debt that was refinanced and (ii) a pre-tax charge of $7.8 million ($5.2 million, net of tax) that is recorded in other (income) expense, net, and relates to the refinancing of a synthetic lease.
Results of Operations
Overview of 2002 Results
Our results in 2002 were hurt by the $505.4 million of after-tax charges for non-cash goodwill write-offs and restructuring and refinancing costs described above. These charges are the reason that we ended the year with a net loss of $397.8 million.
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If you exclude the charges described above in both 2002 and 2001, then we would have had income, as adjusted, of $107.6 million in 2002, representing a 26.8% decrease from $147.0 million in 2001. The table below reconciles our net income (loss) to our income, as adjusted, to exclude specified charges. We provide this as adjusted data because we believe that an analysis of such data, in conjunction with an analysis of the GAAP data, may be useful to investors in understanding our 2002 results.
2002 2001
(in thousands) Net income (loss) $ (397,825) $ 111,256 Plus: Restructuring charge, net of tax 17,343 19,233 Goodwill impairment charge, net of tax 198,826 Refinancing costs, net of tax 932 5,204 Extraordinary item, net of tax 11,317 Cumulative effect of accounting change (related to goodwill impairment), net of tax 288,339
Income, as adjusted $ 107,615 $ 147,010
Private non-residential construction declined by 16% in 2002, according to Department of Commerce data. This reduced demand for our equipment and put downward pressure on rental rates and on used equipment prices. Our rental rates were down 4.8% and 5.2% for full-year and fourth-quarter 2002, respectively, on a year-over-year basis. The decrease in rental rates was partially offset by a 2.1% increase in the volume of rental transactions at locations open more than one year and by revenues attributable to new locations, partially offset by locations closed or consolidated. The net effect was that our total revenues for the year decreased 2.2% to $2,821.0 million and our same-store rental revenues decreased 2.7%.
The decrease in rental rates and used equipment prices and, to a lesser extent, increases in certain operating costs hurt our gross profit margins. Our gross profit margin from rentals decreased to 32.1% in 2002 from 37.9% in 2001, and our gross profit margin from sales of used rental equipment decreased to 33.7% in 2002 from 39.7% in 2001. On an overall basis our gross profit margin declined to 31.4% in 2002 from 36.0% in 2001.
Our lower revenues and gross profit margins in 2002 are the principal factors that caused income, as adjusted, to decrease to $107.6 in 2002 from $147.0 in 2001. These negative factors were partially offset by the elimination of goodwill amortization in 2002 as described above, which added approximately $36.6 million to our 2002 income, as adjusted.
While income was down in 2002, we maintained ample liquidity. We generated cash flow of $694.1 million, which included $517.9 million from operations and the balance from the sale of used rental equipment. We used $492.3 million of this cash to invest in our rental fleet. At year-end, we had $45.3 million drawn under our revolving credit facility, leaving us with $493.1 million of available borrowing capacity on this facility after taking into account letters of credit.
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Additional Information
Years Ended December 31, 2002 and 2001
Revenues. We had total revenues of $2,821.0 million in 2002, representing a decrease of 2.2% from total revenues of $2,886.6 million in 2001. The different components of our revenues are discussed below:
1. Equipment Rentals. Our revenues from equipment rentals were $2,154.7 million in 2002, representing a decrease of 2.6% from $2,212.9 million in 2001. These revenues accounted for 76.4% of our total revenues in 2002 compared with 76.7% of our total revenues in 2001. The decrease in rental revenues principally reflected the following:
• Our rental revenues from locations open more than one year, or same store rental revenues, decreased by approximately 2.7%. This decrease reflected a decrease in rental rates, which was partially offset by a 2.1% increase in the volume of rental transactions. The decrease in rental rates
was 4.8% for full year 2002 and 5.2% for the fourth quarter of 2002 on a year-over-year basis. The decrease in rental rates principally reflected continued weakness in non-residential construction spending.
• The decrease in same store rental revenues was partially offset by additional revenues attributable to new locations that we acquired or opened. These additional revenues, net of revenues lost due to locations sold or closed, caused our overall decline in rental revenues to be 0.1 percentage points less than it would otherwise have been.
2. Sales of Rental Equipment. Our revenues from the sale of rental equipment were $176.2 million in 2002, representing an increase of 19.8% from $147.1 million in 2001. These revenues accounted for 6.2% of our total revenues in 2002 compared with 5.1% of our total revenues in 2001. The increase in these revenues in 2002 reflected an increase in volume partially offset by weaker pricing.
3. Sales of Equipment and Merchandise and Other Revenues. Our revenues from “sale of equipment and merchandise and other revenues” were $490.1 million in 2002, representing a decrease of 6.9% from $526.6 million in 2001. These revenues accounted for 17.4% of our total revenues in 2002 compared with 18.2% of our total revenues in 2001. The decrease in these revenues in 2002 principally reflected a decrease in the volume of new equipment sales.
Gross Profit. Gross profit decreased to $886.3 million in 2002 from $1,039.5 million in 2001. This decrease reflected the decrease in total revenues discussed above, as well as the decrease in gross profit margin described below from equipment rental and the sale of rental equipment. Information concerning our gross profit margin by source of revenue is set forth below:
1. Equipment Rentals. Our gross profit margin from equipment rental revenues was 32.1% in 2002 and 37.9% in 2001. The decrease in 2002 principally reflected the decrease in rental rates described above and, to a lesser extent, higher costs related to employee benefits, fleet maintenance and delivery, and facilities.
2. Sales of Rental Equipment. Our gross profit margin from sales of rental equipment was 33.7% in 2002 and 39.7% in 2001. The decrease in 2002 primarily reflected continued price weakness in the used equipment market.
3. Sales of Equipment and Merchandise and Other Revenues. Our gross profit margin from “sales of equipment and merchandise and other revenues” was 27.6% in 2002 and 27.1% in 2001. The increase in the gross profit margin in 2002 primarily reflected better margins for our service revenue.
Selling, General and Administrative Expenses . Selling, general and administrative expenses (“SG&A”) were $438.9 million, or 15.6% of total revenues, during 2002 and $441.8 million, or 15.3% of total revenues,
17 Table of Contents during 2001. Our bad debt expense, which is a component of SG&A, was approximately $9.5 million higher in 2002 than in 2001, primarily reflecting an increase in our allowance for doubtful accounts. Without this increase in bad debt expense, our SG&A as a percentage of revenues would have decreased to 15.2% of total revenues in 2002 from 15.6% in 2001. This decrease in SG&A, excluding the change in bad debt expense, primarily reflected our ongoing efforts at cutting costs, including reducing the number of administrative personnel, reducing discretionary expenditures and consolidating certain credit and collection facilities.
Goodwill Impairment. We recorded a goodwill impairment charge of $247.9 million in the fourth quarter of 2002. See “—Change in Accounting Treatment for Goodwill and Other Intangible Assets” for additional information.
Restructuring Charge. We recorded a restructuring charge of $28.3 million in 2002 and $28.9 million in 2001. See “—Restructuring Plans in 2002 and 2001” for additional information.
Non-rental Depreciation and Amortization. Non-rental depreciation and amortization was $59.3 million, or 2.1% of total revenues, in 2002 and $106.8 million, or 3.7% of total revenues, in 2001. This decrease was primarily attributable to a new accounting standard (discussed above under “—Change in Accounting Treatment For Goodwill and Other Intangible Assets”) which eliminated the amortization of goodwill effective January 1, 2002. If goodwill amortization had been eliminated in 2001, then non-rental depreciation and amortization would have been $48.5 million, or 1.7% of total revenues, in 2001. The increase in non-rental depreciation and amortization in 2002 as compared to the amount in 2001, after eliminating goodwill amortization, primarily reflected an increase in our non-rental assets such as facilities and transportation equipment.
Operating Income. We recorded operating income of $111.9 million in 2002 compared with operating income of $462.0 million in 2001. The principal reason for the decrease in 2002 was the $247.9 million non-cash goodwill impairment charge that we recorded in 2002. However, after excluding that charge our operating income was still lower by approximately $102.2 million from the 2001 level. The principal reason for this decrease was the declines in revenues and gross profit described above. The adverse effects of these factors were partially offset by the decrease in non-rental depreciation and amortization described above.
Interest Expense. Interest expense decreased to $196.0 million in 2002 from $221.6 million in 2001. This decrease primarily reflected lower interest rates on our variable rate debt.
Preferred Dividends of a Subsidiary Trust. Preferred dividends of a subsidiary trust were $18.2 million during 2002 as compared to $19.5 million during 2001. The decrease in 2002 reflects our repurchase of a portion of our outstanding trust preferred securities.
Other (Income) Expense. Other income was $0.9 million in 2002 compared with other expense of $6.4 million in 2001. The other income in 2002 was primarily attributable to the favorable settlement of a lawsuit for net proceeds of $4.0 million, partially offset by other charges including the write-off of $1.6 million of deferred financing fees as described above. The other expense in 2001 was primarily attributable to a $7.8 million charge relating to the refinancing of a synthetic lease as described above. See “—Debt Refinancings and Extraordinary Item.”
Income Taxes. Income taxes were $8.1 million in 2002 compared with $92.0 million in 2001. Although we had a loss in 2002, we recorded income tax expense because a portion of our $247.9 million goodwill impairment charge was not deductible for federal income tax purposes. If you exclude the goodwill impairment charge in calculating our income, then our effective tax rate in 2002 would have been 39.0% compared with 42.9% in 2001. The decrease in such effective rate in 2002 reflects the elimination of goodwill amortization in 2002 and the non-deductibility for income tax purposes of certain costs included in the 2001 restructuring charge.
Income (Loss) Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle. We had a loss before extraordinary item and cumulative effect of change in accounting principle of $109.5 million in
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2002 compared with income before extraordinary item of $122.6 million in 2001. The loss in 2002 principally reflects the decrease in operating income described above.
Cumulative Effect of Change in Accounting Principle . As described under “—Change in Accounting Treatment for Goodwill and Other Intangible Assets,” we recorded an amount of $288.3 million, net of tax, for impairment of goodwill as part of our transitional impairment test upon the adoption of SFAS No. 142.
Years Ended December 31, 2001 and 2000
Revenues. We had total revenues of $2,886.6 million in 2001, representing a decrease of 1.1% from total revenues of $2,918.9 million in 2000. The different components of our revenues are discussed below:
1. Equipment Rentals. Our revenues from equipment rentals were $2,212.9 million 2001, representing an increase of 7.6% from $2,056.7 million in 2000. These revenues accounted for 76.7% of our total revenues in 2001 compared with 70.5% of our total revenues in 2000. The increase in rental revenues reflected the following:
• We increased our revenues at locations open more than one year. This increase accounted for approximately 5.6 percentage points of the total increase of 7.6%. The increase in revenues at these locations was due to an increase in the volume of transactions, which was more than sufficient to offset a decline in rental rates. Rental rates for 2001 were down 0.8% compared to 2000.
• We also had additional revenues because we added new rental locations through start-ups and acquisitions. These additional revenues, net of
revenues lost due to locations sold or closed, accounted for approximately 2.0 percentage points of the total increase of 7.6%.
2. Sales of Rental Equipment. Our revenues from the sale of rental equipment were $147.1 million in 2001, representing a decrease of 57.7% from $347.7 million in 2000. These revenues accounted for 5.1% of our total revenues in 2001 compared with 11.9% of our total revenues in 2000. This decrease principally reflected our decision to slow investment in new equipment and hold existing equipment longer during a recessionary environment.
3. Sales of Equipment and Merchandise and Other Revenues. Our revenues from “sale of equipment and merchandise and other revenues” were $526.6 million in 2001, representing an increase of 2.4% from $514.5 million in 2000. These revenues accounted for 18.2% of our total revenues in 2001 compared with 17.6% of our total revenues in 2000. The 2.4% increase in sales of equipment and merchandise and other revenues was attributable to the increase in the volume of transactions.
Gross Profit. Gross profit decreased to $1,039.5 million in 2001 from $1,088.6 million in 2000. This decrease reflected the decrease in total revenues discussed above, as well as the decrease in gross profit margin described below from equipment rental and the sales of rental equipment. Information concerning our gross profit margin by source of revenue is set forth below:
1. Equipment Rentals. Our gross profit margin from equipment rental revenues was 37.9% in 2001 and 39.9% in 2000. The decrease in 2001 principally reflected: (i) an increase in our cost of equipment rental, which was principally attributable to an increase in the amount of equipment that we hold under operating leases rather than owning, and (ii) the decrease in rental rates described above.
2. Sales of Rental Equipment. Our gross profit margin from the sales of rental equipment was 39.7% in 2001 and 40.1% in 2000. This decrease was primarily the result of modest price declines in some geographic areas.
3. Sales of Equipment and Merchandise and Other Revenues. Our gross profit margin from “sales of equipment and merchandise and other revenues” was 27.1% in 2001 and 24.9% in 2000. The increase in the gross profit margin in 2001 primarily reflected: (i) lower costs resulting from our ongoing efforts to consolidate
19 Table of Contents our suppliers and further capitalize on our purchasing power and (ii) a shift in mix which resulted in more of our sales being attributable to higher margin areas such as providing services and merchandise sales.
Selling, General and Administrative Expenses . SG&A was $441.8 million, or 15.3% of total revenues, during 2001 and $454.3 million, or 15.6% of total revenues, during 2000. The decrease in SG&A in 2001 primarily reflected cost-cutting measures that we have taken, including reducing the number of administrative personnel, reducing discretionary expenditures and consolidating certain credit and collection facilities.
Restructuring Charge. We recorded a restructuring charge of $28.9 million in 2001. See “—Restructuring Plans in 2001 and 2002” for additional information.
Non-rental Depreciation and Amortization. Non-rental depreciation and amortization was $106.8 million, or 3.7% of total revenues, in 2001 and $86.3 million, or 3.0% of total revenues, in 2000. The increase in the dollar amount of non-rental depreciation and amortization in 2001 primarily reflected (i) the amortization of goodwill attributable to acquisitions completed during 2000 and (ii) additional non-rental vehicles which generally have shorter useful lives.
Operating Income. We recorded operating income of $462.0 million in 2001 compared with operating income of $547.9 million in 2000. The principal reason for the decrease in 2001 was the $28.9 million restructuring charge and the decrease in revenues from the sale of rental equipment described above.
Interest Expense. Interest expense decreased to $221.6 million in 2001 from $228.8 million in 2000. This decrease primarily reflected lower interest rates on our variable rate debt.
Preferred Dividends of a Subsidiary Trust. During 2001 and 2000, preferred dividends of a subsidiary trust were $19.5 million.
Other (Income) Expense. Other expense was $6.4 million in 2001 compared with other income of $1.8 million in 2000. The increase in other expense in 2001 was primarily attributable to the $7.8 million charge we incurred relating to the refinancing costs of a synthetic lease as described under “—Debt Refinancings and Extraordinary Item.”
Income Taxes. Income taxes were $92.0 million, or an effective rate of 42.9%, in 2001 compared to $125.1 million, or an effective rate of 41.5%, in 2000. The increase in the effective rate in 2001 was primarily attributable to the non-deductibility for income tax purposes of certain costs included in the restructuring charge.
Income Before Extraordinary Item. We had income before extraordinary item of $122.6 million in 2001 compared with income before extraordinary item of $176.4 million in 2000. The decrease in 2001 principally reflected the decrease in operating income and the $6.4 million of other expense described above.
Extraordinary Item. We recorded an extraordinary charge of $18.1 million ($11.3 million, net of tax) in 2001. See “—Debt Refinancings and Extraordinary Item” for additional information.
Liquidity and Capital Resources
Financing Transaction in 2002
In December 2002, we sold $210.0 million aggregate principal amount of our 10 ¾% Senior Notes Due 2008. The gross proceeds to us from the sale of the notes were approximately $203.8 million and the net proceeds were approximately $199.4 million (after deducting the initial purchasers’ discount and offering expenses). These new notes are unsecured and were issued by United Rentals (North America), Inc. (“URI”), a wholly owned subsidiary of United Rentals, Inc. (“Holdings”) and are guaranteed by Holdings and, subject to limited exceptions, our domestic subsidiaries. We used the net proceeds to (i) permanently repay approximately
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$99.7 million of outstanding indebtedness under our existing term loan and (ii) repay approximately $99.7 million of outstanding borrowings under our revolving credit facility. For additional information concerning this transaction, see note 9 to our consolidated financial statements included elsewhere in this report.
In connection with the offering of the notes, we amended the agreement governing our existing term loan and revolving credit facility to, among other things, (i) provide us with greater flexibility in maintaining or satisfying certain financial ratios and tests required thereunder through the end of 2004 and (ii) reduce the maximum borrowing available under our revolving credit facility from $750 million to $650 million.
Certain Balance Sheet Changes
The decrease in goodwill at December 31, 2002 as compared to December 31, 2001 was primarily attributable to the write-offs of goodwill as a result of the adoption of SFAS No. 142 as further described under “—Change in Accounting Treatment for Goodwill and Other Intangible Assets.” The decrease in deferred taxes at December 31, 2002 as compared to December 31, 2001 was primarily attributable to the tax effects of the goodwill write-off and the exercise of stock options in 2002. The decrease in retained earnings and stockholders’ equity at December 31, 2002 as compared to December 31, 2001, reflects our net loss in 2002. The increase in additional paid-in capital at December 31, 2002 as compared to December 31, 2001 was primarily attributable to: (i) the issuance of additional shares upon the exercise of stock options and restricted stock, partially offset by common stock repurchased and retired, and (ii) the repurchase of 1,469,000 shares of our Company-obligated mandatorily redeemable convertible preferred securities at a price less than their liquidation preference.
Sources and Uses of Cash
During 2002, we (i) generated cash from operations of $517.9 million, (ii) generated cash from the sale of rental equipment of $176.2 million, (iii) received cash of $63.8 million from the issuance of common stock for the exercise of stock options and (iv) obtained cash from borrowings, net of repayments, of approximately $16.6 million. We used cash during this period principally to (i) pay consideration for acquisitions ($172.6 million), (ii) purchase rental equipment ($492.3 million), (iii) purchase other property and equipment ($38.6 million), (iv) purchase and retire shares of our outstanding common stock ($26.7 million), and (v) repurchase and retire shares of our convertible preferred securities ($38.1 million).
Certain Information Concerning Our Credit Facility
Our revolving credit facility enables United Rentals (North America), Inc. (“URI”), our wholly owned subsidiary, to borrow up to $650 million on a revolving basis and enables one of URI’s Canadian subsidiaries to borrow up to $50 million (provided that the aggregate borrowings of URI and the Canadian subsidiary may not exceed $650 million). Up to $175 million of the revolving credit facility is available in the form of letters of credit. The revolving credit facility will mature and terminate on October 20, 2006.
As of December 31, 2002, borrowings under the revolving credit facility by URI accrue interest, at our option, at either (A) the ABR Rate (which is equal to the greater of (i) the Federal Funds Rate plus 0.5% or (ii) the Chase Manhattan Bank’s prime rate) plus a margin of 1.50% or (B) an adjusted LIBOR rate plus a margin of 2.50%. The above interest rate margins are adjusted quarterly based on our financial leverage ratio, up to maximum margins of 1.75% and 2.75%, for revolving loans based on the ABR rate and the adjusted LIBOR rate, respectively, and down to minimum margins of 0.75% and 1.75%, for revolving loans based on the ABR rate and the adjusted LIBOR rate, respectively. If at any time an event of default exists, the interest rate applicable to each loan will increase by 2% per annum. We are also required to pay the lenders a commitment fee equal to 0.5% per annum in respect of undrawn commitments under the revolving credit facility.
Certain Information Concerning Receivables Securitization
We have an accounts receivable securitization facility under which one of our subsidiaries can borrow up to $250 million against a collateral pool of accounts receivable. The borrowings under the facility and the
21 Table of Contents receivables in the collateral pool are included in the liabilities and assets, respectively, reflected on our consolidated balance sheet. Key terms of this facility include:
• borrowings may be made only to the extent that the face amount of the receivables in the collateral pool exceeds the outstanding loans by a specified
amount;
• the facility is structured so that the receivables in the collateral pool are the lenders’ only source of repayment;
• prior to expiration or early termination of the facility, amounts collected on the receivables may, subject to certain conditions, be retained by the
borrower, provided that the remaining receivables in the collateral pool are sufficient to secure the then outstanding borrowings; and
• after expiration or early termination of the facility, we will repay the borrowings
As of December 31, 2002, (i) the outstanding borrowings under the facility were approximately $160.5 million and (ii) the aggregate face amount of the receivables in the collateral pool was approximately $346.8 million. The agreement governing this facility, which was amended in June 2001, contemplates that the term of the facility may extend for up to three years from the date of the amended facility. However, on each anniversary of such date, the consent of the lender is required for the facility to renew for the next year. The next anniversary date is in June 2003. We plan to seek the lenders’ approval for renewal or, alternatively, seek to obtain a new facility. The lenders under this facility may, at their option, terminate the facility in the event that our long-term senior secured debt securities are at any time rated “B+” or below by Standard & Poor’s Rating Services or “B1” or below by Moody’s Investor Service.
Cash Requirements Related to Operations
Our principal existing sources of cash are cash generated from operations and from the sale of rental equipment and borrowings available under our revolving credit facility. As of March 11, 2003, we had $459.1 million of borrowing capacity available under our $650 million revolving credit facility (reflecting outstanding loans of approximately $48.1 million and outstanding letters of credit in the amount of approximately $142.8 million). We believe that our existing sources of cash will be sufficient to support our existing operations over the next 12 months.
We expect that our principal needs for cash relating to our existing operations over the next 12 months will be to fund (i) operating activities and working capital, (ii) the purchase of rental equipment and inventory items offered for sale, (iii) payments due under operating leases, (iv) debt service, and (v) costs relating to our restructuring plans. We plan to fund such cash requirements relating to our existing operations from our existing sources of cash described above. In addition, we plan to seek additional financing through the securitization of some of our equipment. For information on the scheduled principal payments coming due on our outstanding debt and on the payments coming due under our existing operating leases, see “—Certain Information Concerning Contractual Obligations.”
The amount of our future capital expenditures will depend on a number of factors, including general economic conditions and growth prospects. Based on current conditions, we estimate that capital expenditures for the year 2003 will be approximately $350 million for our existing operations. These expenditures are comprised of approximately $300 million of expenditures to replace rental equipment sold and $50 million of expenditures for the purchase of non-rental equipment. We expect that we will fund such expenditures from proceeds from the sale of used equipment, cash generated from operations and, if required, borrowings available under our revolving credit facility.
We plan to increase the weighted average age of our fleet, which is approximately 36 months, to 42 months by the end of 2003. Over the longer term we may further increase the average age of our fleet to about 45 months. This plan reflects our belief that the optimum age of our fleet is somewhat higher than where it is today. In estimating the optimum age of our fleet, we have taken into account a number of factors, including our current estimates regarding the relationship between age and reliability and maintenance costs and the capital
22 Table of Contents expenditures required to maintain the fleet at a particular age. We will continue to evaluate these factors and, if our estimates prove inaccurate, may modify our plan.
While emphasizing internal growth, we may also continue to expand through a disciplined acquisition program. We will consider potential transactions of varying size and may, on a selective basis, pursue acquisition or consolidation opportunities involving other public companies or large privately-held companies. We expect to pay for future acquisitions using cash, capital stock, notes and/or assumption of indebtedness. To the extent that our existing sources of cash described above are not sufficient to fund such future acquisitions, we will require additional debt or equity financing and, consequently, our indebtedness may increase or the ownership of existing stockholders may be diluted as we implement our growth strategy.
Certain Information Concerning Contractual Obligations
The table below provides certain information concerning the payments coming due under certain categories of our existing contractual obligations:
2003 2004 2005 2006 2007 Thereafter Total (2)
(in thousands) Debt excluding capital leases (1) $ 163,300(2) $ 6,904 $ 220 $ 152,802 $ 531,563 $ 1,612,392 $ 2,467,181 Capital leases (1) 20,119 19,650 5,848 45,617 Operating leases(1): Real estate 68,068 63,613 55,650 50,574 46,383 108,093 392,381 Rental equipment 110,642 88,189 82,325 246,719 39,927 567,802 Other equipment 21,873 15,847 5,239 2,063 1,072 357 46,451 Purchase obligations Other long-term liabilities
Total $ 384,002 $ 194,203 $ 149,282 $ 452,158 $ 618,945 $ 1,720,842 $ 3,519,432
(1) The payments due with respect to a period represent (i) in the case of debt and capital leases, the scheduled principal payments due in such period, and (ii) in the case of operating leases, the minimum lease payments due in such period under non-cancelable operating leases. (2) Includes $160.5 million that is payable should our accounts receivable securitization facility terminate in 2003. As described under “—Certain Information Concerning Receivables Securitization,” subject to the lenders’ consent being obtained, the term of this facility may be extended. Extension of the facility in 2003 would reduce the debt payable in 2003 from $163.3 million to $2.8 million and increase by a corresponding amount the debt payable in the year during which the extended facility terminates.
Certain Information Concerning Off-Balance Sheet Arrangements
Restricted Stock. We have granted to employees other than executive officers and directors approximately 1,165,000 shares of restricted stock that contain the following provisions. The shares vest in 2004, 2005 or 2006 or earlier upon a change in control of the Company, death, disability, retirement or certain terminations of employment, and are subject to forfeiture prior to vesting on certain other terminations of employment, the violation of non-compete provisions and certain other events. The grants provide that we will pay to employees who vest in their restricted stock, and who sell their restricted stock within five trading days after vesting, a maximum aggregate amount for all these employees of: (i) approximately $300,000 for each dollar by which the per share proceeds of these sales are less than $27.26 but more than $15.17; (ii) a maximum aggregate amount for all these employees of approximately $500,000 for each dollar by which the per share proceeds of these sales
23 Table of Contents are less than $15.17 but more than $9.18; and (iii) a maximum aggregate amount for all these employees of approximately $1,165,000 for each dollar by which the per share proceeds of these sales are less than $9.18.
Operating Leases. We lease real estate, rental equipment and non-rental equipment under operating leases as a regular business activity. As part of many of our equipment operating leases, we guarantee that the value of the equipment at the end of the term will not be less than a specified projected residual value. The use of these guarantees helps to lower our monthly operating lease payments. We believe that the projected residual values are reasonable and, accordingly, that we are not likely to incur material obligations pursuant to such guarantees. However, we cannot be certain that the actual residual values will not turn out to be significantly below the projected values that we guaranteed. Our maximum potential liability under these guarantees is $231.6 million, which represents the aggregate amount that we would be required to pay if the residual value was zero for all equipment subject to such guarantees. In conformity with applicable accounting standards, this potential liability is not recorded on our balance sheet. For additional information concerning lease payment obligations under our operating leases, see “—Certain Information Concerning Contractual Obligations” and note 15 to our consolidated financial statements included elsewhere in this Report.
Certain Information Concerning Trust Preferred Securities
In August 1998, a subsidiary trust of United Rentals, Inc. sold six million shares of 6½% Convertible Quarterly Income Preferred Securities (“Trust Preferred Securities”) for aggregate consideration of $300 million. During 2002, we repurchased 1,469,000 of these shares for aggregate consideration of approximately $38.1 million, which represents a discount of approximately 48% relative to the aggregate liquidation preference of approximately $73.5 million.
Relationship Between Holdings and URI
United Rentals, Inc. (“Holdings”) is principally a holding company and primarily conducts its operations through its wholly owned subsidiary United Rentals (North America), Inc. (“URI”) and subsidiaries of URI. Holdings provides certain services to URI in connection with its operations. These services principally include: (i) senior management services, (ii) finance related services and support, (iii) information technology systems and support, and (iv) acquisition related services. In addition, Holdings leases certain equipment and real property that are made available for use by URI and its subsidiaries. URI has made, and expects to continue to make, certain payments to Holdings in respect of the services provided by Holdings to URI. The expenses relating to URI’s payments to Holdings are reflected on URI’s financial statements as selling, general and administrative expenses. In addition, although not legally obligated to do so, URI has in the past, and expects that it will in the future, make distributions to Holdings to, among other things, enable Holdings to pay dividends on the Trust Preferred Securities that were issued by a subsidiary trust of Holdings as described above.
The Trust Preferred Securities are the obligation of a subsidiary trust of Holdings and are not the obligation of URI. As a result, the dividends payable on these securities are reflected as an expense on the consolidated financial statements of Holdings, but are not reflected as an expense on the consolidated financial statements of URI. This is the principal reason why the net income reported on the consolidated financial statements of URI is higher than the net income reported on the consolidated financial statements of Holdings.
Fluctuations in Operating Results
We expect that our revenues and operating results may fluctuate from quarter to quarter or over the longer term. Certain of the general factors that may cause such fluctuations are discussed under “—Factors that May Influence Future Results and Accuracy of Forward Looking Statements—Fluctuations of Operating Results.”
Accounting For Certain Expenses Relating to Potential Acquisitions
In accordance with accounting principles generally accepted in the United States, we capitalize certain direct out-of-pocket expenditures (such as legal and accounting fees) relating to potential or pending acquisitions.
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Indirect acquisition costs, such as executive salaries, general corporate overhead, public affairs and other corporate services, are expensed as incurred. Our policy is to charge against earnings any capitalized expenditures relating to any potential or pending acquisition that we determine will not be consummated. There can be no assurance that in future periods we will not be required to incur a charge against earnings in accordance with such policy, which charge, depending upon the magnitude thereof, could adversely affect our results of operations.
Seasonality
Our business is seasonal with demand for our rental equipment tending to be lower in the winter months. The seasonality of our business is heightened because we offer for rent traffic control equipment. Branches that rent a significant amount of this type of equipment tend to generate most of their revenues and profits in the second and third quarters of the year, slow down during the fourth quarter and operate at a loss during the first quarter.
Inflation
Although we cannot accurately anticipate the effect of inflation on our operations, we believe that inflation has not had, and is not likely in the foreseeable future to have, a material impact on our results of operations.
Impact of Recently Issued Accounting Standards
We adopted the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” effective January 1, 2002. This standard addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, “Intangible Assets.” Under this standard, goodwill and other intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests on a reporting unit level. For additional information, see “-Change in Accounting Treatment For Goodwill and Other Intangible Assets.” Other intangible assets are being amortized over their estimated useful lives.
In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. This standard addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”. We adopted this standard on January 1, 2002. The adoption of SFAS No. 144 did not have an impact on our consolidated financial position or results of operations.
In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. This standard rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt”, and an amendment of that Statement, SFAS No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements”. This standard also rescinds SFAS No. 44, “Accounting for Intangible Assets of Motor Carriers”. This standard amends SFAS No. 13, “Accounting for Leases”, to eliminate an inconsistency related to the required accounting for sale-leaseback transactions and certain lease modifications. This standard also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. We adopted this standard on January 1, 2003, and we will reclassify a pre-tax extraordinary loss of approximately $18.1 million recognized during the second quarter of 2001 to operating income. The adoption of the remaining provisions of SFAS No. 145 did not have a material effect on our consolidated financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. This standard addresses financial accounting and reporting for costs associated with exit or disposal activities and requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This standard nullifies EITF Issue
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No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. This standard is effective for exit or disposal activities initiated after December 31, 2002.
In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. This interpretation requires certain guarantees entered into after December 31, 2002 to be initially recognized and recorded at fair value and also requires new disclosures related to guarantees even if the likelihood of a guarantor having to make payments under the guarantees is remote. We adopted this interpretation as of December 31, 2002 and such adoption did not have an impact on our consolidated financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”. This standard provides alternative methods of transition to the fair value method of accounting for stock-based employee compensation under SFAS No. 123, “Accounting for Stock-Based Compensation,” but does not require us to use the fair value method. This standard also amends certain disclosure requirements related to stock-based employee compensation. We adopted the disclosure portion of this standard as of December 31, 2002 and such adoption is reflected in Note 2 to the Notes to our Consolidated Financial Statements.
Factors that May Influence Future Results and Accuracy of Forward-Looking Statements
Sensitivity to Changes in Construction and Industrial Activities
Our equipment is principally used in connection with construction and industrial activities. Consequently, decreases in construction or industrial activity due to a recession or other reasons may lead to a decrease in the demand for our equipment or the prices that we can charge. Any such decrease could adversely affect our revenues and operating results. For example, as discussed above, our 2002 revenues, pricing and operating results were adversely affected by a significant decline in non-residential construction activity.
We have identified below certain factors that may cause a further downturn in construction and industrial activity, either temporarily or long-term:
• a continuation or a worsening of the current recessionary environment;
• an increase in interest rates;
• adverse weather conditions which may temporarily affect a particular region; or
• terrorism or hostilities involving the United States.
In addition, demand for our equipment may not reach projected levels in the event that funding for highway and other construction projects under government programs is reduced.
Fluctuations of Operating Results
We expect that our revenues and operating results may fluctuate from quarter to quarter or over the longer term due to a number of factors. These factors include:
• seasonal rental patterns of our customers, with rental activity tending to be lower in the winter;
• completion of acquisitions;
• changes in the amount of revenue relating to renting traffic control equipment, since revenues from this equipment category tend to be more seasonal
than the rest of our business;
• changes in the size of our rental fleet or in the rate at which we sell our used equipment;
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• changes in demand for our equipment or the prices therefor due to changes in economic conditions, competition or other factors;
• changes in the interest rates applicable to our floating rate debt;
• increases in the cost of fuel due to the current military conflict or other factors;
• if we determine that a potential acquisition will not be consummated, the need to charge against earnings any expenditures relating to such
transaction (such as financing commitment fees, merger and acquisition advisory fees and professional fees) previously capitalized;
• the possible need, from time to time, to take goodwill write-offs as described below or other write-offs or special charges due to a variety of
occurrences such as the adoption of new accounting standards, store consolidations or closings or the refinancing of existing indebtedness.
Substantial Goodwill
At December 31, 2002, we had on our balance sheet net goodwill in the amount of $1,705.2 million, which represented approximately 36.4% of our total assets at such date. This goodwill is an intangible asset and represents the excess of the purchase price that we paid for acquired businesses over the estimated fair value of the net assets of those businesses. We are required to test our goodwill for impairment at least annually. In general, this means that we must determine whether the fair value of the goodwill, calculated in accordance with applicable accounting standards, is at least equal to the recorded value shown on our balance sheet. If the fair value of the goodwill is less than the recorded value, we are required to write off the excess goodwill as an expense. Any write- off would adversely affect our results, as was the case in 2002 as described above.
We test for goodwill impairment on a branch-by-branch basis rather than on an aggregate basis. This means that a goodwill write-off is required even if only one or a limited number of our branches has impairment and even if there is no impairment for all our branches on an aggregate basis. Factors that may cause future impairment at a particular branch, in addition to macro economic factors that affect all our branches, include changes in local demand and local competitive conditions. The fact that we test for impairment on a branch-by-branch basis increases the likelihood that we will be required to take additional non-cash goodwill write-offs in the future, although we cannot quantify at this time the magnitude of any future write-off.
Substantial Indebtedness
At December 31, 2002, our total indebtedness was approximately $2,512.8 million. Our substantial indebtedness has the potential to affect us adversely in a number of ways. For example, it will or could:
• require us to devote a substantial portion of our cash flow to debt service, reducing the funds available for other purposes;
• constrain our ability to obtain additional financing, particularly since substantially all of our assets are subject to security interests relating to
existing indebtedness; or
• make it difficult for us to cope with a downturn in our business or a decrease in our cash flow.
Furthermore, if we are unable to service our indebtedness and fund our business, we will be forced to adopt an alternative strategy that may include:
• reducing or delaying capital expenditures;
• limiting our growth;
• seeking additional capital;
• selling assets; or
• restructuring or refinancing our indebtedness.
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We cannot be sure that any of these strategies could be effected on favorable terms or at all.
A portion of our indebtedness bears interest at variable rates that are linked to changing market interest rates. As a result, an increase in market interest rates would increase our interest expense and our debt service obligations. At December 31, 2002, we had $844.9 million of variable rate indebtedness.
Need to Satisfy Financial and Other Covenants in Debt Agreements
Under the agreements governing our credit facility and our term loan, we are required to, among other things, satisfy certain financial tests relating to: (a) minimum interest coverage ratio, (b) the ratio of funded debt to cash flow, (c) the ratio of senior debt to tangible assets and (d) the ratio of senior debt to cash flow. If we are unable to satisfy any of these covenants, the lenders could elect to terminate the credit facility and require us to repay the outstanding borrowings under the credit facility and our term loan. In such event, unless we are able to refinance the indebtedness coming due and replace the revolving credit facility, we would likely not have sufficient liquidity for our business needs and be forced to adopt an alternative strategy as described above. We cannot be sure that any alternative strategy could be effected on favorable terms or at all.
We are also subject to various other covenants under the agreements governing our credit facility, term loan and other indebtedness. These covenants limit or prohibit, among other things, our ability to incur indebtedness, make prepayments of certain indebtedness, pay dividends, make investments, create liens, make acquisitions, sell assets and engage in mergers and acquisitions. These covenants could adversely affect our business by significantly limiting our operating and financial flexibility.
Dependence on Additional Capital
If the cash that we generate from our business, together with cash that we may borrow under our credit facility, is not sufficient to fund our capital requirements, we will require additional debt and/or equity financing. We cannot, however, be certain that any additional financing will be available or, if available, will be available on terms that are satisfactory to us. If we are unable to obtain sufficient additional capital in the future, we may be unable to fund the capital outlays required for the success of our business, including those relating to purchasing equipment, making acquisitions, opening new rental locations and refinancing existing indebtedness.
Certain Risks Relating to Acquisitions
We have grown in part through acquisitions and may continue to do so. The making of acquisitions entails certain risks, including:
• unrecorded liabilities of acquired companies that we fail to discover during our due diligence investigations;
• difficulty in assimilating the operations and personnel of the acquired company with our existing operations or in maintaining uniform standards;
and
• loss of key employees of the acquired company.
We cannot guarantee that we will realize the expected benefits from our acquisitions or that our existing operations will not be harmed as a result of acquisitions.
Dependence on Management
Our success is highly dependent on the experience and skills of our senior management team. If we lose the services of any member of this team and are unable to find a suitable replacement, we may not have the depth of senior management resources required to efficiently manage our business and execute our strategy. We do not maintain “key man” life insurance on the lives of members of senior management.
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Competition
The equipment rental industry is highly fragmented and competitive. Our competitors primarily include small, independent businesses with one or two rental locations, regional competitors which operate in one or more states, public companies or divisions of public companies, and equipment vendors and dealers who both sell and rent equipment directly to customers. We may in the future encounter increased competition from our existing competitors or from new companies. Competitive pressures could adversely affect our revenues and operating results by decreasing our market share or depressing the prices that we can charge.
Dependence on Information Technology Systems
Our information technology systems facilitate our ability to monitor and control our operations and adjust to changing market conditions. Any disruptions in these systems or the failure of these systems to operate as expected could, depending on the magnitude of the problem, adversely affect our operating results by limiting our capacity to effectively monitor and control our operations and adjust to changing market conditions.
Liability and Insurance
We are exposed to various possible claims relating to our business. These possible claims include those relating to (1) personal injury or death caused by equipment rented or sold by us, (2) motor vehicle accidents involving our delivery and service personnel and (3) employment related claims. We carry a broad range of insurance for the protection of our assets and operations. However, such insurance may not fully protect us for a number of reasons, including:
• our coverage is subject to deductibles of $2 million for general liability and $3 million for automobile liability and limited to a maximum of $100
million per occurrence;
• we do not maintain coverage for environmental liability (other than legally required fuel storage tank coverage), since we believe that the cost for such
coverage is high relative to the benefit that it provides; and
• certain types of claims, such as claims for punitive damages or for damages arising from intentional misconduct, which are often alleged in third
party lawsuits, might not be covered by our insurance.
If we are found liable for any significant claims that are not covered by insurance, our operating results could be adversely affected. We cannot be certain that insurance will continue to be available to us on economically reasonable terms, if at all.
Environmental and Safety Regulations
Our operations are subject to numerous laws governing environmental protection and occupational health and safety matters. These laws regulate such issues as wastewater, stormwater, solid and hazardous wastes and materials, and air quality. Under these laws, we may be liable for, among other things, (1) the costs of investigating and remediating contamination at our sites as well as sites to which we sent hazardous wastes for disposal or treatment regardless of fault and (2) fines and penalties for non-compliance. Our operations generally do not raise significant environmental risks, but we use hazardous materials to clean and maintain equipment, and dispose of solid and hazardous waste and wastewater from equipment washing, and store and dispense petroleum products from underground and above-ground storage tanks located at certain of our locations.
Based on the conditions currently known to us, we do not believe that any pending or likely remediation and compliance costs will have a material adverse effect on our business. We cannot be certain, however, as to the potential financial impact on our business if new adverse environmental conditions are discovered or environmental and safety requirements become more stringent. If we are required to incur environmental compliance or remediation costs that are not currently anticipated by us, our business could be adversely affected depending on the magnitude of the cost.
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Labor Matters
We have 1,063 employees that are represented by unions and covered by collective bargaining agreements. If we should experience a prolonged labor dispute involving a significant number of our employees, our ability to serve our customers could be adversely affected. Furthermore, our labor costs could increase as a result of the settlement of actual or threatened labor disputes.
Operations Outside the United States
Our operations in Canada and Mexico are subject to the risks normally associated with international operations. These include (1) the need to convert currencies, which could result in a gain or loss depending on fluctuations in exchange rates, (2) the need to comply with foreign laws and (3) the possibility of political or economic instability in foreign countries.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk primarily consists of (1) interest rate risk associated with our variable rate debt and (2) foreign currency exchange rate risk primarily associated with our Canadian operations.
Interest Rate Risk. We periodically utilize interest rate swap agreements to manage and mitigate our exposure to changes in interest rates. At December 31, 2002, we had interest rate protection in the form of swap agreements with an aggregate notional amount of $500.0 million. The effect of some of these agreements is to limit the interest rate exposure to 9.5% on $200.0 million of our term loan. The effect of the remainder of these agreements is to convert $300.0 million of our fixed rate 9 1/4% Notes to a floating rate instrument through 2009.
We have the following indebtedness that bears interest at a variable rate: (i) all borrowings under our $650 million revolving credit facility ($45.3 million outstanding as of December 31, 2002), (ii) our term loan ($639.0 million remaining outstanding as of December 31, 2002), and (iii) all borrowings under our $250 million accounts receivable securitization facility ($160.5 million outstanding as of December 31, 2002). The weighted average interest rates applicable to our variable rate debt as of December 31, 2002 were (i) 5.3% for the revolving credit facility, (ii) 4.8% for the term loan, and (iii) 2.2% for the receivables securitization facility. Based upon the amount of variable rate debt outstanding, taking into account our interest rate swap agreements, as of December 31, 2002 (approximately $944.9 million in the aggregate), our earnings would decrease by approximately $5.8 million for each one percentage point increase in the interest rates applicable to our variable rate debt. The amount of our variable rate indebtedness may fluctuate significantly as a result of changes in the amount of indebtedness outstanding under the revolving credit facility from time to time. For additional information concerning the terms of our variable rate debt, see Note 9 of the Notes to Consolidated Financial Statements included elsewhere in this Report.
Currency Exchange Risk. The functional currency for our Canadian operations is the Canadian dollar. As a result, our future earnings could be affected by fluctuations in the exchange rate between the U.S. and Canadian dollars. Based upon the level of our Canadian operations during 2002 relative to the company as a whole, a 10% change in this exchange rate would have caused our earnings to change by approximately $1.8 million. In addition, we periodically enter into foreign exchange contracts to hedge our transaction exposures. At December 31, 2002, we had no outstanding foreign exchange contracts. We do not engage in purchasing forward exchange contracts for speculative purposes.
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REPORT OF INDEPENDENT AUDITORS
Board of Directors United Rentals, Inc.
We have audited the accompanying consolidated balance sheets of United Rentals, Inc. as of December 31, 2002 and 2001 and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2002. These consolidated financial statements are the responsibility of the management of United Rentals, Inc. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Rentals, Inc. at December 31, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States.
As discussed in Notes 2 and 4 to the consolidated financial statements, the Company adopted Statement of Accounting Standard No. 142, “Goodwill and Other Intangible Assets,” effective January 1, 2002.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey February 20, 2003
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UNITED RENTALS, INC.
CONSOLIDATED BALANCE SHEETS
December 31
2002 2001
(In thousands,
except share data) ASSETS Cash and cash equivalents $ 19,231 $ 27,326 Accounts receivable, net of allowance for doubtful accounts of $48,542 in 2002 and $47,744 in 2001 466,196 450,273 Inventory 91,798 85,764 Prepaid expenses and other assets 131,293 133,217 Rental equipment, net 1,845,675 1,747,182 Property and equipment, net 425,352 410,053 Goodwill, net 1,705,191 2,199,774 Other intangible assets, net 5,821 7,927
$ 4,690,557 $ 5,061,516
LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Accounts payable $ 207,038 $ 204,773 Debt 2,512,798 2,459,522 Deferred taxes 225,587 297,024 Accrued expenses and other liabilities 187,079 174,687
Total liabilities 3,132,502 3,136,006 Commitments and contingencies Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust 226,550 300,000 Stockholders’ equity: Preferred stock—$.01 par value, 5,000,000 shares authorized: Series C perpetual convertible preferred stock—$300,000 liquidation preference, 300,000 shares issued and outstanding 3 3 Series D perpetual convertible preferred stock—$150,000 liquidation preference, 150,000 shares issued and outstanding 2 2 Common stock—$.01 par value, 500,000,000 shares authorized, 76,657,521 shares issued and outstanding in 2002 and 73,361,407 in 2001 765 734 Additional paid-in capital 1,341,290 1,243,586 Deferred compensation (52,988) (55,794) Retained earnings 69,281 467,106 Accumulated other comprehensive loss (26,848) (30,127)
Total stockholders’ equity 1,331,505 1,625,510
$ 4,690,557 $ 5,061,516
See accompanying notes.
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UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31
2002 2001 2000
(In thousands, except per share amounts) Revenues: Equipment rentals $ 2,154,681 $ 2,212,900 $ 2,056,683 Sales of rental equipment 176,179 147,101 347,678 Sales of equipment and merchandise and other revenues 490,129 526,604 514,500
Total revenues 2,820,989 2,886,605 2,918,861 Cost of revenues: Cost of equipment rentals, excluding depreciation 1,137,609 1,053,635 907,477 Depreciation of rental equipment 325,548 320,963 328,131 Cost of rental equipment sales 116,821 88,742 208,182 Cost of equipment and merchandise sales and other operating costs 354,734 383,795 386,501
Total cost of revenues 1,934,712 1,847,135 1,830,291
Gross profit 886,277 1,039,470 1,088,570 Selling, general and administrative expenses 438,918 441,751 454,330 Goodwill impairment 247,913 Restructuring charge 28,262 28,922 Non-rental depreciation and amortization 59,301 106,763 86,301
Operating income 111,883 462,034 547,939 Interest expense 195,961 221,563 228,779 Preferred dividends of a subsidiary trust 18,206 19,500 19,500 Other (income) expense, net (900) 6,421 (1,836)
Income (loss) before provision for income taxes, extraordinary item and cumulative effect of change in accounting principle (101,384) 214,550 301,496 Provision for income taxes 8,102 91,977 125,121
Income (loss) before extraordinary item and cumulative effect of change in accounting principle (109,486) 122,573 176,375 Extraordinary item, net of tax benefit of $6,759 11,317 Cumulative effect of change in accounting principle, net of tax benefit of $60,529 (288,339)
Net income (loss) $ (397,825) $ 111,256 $ 176,375
Earnings (loss) per share—basic: Income (loss) before extraordinary item and cumulative effect of change in accounting principle $ (1.45) $ 1.70 $ 2.48 Extraordinary item, net 0.16 Cumulative effect of change in accounting principle, net (3.80)
Net income (loss) $ (5.25) $ 1.54 $ 2.48
Earnings (loss) per share—diluted: Income (loss) before extraordinary item and cumulative effect of change in accounting principle $ (1.45) $ 1.30 $ 1.89 Extraordinary item, net 0.12 Cumulative effect of change in accounting principle, net (3.80)
Net income (loss) $ (5.25) $ 1.18 $ 1.89
See accompanying notes.
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UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Common Stock
Series C Series D Accumulated Perpetual Perpetual Additional Other Convertible Convertible Number of Paid-in Deferred Retained Comprehensive Comprehensive Preferred Stock Preferred Stock Shares Amount Capital Compensation Earnings Income (Loss) (Loss) Income
(In thousands) Balance, December 31, 1999 72,051 $721 $ 786,173 $179,475 $ 317 Comprehensive income: Net income 176,375 $ 176,375 Other comprehensive income: Foreign currency translation
adjustments (7,264) (7,264)
Comprehensive income $ 169,111
Issuance of common stock 774 8 9,867 Exercise of common stock options 26 421 Shares repurchased and retired (1,785) (18) (30,932)
Balance, December 31, 2000 71,066 711 765,529 355,850 (6,947) Comprehensive income: Net income 111,256 $111,256 Other comprehensive income: Foreign currency translation
adjustments (16,137) (16,137) Cumulative effect on equity of
adopting SFAS 133, net of tax (2,516) (2,516) Derivatives qualifying as hedges, net
of tax (4,527) (4,527)
Comprehensive income $ 88,076
Issuance of common stock under deferred compensation plans 2,928 29 61,941 $(61,970) Amortization of deferred compensation 6,176 Issuance of Series C perpetual convertible preferred stock $3 286,734 Issuance of Series D perpetual convertible preferred stock $2 143,667 Issuance of common stock 3 50 Exercise of common stock options 715 8 10,409 Shares repurchased and retired (1,351) (14) (24,744)
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UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
Common Stock
Series C Series D Perpetual Perpetual Accumulated Convertible Convertible Additional Other Preferred Preferred Number of Paid-in Deferred Retained Comprehensive Comprehensive Stock Stock Shares Amount Capital Compensation Earnings Income (Loss) Income (Loss)
Balance, December 31, 2001 3 2 73,361 734 1,243,586 (55,794) 467,106 (30,127) Comprehensive income (loss): Net loss (397,825) $ (397,825) Other comprehensive income: Foreign currency translation
adjustments 2,484 2,484 Derivatives qualifying as hedges, net of
tax 795 795
Comprehensive loss: $ (394,546)
Issuance of common stock under deferred compensation plans 469 3 8,634 (8,637) Amortization of deferred compensation 11,443 Exercise of common stock options 3,736 37 77,768 Common stock repurchased and retired (1,066) (11) (26,715) Convertible debt converted to common stock 157 2 2,678 Liquidation preference in excess of amounts paid for Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust 35,339
Balance December 31, 2002 $ 3 $ 2 76,657 $ 765 $ 1,341,290 $ (52,988) $ 69,281 $ (26,848)
See accompanying notes.
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UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
2002 2001 2000
(In thousands) Cash Flows From Operating Activities: Net income (loss) $ (397,825) $ 111,256 $ 176,375 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 384,850 427,726 414,432 Gain on sales of rental equipment (59,359) (58,359) (139,496) Gain on sales of businesses (4,084) Amortization of deferred compensation 11,443 6,176 Restructuring charge 2,497 10,893 Goodwill impairment 247,913 Extraordinary item 18,076 Cumulative effect of a change in accounting principle, net of tax 288,339 Deferred taxes 5,871 100,683 109,280 Changes in operating assets and liabilities: Accounts receivable (6,949) 24,888 8,613 Inventory 21,189 87,084 69,706 Prepaid expenses and other assets 8,353 8,148 (29,848) Accounts payable 2,252 (58,713) (16,091) Accrued expenses and other liabilities 9,335 18,852 (76,166)
Net cash provided by operating activities 517,909 696,710 512,721
Cash Flows From Investing Activities: Purchases of rental equipment (492,259) (449,770) (808,204) Purchases of property and equipment (38,599) (47,548) (153,770) Proceeds from sales of rental equipment 176,179 147,101 347,678 Proceeds from sales of businesses 19,246 Purchases of other companies (172,583) (54,838) (347,337) Payments of contingent purchase price (2,103) (16,266) In-process acquisition costs (4,342) (2,485) (4,285) Deposits on rental equipment purchases (4,644)
Net cash used in investing activities (536,248) (409,643) (962,938)
Cash Flows From Financing Activities: Proceeds from debt 508,316 2,053,467 456,202 Payments on debt (491,728) (2,300,507) (134,599) Proceeds from sale-leaseback 12,435 193,478 Payments of financing costs (6,197) (29,042) (16,408) Proceeds from the exercise of common stock options 63,755 10,417 331 Shares repurchased and retired (26,726) (24,758) (30,950) Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust
repurchased and retired (38,111)
Net cash provided by (used in) financing activities 9,309 (277,988) 468,054 Effect of foreign exchange rates 935 (16,137) (7,264)
Net increase (decrease) in cash and cash equivalents (8,095) (7,058) 10,573 Cash and cash equivalents at beginning of year 27,326 34,384 23,811
Cash and cash equivalents at end of year $ 19,231 $ 27,326 $ 34,384
See accompanying notes.
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UNITED RENTALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)
Year Ended December 31
2002 2001 2000
(In thousands) Supplemental disclosure of cash flow information: Cash paid for interest $ 212,199 $ 230,385 $ 248,763 Cash paid for taxes, net of refunds $ (1,454) $ (30,799) $ 23,746
Supplemental schedule of non-cash investing and financing activities Conversion of operating leases to capital leases $ 31,451 Conversion of convertible debt to common stock $ 2,680
The Company acquired the net assets and assumed certain liabilities of other companies as follows: Assets, net of cash acquired $ 172,222 $ 21,465 $ 529,204 Liabilities assumed (4,705) (4,612) (133,120) Less: Amounts paid in common stock (10,000) Amounts paid through issuance of debt (600) (65,500)
167,517 16,253 320,584 Due to seller and other payments 5,066 38,585 26,753
Net cash paid $ 172,583 $ 54,838 $ 347,337
See accompanying notes.
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UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
United Rentals, Inc. (“Holdings”) is principally a holding company and conducts its operations primarily through its wholly owned subsidiary United Rentals (North America), Inc. (“URI”) and subsidiaries of URI. Holdings was incorporated in July 1998 and became the parent of URI on August 5, 1998, pursuant to the reorganization of the legal structure of URI. Prior to such reorganization, the name of URI was United Rentals, Inc. References herein to the “Company” refer to Holdings and its subsidiaries, with respect to periods following the reorganization, and to URI and its subsidiaries, with respect to periods prior to the reorganization. As a result of the reorganization, Holdings’ primary asset is its sole ownership of all issued and outstanding shares of common stock of URI. URI’s various credit agreements and debt instruments place restrictions on its ability to transfer funds to its shareholder.
The Company rents a broad array of equipment to a diverse customer base that includes construction and industrial companies, manufacturers, utilities, municipalities, homeowners and others in the United States, Canada and Mexico. In addition to renting equipment, the Company sells used rental equipment, acts as a dealer for new equipment and sells related merchandise, parts and service. The nature of the Company’s business is such that short-term obligations are typically met by cash flow generated from long-term assets. Therefore, the accompanying balance sheets are presented on an unclassified basis.
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, giving retroactive effect for the reorganization for all periods presented. All significant intercompany accounts and transactions have been eliminated.
2. Summary of Significant Accounting Policies
Cash Equivalents
The Company considers all highly liquid instruments with maturities of three months or less when purchased to be cash equivalents.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts. This allowance reflects the Company’s estimate of the amount of its receivables that it will be unable to collect.
Inventory
Inventory consists of equipment, tools, parts, fuel and related supply items. Inventory is stated at the lower of cost or market and is net of a reserve for obsolescence and shrinkage of $6.5 million and $9.4 million at December 31, 2002 and 2001, respectively. Cost is determined on either a weighted average or first-in, first-out method.
Rental Equipment
Rental equipment is recorded at cost and depreciated over the estimated useful lives of the equipment using the straight-line method. The range of estimated useful lives for rental equipment is two to ten years. Rental equipment is depreciated to a salvage value of zero to ten percent of cost. Ordinary repair and maintenance costs are charged to operations as incurred.
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UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Property and Equipment
Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. The range of estimated useful lives for property and equipment is two to thirty-nine years. Ordinary repair and maintenance costs are charged to operations as incurred. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or the remaining life of the lease, whichever is shorter.
Goodwill
Goodwill consists of the excess of cost over the fair value of identifiable net assets of businesses acquired and is amortized on a straight-line basis over forty years. Beginning January 1, 2002, goodwill is no longer amortized, but is tested on at least an annual basis for impairment, see Note 4.
Other Intangible Assets
Other intangible assets consists of non-compete agreements. The non-compete agreements are being amortized on a straight-line basis for periods ranging from three to eight years.
Long-Lived Assets
Long-lived assets are recorded at the lower of amortized cost or fair value. As part of an ongoing review of the valuation of long-lived assets, the Company assesses the carrying value of such assets if facts and circumstances suggest they may be impaired. If this review indicates that the carrying value of these assets may not be recoverable, as determined by a nondiscounted cash flow analysis over the remaining useful life, the carrying value would be reduced to its estimated fair value. There have been no material impairments recognized in these financial statements.
Derivative Financial Instruments
Under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, all derivatives are required to be recorded as assets or liabilities and measured at fair value. Gains or losses resulting from changes in the values of derivatives are recognized immediately or deferred, depending on the use of the derivative and whether or not it qualifies as a hedge. Derivative financial instruments are periodically used by the Company in the management of its interest rate and foreign currency exposures. Derivative financial instruments are not used for trading purposes.
Translation of Foreign Currency
Assets and liabilities of the Company’s subsidiaries operating outside the United States which account in a functional currency other than U.S. dollars are translated into U.S. dollars using exchange rates at the end of the year. Revenues and expenses are translated at average exchange rates effective during the year. Foreign currency translation gains and losses are included as a component of accumulated other comprehensive loss within shareholders’ equity.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheets for accounts receivable, accounts payable, and accrued expenses and other liabilities approximate fair value due to the immediate to short-term maturity of these financial instruments. The fair values of the revolving credit facility, term loan, and receivables securitization are determined using current interest rates for similar instruments as of December 31, 2002 and 2001 and approximate the carrying value of these financial instruments due to the fact that the underlying instruments
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UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) include provisions to adjust interest rates to approximate fair market value. The estimated fair value of the Company’s other financial instruments at December 31, 2002 and 2001 are based upon available market information and are as follows:
2002 2001
Carrying Amount Fair Value Carrying Amount Fair Value
(In thousands) Redeemable convertible preferred securities $ 226,550 $ 126,324 $ 300,000 $ 204,480 Senior and senior subordinated notes 1,605,947 1,454,113 1,401,653 1,427,850 Other debt 61,984 57,041 40,717 40,717
Preferred Stock
The Company issued Series A Perpetual Convertible Preferred Stock (“Series A Preferred”) and Series B Perpetual Convertible Preferred Stock (“Series B Preferred”) in 1999 and included such preferred stock in stockholders’ equity. In July 2001, the SEC issued guidance to all public companies as to when redeemable preferred stock may be classified as stockholders’ equity. This guidance indicates that preferred stock that would be subject to redemption on the occurrence of an event outside the control of the issuer may not be classified as equity and that the probability of the event occurring is not a factor to be considered. Under this guidance, the Series A Preferred and Series B Preferred would not be included in stockholders’ equity because this stock would be subject to mandatory redemption on a hostile change of control. On September 28, 2001, the Company entered into an agreement effecting the exchange of new Series C Perpetual Convertible Preferred Stock (“Series C Preferred”) for the Series A Preferred and new Series D Perpetual Convertible Preferred Stock (“Series D Preferred”) for the Series B Preferred (see Note 11). The Series C Preferred and Series D Preferred stock is not subject to mandatory redemption on a hostile change of control, and is classified as stockholders’ equity under the recently issued SEC guidance.
The effect of the foregoing is that the Company’s perpetual convertible preferred stock is classified as stockholders’ equity as of September 28, 2001 and thereafter, but is classified outside of stockholders’ equity for earlier dates. Accordingly, the Company has restated the 2000 balance sheet to show its $430.8 million of perpetual convertible preferred stock under “Series A and B Preferred Stock” rather than under “Stockholders’ Equity.” The Company has also made a corresponding change to the related Consolidated Statements of Stockholders’ Equity. In all other respects, the financial statements remain unchanged, including total assets and liabilities, revenues, operating income, net income and earnings per share.
Revenue Recognition
Revenue related to the sale of equipment and merchandise is recognized at the time of delivery to, or pick-up by, the customer. Revenue related to rental equipment is recognized over the contract term.
Advertising Expense
The Company advertises primarily through trade publications and Yellow Pages. Advertising expense is recognized over the period of related benefit. Advertising expense was $7.8 million, $11.9 million and $23.8 million for the years ended December 31, 2002, 2001 and 2000, respectively.
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UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Income Taxes
The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between financial statement and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Recognition of deferred tax assets is limited to amounts considered by management to be more likely than not realized in future periods.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates include restructuring charges, allowance for doubtful accounts, useful lives for depreciation, goodwill and other asset impairments, loss contingencies and fair values of financial instruments. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash investments and accounts receivable. The Company maintains cash and cash equivalents with high quality financial institutions. Concentration of credit risk with respect to accounts receivable is limited because a large number of geographically diverse customers make up the Company’s customer base. The Company’s largest customer in 2002 represented approximately 1% of total revenues and no single customer represented greater than 1% of total accounts receivable. The Company controls credit risk through credit approvals, credit limits, and monitoring procedures.
Stock-Based Compensation
The Company accounts for its stock-based compensation arrangements using the intrinsic value method under the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”. At December 31, 2002, the Company had six stock-based compensation plans (see Note 12). Since stock options are granted by the Company with exercise prices at or greater than the fair value of the shares at the date of grant, no compensation expense is recognized. Restricted stock awards granted by the Company are recognized as deferred compensation. The Company recognizes compensation expense related to these restricted stock awards over their vesting periods. The following table provides additional information related to the Company’s stock-based compensation arrangements for the years ended December 31, 2002, 2001 and 2000 (in thousands):
December 31
2002 2001 2000
Net income (loss), as reported $ (397,825) $ 111,256 $ 176,375 Plus: Stock-based compensation expense included
in reported net income (loss), net of tax 6,980 3,613 Less: Stock-based compensation expense determined using the fair value method, net of tax (11,402) (11,798) (20,000)
Pro forma net income (loss) $ (402,247) $ 103,071 $ 156,375
Basic earnings (loss) per share: As reported $ (5.25) $ 1.54 $ 2.48 Pro forma $ (5.31) $ 1.43 $ 2.20 Diluted earnings (loss) per share: As reported $ (5.25) $ 1.18 $ 1.89 Pro forma $ (5.31) $ 1.09 $ 1.69
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UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The weighted average fair value of options granted was $5.57, $7.34 and $7.70 during 2002, 2001 and 2000, respectively. The fair value is estimated on the date of grant using the Black-Scholes option pricing model which uses subjective assumptions which can materially affect fair value estimates and, therefore, does not necessarily provide a single measure of fair value of options. The Company used a risk-free interest rate average of 2.01%, 3.74% and 5.15% in 2002, 2001 and 2000, respectively, a volatility factor for the market price of the Company’s common stock of 66%, 49% and 69% in 2002, 2001 and 2000, respectively, and a weighted-average expected life of options of approximately three years in 2002, 2001 and 2000. For purposes of these pro forma disclosures, the estimated fair value of options is amortized over the options’ vesting period. Since the number of options granted and their fair value may vary significantly from year to year, the pro forma compensation expense in future years may be materially different.
Insurance
The Company is insured for general liability, automobile liability, workers’ compensation, and group medical claims up to a specified claim and aggregate amounts (subject to deductibles of two million dollars for general liability and three million dollars for automobile liability). Insured losses subject to this deductible are accrued based upon the aggregate liability for reported claims incurred and an estimated liability for claims incurred but not reported. These liabilities are not discounted.
Impact of Recently Issued Accounting Standards
The Company adopted the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard (“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” effective January 1, 2002. This standard addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, “Intangible Assets.” Under this standard, goodwill and other intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests on a reporting unit level. For additional information see Note 4. Other intangible assets are being amortized over their estimated useful lives.
In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. This standard addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”. The Company adopted this standard on January 1, 2002 and such adoption did not have an impact on its consolidated financial position or results of operations.
In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. This standard rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt”, and an amendment of that Statement, SFAS No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements”. This standard also rescinds SFAS No. 44, “Accounting for Intangible Assets of Motor Carriers”. This standard amends SFAS No. 13, “Accounting for Leases”, to eliminate an inconsistency related to the required accounting for sale-leaseback transactions and certain lease modifications. This standard also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company adopted this standard on January 1, 2003, and will reclassify a pre-tax extraordinary loss of approximately $18.1 million recognized during the second quarter of 2001 to operating income. The adoption of the remaining provisions of SFAS No. 145 did not have a material effect on the Company’s consolidated financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. This standard addresses financial accounting and reporting for costs associated with exit or disposal
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UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) activities and requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. This standard nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. The restructuring charge in 2002 was recorded in accordance with EITF Issue No. 94- 3. SFAS No. 146 is effective for exit or disposal activities initiated after December 31, 2002.
In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. This interpretation requires certain guarantees entered into after December 31, 2002 to be initially recognized and recorded at fair value and also requires new disclosures related to guarantees even if the likelihood of a guarantor having to make payments under the guarantees is remote. The Company adopted this interpretation as of December 31, 2002 and such adoption did not have an impact on the Company’s consolidated financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”. This standard provides alternative methods of transition to the fair value method of accounting for stock-based employee compensation under SFAS No. 123, “Accounting for Stock-Based Compensation,” but does not require the Company to use the fair value method. This standard also amends certain disclosure requirements related to stock-based employee compensation. The Company adopted the disclosure portion of this standard as of December 31, 2002 and such adoption is reflected under “—Stock-Based Compensation” above.
Reclassifications
Certain prior year balances have been reclassified to conform to the 2002 presentation.
3. Acquisitions
The acquisitions completed during the years ended December 31, 2002, 2001 and 2000 include 2, 3 and 53 acquisitions, respectively, that were accounted for as purchases. The results of operations of the businesses acquired in these acquisitions have been included in the Company’s results of operations from their respective acquisition dates.
On June 30, 2002, the Company acquired 35 rental locations from National Equipment Services, Inc. for initial consideration of approximately $111.6 million in cash, which was determined based primarily on the number of locations acquired and their financial performance. The acquisition of these rental locations was made to complement the Company’s existing network of rental locations. The results of operations of the acquisitions are included in the Company’s statement of operations as of the date of acquisition. The initial consideration paid by the Company for the other 2002 acquisition was approximately $45.9 million in cash. The Company estimates that approximately $93.1 million of goodwill related to the 2002 acquisitions will be deductible for tax purposes.
The aggregate initial consideration paid by the Company for 2001 acquisitions that were accounted for as purchases was approximately $12.1 million and consisted of approximately $11.5 million in cash and $0.6 million in seller notes. In addition, the Company repaid or assumed outstanding indebtedness in the aggregate amount of approximately $4.9 million.
During 2000, the Company purchased the outstanding stock and certain assets of (i) Liddell Brothers Inc., in February, (ii) Safety Lites Sales and Leasing, Inc., in March, (iii) Durante Equipment Corp., Inc., in June, (iv) Horizon High Reach, Inc., in September, and (v) Wiese Planning & Engineering Inc., in December. The aggregate initial consideration paid for these five acquisitions that were accounted for as purchases was
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) approximately $153.1 million and consisted of $83.8 million in cash and 761,905 shares of common stock and $59.3 million in seller notes. In addition, the Company repaid or assumed outstanding indebtedness of these companies acquired in the aggregate amount of approximately $5.5 million.
The aggregate initial consideration paid by the Company for other 2000 acquisitions that were accounted for as purchases was $210.2 million and consisted of approximately $184.6 million in cash and $6.2 million in seller notes. In addition, the Company repaid or assumed outstanding indebtedness of the companies acquired in the other 2000 acquisitions in the aggregate amount of $77.5 million.
The purchase prices for all acquisitions accounted for as purchases have been allocated to the assets acquired and liabilities assumed based on their respective fair values at their respective acquisition dates. However, the Company has not completed its valuation of all of its purchases and, accordingly, the purchase price allocations are subject to change when additional information concerning asset and liability valuations are completed. The preliminary purchase price allocations that are subject to change primarily consist of rental and non-rental equipment valuations. These allocations are finalized within 12 months of the acquisition date and are not expected to result in significant differences between the preliminary and final allocations.
The following table summarizes, on an unaudited pro forma basis, the combined results of operations of the Company for the years ended December 31, 2002 and 2001 as though each acquisition described above was made on January 1, 2001 (in thousands, except per share data).
2002 2001
Revenues $ 2,851,853 $ 3,000,196 Income (loss) before extraordinary item and cumulative effect of change in accounting principle (108,871) 125,340 Basic earnings (loss) before extraordinary item and cumulative effect of change in accounting principle per share $ (1.44) $ 1.74
Diluted earnings (loss) before extraordinary item and cumulative effect of change in accounting principle per share $ (1.44) $ 1.33
The unaudited pro forma results are based upon certain assumptions and estimates which are subject to change. These results are not necessarily indicative of the actual results of operations that might have occurred, nor are they necessarily indicative of expected results in the future.
4. Goodwill and Other Intangible Assets
Changes in the Company’s carrying amount of goodwill for 2002 are as follows (in thousands):
Balance at December 31, 2001 $ 2,199,774 Impairment charges (596,781) Foreign currency translation and other adjustments 945 Goodwill related to acquisitions 101,253
Balance at December 31, 2002 $ 1,705,191
The Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets” issued by the Financial Accountants Standards Board (“FASB”). Under this standard, goodwill, which was previously amortized over 40 years, is no longer amortized. The Company amortized approximately $58.4 million of goodwill in 2001. The
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Company’s approximately $5.8 million of other intangible assets, will continue to be amortized over their estimated useful lives. Under the new accounting standard, the Company is required to periodically review its goodwill for impairment. In general, this means that the Company must determine whether the fair value of the goodwill, calculated in accordance with applicable accounting standards, is at least equal to the recorded value shown on its balance sheet. If the fair value of the goodwill is less than the recorded value, the Company is required to write off the excess goodwill as an expense.
The Company completed its initial impairment analysis in the first quarter of 2002 and recorded a non-cash charge of approximately $348.9 million ($288.3 million, net of tax). The Company completed a subsequent impairment analysis in the fourth quarter of 2002 and recorded an additional non-cash impairment charge of approximately $247.9 million. The first impairment charge, net of tax, was recorded on the statement of operations as a “Cumulative Effect of Change in Accounting Principle.” The second impairment charge was recorded on the statement of operations as “goodwill impairment.” The Company’s stockholders’ equity was reduced by the amount of both charges.
The impairment charges recognized in 2002 related to certain branches that decreased in value. The factors that negatively affected the value of these branches included the following: (i) continued weakness in non-residential construction spending which negatively affected the earnings of the Company’s branches and (ii) to a lesser extent, operational weakness at some branches and increased competition for some branches. Fair values used in impairment testing were based upon valuation techniques using multiples of earnings and revenues.
The Company is required to review its goodwill for further impairment at least annually. Any future goodwill impairment charge would be recorded on the statement of operations as “goodwill impairment” and would reduce operating income.
The Company tests for goodwill impairment on a branch-by-branch basis rather than on an aggregate basis. This means that a goodwill write-off is required even if only one or a limited number of the Company’s branches has impairment and even if there is no impairment for all its branches on an aggregate basis. Factors that may cause future impairment at a particular branch, in addition to macroeconomic factors that affect all the Company’s branches, include changes in local demand and local competitive conditions. Since the Company tests for impairment on a branch-by-branch basis, the Company believes that it may be required to take additional non-cash goodwill write-offs in the future, although it cannot quantify at this time the magnitude of any future write-offs.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The reconciliation of previously reported net income and earnings per share to adjusted net income and earnings per share excluding goodwill amortization is as follows for the years ended December 31, 2002, 2001 and 2000 (in thousands, except per share data):
2002 2001 2000
Income (loss) before extraordinary item and cumulative effect of change in accounting principle $ (109,486) $ 122,573 $ 176,375 Goodwill amortization expense, net of tax 47,046 46,203
Adjusted income (loss) before extraordinary item and cumulative effect of change in accounting principle $ (109,486) $ 169,619 $ 222,578
Net income (loss) $ (397,825) $ 111,256 $ 176,375 Goodwill amortization expense, net of tax 47,046 46,203
Adjusted net income (loss) $ (397,825) $ 158,302 $ 222,578
Earnings (loss) per share – basic: Income (loss) before extraordinary item and cumulative effect of change in accounting principle $ (1.45) $ 1.70 $ 2.48 Goodwill amortization expense, net of tax 0.65 0.65
Adjusted income (loss) before extraordinary item and cumulative effect of change in accounting principle $ (1.45) $ 2.35 $ 3.13
Net income (loss) $ (5.25) $ 1.54 $ 2.48 Goodwill amortization expense, net of tax 0.65 0.65
Adjusted net income (loss) $ (5.25) $ 2.19 $ 3.13
Earnings (loss) per share – diluted: Income (loss) before extraordinary item and cumulative effect of change in accounting principle $ (1.45) $ 1.30 $ 1.89 Goodwill amortization expense, net of tax 0.49 0.47
Adjusted income (loss) before extraordinary item and cumulative effect of change in accounting principle $ (1.45) $ 1.79 $ 2.36
Net income (loss) $ (5.25) $ 1.18 $ 1.89 Goodwill amortization expense, net of tax 0.49 0.47
Adjusted net income (loss) $ (5.25) $ 1.67 $ 2.36
Other intangible assets consist of non-compete agreements and are amortized over periods ranging from three to eight years. The cost of other intangible assets and the related accumulated amortization as of December 31, 2002 were $17.0 million and $11.2 million, respectively, and as of December 31, 2001 were $15.8 million and $7.9 million, respectively. Amortization expense of other intangible assets was $3.5 million, $3.2 million and $3.2 million for the years ended December 31, 2002, 2001 and 2000, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As of December 31, 2002, estimated amortization expense of other intangible assets for each of the next five years is as follows (in thousands):
2003 $ 3,040 2004 1,637 2005 574 2006 293 2007 170 Thereafter 107
$ 5,821
5. Restructuring Charges
The Company adopted a restructuring plan in 2001 and a second restructuring plan in the fourth quarter of 2002 as described below. In connection with these plans, the Company recorded a restructuring charge of $28.9 million in 2001 (including a non-cash component of approximately $10.9 million) and $28.3 million in the fourth quarter of 2002 (including a non-cash component of approximately $2.5 million).
The 2001 plan involved the following principal elements: (i) 31 underperforming branches were closed or consolidated with other locations, (ii) five administrative offices were closed or consolidated with other locations, (iii) the reduction of the Company’s workforce by 489 through the termination of branch and administrative personnel, and (iv) certain information technology hardware and software was no longer used.
The 2002 plan involved the following key elements: (i) 42 underperforming branches and five administrative offices will be closed or consolidated with other locations (including 26 closed or consolidated as of December 31, 2002); (ii) the Company’s workforce will be reduced by 412 (including 232 terminated as of December 31, 2002), and (iii) a certain information technology project was abandoned.
The costs to vacate facilities primarily represent the payment of obligations under leases offset by estimated sublease opportunities, the write-off of capital improvements made to such facilities and the write-off of related goodwill (only in 2001). The workforce reduction costs primarily represent severance. The information technology costs represent the payment of obligations under equipment leases relating to the abandonment of certain information technology projects.
The aggregate balance of the 2001 and 2002 charges was $27.1 million as of December 31, 2002. The Company estimates that approximately $13.4 million of this amount will be incurred by December 31, 2003 (comprised of approximately $12.4 million of the cash component and approximately $1.0 million of the non-cash component) and approximately $13.7 million will be paid in future periods.
Components of the restructuring charges are as follows:
Balance December 31, Charges in Activity in Balance December 31, 2001 2002 2002 2002
(In thousands) Costs to vacate facilities $ 3,538 $ 24,569 $ 5,849 $ 22,258 Workforce reduction costs 2,055 2,776 1,369 3,462 Information technology costs 1,417 917 939 1,395
$ 7,010 $ 28,262 $ 8,157 $ 27,115
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
6. Rental Equipment
Rental equipment consists of the following:
December 31
2002 2001
(In thousands) Rental equipment $ 2,682,258 $ 2,485,573 Less accumulated depreciation (836,583) (738,391)
Rental equipment, net $ 1,845,675 $ 1,747,182
7. Property and Equipment
Property and equipment consist of the following:
December 31
2002 2001
(In thousands) Land $ 46,623 $ 45,050 Buildings 94,842 91,097 Transportation equipment 278,853 247,548 Machinery and equipment 45,086 47,672 Furniture and fixtures 73,722 61,573 Leasehold improvements 70,545 61,194
609,671 554,134 Less accumulated depreciation and amortization (184,319) (144,081)
Property and equipment, net $ 425,352 $ 410,053
8. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
December 31
2002 2001
(In thousands) Accrued incentive compensation $ 30,397 $ 40,412 Accrued insurance 22,226 18,559 Accrued interest 49,639 47,671 Restructuring accrual 27,115 7,010 Other 57,702 61,035
$ 187,079 $ 174,687
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
9. Debt
Debt consists of the following:
December 31
2002 2001
(In thousands) Credit Facility, interest payable at a weighted average rate of 5.3% and 4.5% at December 31, 2002 and 2001, respectively $ 45,332 $ 71,259 Term Loan, interest payable at 4.8% and at 5.3% at December 31, 2002 and 2001, respectively 639,033 744,375 1 9 /2% Senior Subordinated Notes, interest payable semi-annually 200,000 200,000 8.8% Senior Subordinated Notes, interest payable semi-annually 202,153 201,653 1 9 /4% Senior Subordinated Notes, interest payable semi-annually 300,000 300,000 9% Senior Subordinated Notes, interest payable semi-annually 250,000 250,000 3 10 /4% Senior Notes, interest payable semi-annually 653,795 450,000 Receivables securitization, interest payable at 2.2% and 2.6% at December 31, 2002 and 2001, respectively 160,501 201,518 Other debt, including capital leases, interest payable at various rates ranging from 5.5% to 10% and 5.3% to 10% at December 31, 2002 and 2001, respectively, due through 2005 61,984 40,717
$ 2,512,798 $ 2,459,522
Refinancing Transaction in 2002. On December 24, 2002, URI issued an additional $210.0 million aggregate principal amount of its 10 3/4% Senior Notes (the “new 10 3/4% Notes”) which are due April 15, 2008 for approximately $203.8 million. The net proceeds from the sale of the new 10 3/4% Notes were approximately $199.4 million (after deducting the initial purchasers’ discount and offering expenses). The new 10 3/4% Notes are unsecured and are guaranteed by Holdings and, subject to limited exceptions, URI’s domestic subsidiaries. The new 10 3/4% Notes mature on April 15, 2008 and may be redeemed by URI on or after April 15, 2005, at specified redemption prices that range from 105.375% in 2005 to 100.0% in 2007 and thereafter. In addition, on or prior to April 15, 2004, URI may, at its option, use the proceeds of a public equity offering to redeem up to 35% of the outstanding new 10 3/4% Notes at a redemption price of 110.75%. The indenture governing the new 10 3/4% Notes contains certain restrictive covenants, including limitations on (i) additional indebtedness, (ii) restricted payments, (iii) liens, (iv) dividends and other payments, (v) preferred stock of certain subsidiaries, (vi) transactions with affiliates, (vii) the disposition of proceeds of asset sales and (viii) the Company’s ability to consolidate, merge or sell all or substantially all of its assets. The Company used the net proceeds from the new 10 3/4% Notes to (i) permanently repay approximately $99.7 million of outstanding indebtedness under the Company’s existing term loan and (ii) repay approximately $99.7 million of outstanding borrowings under the revolving credit facility. As a result of the refinancing, the Company recorded in other (income) expense a charge of approximately $1.6 million ($0.9 million, net of tax) related to the write-off of financing fees.
In September and December 2002, the Company entered into amendments to the agreement governing its revolving credit facility and term loan. These amendments, among other things, (i) increased the aggregate amount of the credit facility that is available in the form of letters of credit, (ii) reduced the minimum interest coverage ratio that the Company is required to maintain for the period July 1, 2002 through December 31, 2004, (iii) changed certain definitions for purposes of measuring the Company’s compliance with its financial covenants under the credit agreement and (iv) reduced the maximum borrowings available under the Company’s revolving credit facility by $100.0 million.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Refinancing Transaction in 2001. In April 2001, the Company obtained a new senior secured credit facility and issued $450.0 million in 10 3/4% senior notes. The senior secured credit facility is comprised of a revolving credit facility and a term loan. The proceeds from the senior secured credit facility and senior notes were used to refinance outstanding secured indebtedness of approximately $1,664.5 million and obligations under a synthetic lease of $31.2 million. As a result of the refinancing, the Company recorded an extraordinary charge of approximately $18.1 million ($11.3 million, net of tax), primarily related to the write-off of financing fees, and a charge of approximately $7.8 million recorded in other (income) expense, net related to refinancing costs of the synthetic lease.
Revolving Credit Facility. The revolving credit facility enables URI to borrow up to $650 million on a revolving basis and enables one of its Canadian subsidiaries to borrow up to $50 million (provided that the aggregate borrowings of URI and the Canadian subsidiary may not exceed $650 million). Up to $175 million of the revolving credit facility is available in the form of letters of credit ($111.6 million outstanding as of December 31, 2002). The revolving credit facility will mature and terminate on October 20, 2006.
As of December 31, 2002, borrowings under the revolving credit facility accrue interest, at the Company’s option, at either (A) the ABR Rate (which is equal to the greater of (i) the Federal Funds Rate plus 0.5% or (ii) the Chase Manhattan Bank’s prime rate) plus a margin of 1.50% or (B) an adjusted LIBOR rate plus a margin of 2.50%. The above interest rate margins are adjusted quarterly based on the Company’s financial leverage ratio, up to maximum margins of 1.75% and 2.75%, for revolving loans based on the ABR rate and the adjusted LIBOR rate, respectively, and down to minimum margins of 0.75% and 1.75%, for revolving loans based on the ABR rate and the adjusted LIBOR rate, respectively.
As of December 31, 2002, borrowings by the Canadian subsidiary under the revolving credit facility accrue interest, at such subsidiary’s option, at either (X) the Prime rate (which is equal to the Chase Manhattan Bank of Canada’s prime rate) plus a margin of 1.50% or (Y) the B/A rate (which is equal to the Chase Manhattan Bank of Canada’s B/A rate) plus a margin of 2.50%. The above interest rate margins are adjusted quarterly based on the Company’s financial leverage ratio, up to maximum margins of 1.75% and 2.75%, for revolving loans based on the Prime rate and the B/A rate, respectively, and down to minimum margins of 0.75% and 1.75%, for revolving loans based on the Prime rate and the B/A rate, respectively. If at any time an event of default exists, the interest rate applicable to each loan will increase by 2% per annum.
The Company is also required to pay the lenders a commitment fee equal to 0.5% per annum in respect of undrawn commitments under the revolving credit facility.
Term Loan. On April 20, 2001, URI obtained a $750 million term loan. Amounts repaid in respect of the term loan may not be reborrowed. URI must repay the principal of the term loan in installments. After giving effect to the prepayment of approximately $99.7 million of the term loan described above, remaining principal installments are: (i) on December 31, 2006, URI must repay approximately $107.5 million and (ii) on the last day of each calendar quarter thereafter up to and including September 30, 2007, URI must repay approximately $177.2 million.
Borrowings under the term loan accrue interest, at URI’s option, at either (a) the ABR rate (which is equal to the greater of (i) the Federal Funds Rate plus 0.5% or (ii) the Chase Manhattan Bank’s prime rate) plus a margin of 2.0%, or (b) an adjusted LIBOR rate plus a margin of 3.0%.
Covenants. The agreements governing the senior secured credit facility contain certain covenants that require the Company to, among other things, satisfy certain financial tests relating to: (a) the ratio of senior debt
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) to cash flow, (b) minimum interest coverage ratio, (c) the ratio of funded debt to cash flow, and (d) the ratio of senior debt to tangible assets. These agreements also contain various other covenants that restrict the Company’s ability to, among other things, (i) incur additional indebtedness, (ii) permit liens to attach to its assets, (iii) pay dividends or make other restricted payments on its common stock and certain other securities, and (iv) make acquisitions unless certain financial conditions are satisfied.
Guarantees and Security. URI’s obligations under the senior secured facility are, subject to limited exceptions, (i) guaranteed by Holdings and URI’s United States subsidiaries and (ii) secured by substantially all of URI’s assets, the stock of URI and the stock of Holding’s other United States subsidiaries and a portion of the stock of Holding’s Canadian subsidiaries. The obligations of the Canadian subsidiary that may borrow under the revolving credit facility are guaranteed by the Company’s other Canadian subsidiaries and are secured by substantially all of the assets of this Canadian subsidiary and the stock of its subsidiaries.
10 3/4% Senior Notes. In April 2001, URI issued $450 million aggregate principal amount of 10 3/4% Senior Notes (the “10 3/4% Notes”) which are due April 15, 2008. The net proceeds from the sale of the 10 3/4% Notes were approximately $439.9 million (after deducting the initial purchasers’ discount and offering expenses). The 10 3/4% Notes are unsecured and are guaranteed by Holdings and, subject to limited exceptions, URI’s domestic subsidiaries. The 10 3/4% Notes mature on April 15, 2008 and may be redeemed by URI on or after April 15, 2005, at specified redemption prices that range from 105.375% in 2005 to 100.0% in 2007 and thereafter. In addition, on or prior to April 15, 2004, URI may, at its option, use the proceeds of a public equity offering to redeem up to 35% of the outstanding 10 3/4% Notes at a redemption price of 110.75%. The indenture governing the 10 3/4% Notes contains certain restrictive covenants, including limitations on (i) additional indebtedness, (ii) restricted payments, (iii) liens, (iv) dividends and other payments, (v) preferred stock of certain subsidiaries, (vi) transactions with affiliates, (vii) the disposition of proceeds of asset sales and (viii) the Company’s ability to consolidate, merge or sell all or substantially all of its assets. The amounts shown for the 10 3/4% Notes in the debt table above include the amount outstanding from the issuance of the new 10 3/4% Notes.
Senior Subordinated Notes. The senior subordinated notes shown in the debt table above were issued by URI, are unsecured, and are guaranteed by, subject to limited exceptions, URI’s domestic subsidiaries. The 9 1/2% Senior Subordinated Notes mature on June 1, 2008 and may be redeemed by URI on or after June 1, 2003, at specified redemption prices that range from 104.75% in 2003 to 100.0% in 2006 and thereafter. The 8.80% Senior Subordinated Notes mature on August 15, 2008 and may be redeemed by URI on or after August 15, 2003, at specified redemption prices that range from 104.4% in 2003 to 100.0% in 2006 and thereafter. The 9 1/4% Senior Subordinated Notes mature on January 15, 2009 and may be redeemed by URI on or after June 15, 2004, at specified redemption prices that range from 104.625% in 2004 to 100.0% in 2007 and thereafter. The 9% Senior Subordinated Notes mature on April 1, 2009 and may be redeemed by URI on or after April 1, 2004, at specified redemption prices that range from 104.5% in 2004 to 100.0% in 2007 and thereafter.
The indentures governing URI’s senior subordinated notes contain certain restrictive covenants, including limitations on (i) additional indebtedness, (ii) restricted payments, (iii) liens, (iv) dividends and other payments, (v) preferred stock of certain subsidiaries, (vi) transactions with affiliates, (vii) the disposition of proceeds of asset sales, and (viii) the Company’s ability to consolidate, merge or sell all or substantially all of its assets.
Receivables Securitization. The Company has an accounts receivable securitization facility under which one of its subsidiaries can borrow up to $250 million against a collateral pool of accounts receivable. The borrowings under the facility and the receivables in the collateral pool are included in the liabilities and assets, respectively, reflected on the Company’s consolidated balance sheet. Key terms of this facility include: (i) borrowings may be made only to the extent that the face amount of the receivables in the collateral pool exceeds the outstanding loans by a specified amount, (ii) the facility is structured so that the receivables in the collateral
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) pool are the lenders’ only source of repayment, (iii) prior to expiration or early termination of the facility, amounts collected on the receivables may, subject to certain conditions, be retained by the borrower, provided that the remaining receivables in the collateral pool are sufficient to secure the then outstanding borrowings, and (iv) after expiration or early termination of the facility, the Company will repay the borrowings.
As of December 31, 2002, (i) the outstanding borrowings under the facility were approximately $160.5 million and (ii) the aggregate face amount of the receivables in the collateral pool was approximately $346.8 million. The agreement governing this facility, which was amended in June 2001, contemplates that the term of the facility may extend for up to three years from the date of the amended facility. However, on each anniversary of such date, the consent of the lender is required for the facility to renew for the next year. The next anniversary date is in June 2003. The Company plans to seek the lenders’ approval for renewal. However, the Company cannot be certain it will be able to obtain such renewal with comparable terms or at all.
Interest Rate Swap Agreements. As of December 31, 2002, the Company had outstanding interest rate swap agreements that convert $200 million of its variable rate term loan to a fixed rate instrument through 2003. These swap agreements are designated as cash flow hedges. Changes in the fair values of the Company’s cash flow hedges are recorded in other comprehensive income and reclassified into earnings in the same periods during which the hedged transactions affect earnings. The Company also had outstanding interest rate swap agreements that convert $300 million of its fixed rate 9 1/4% Notes to a floating rate instrument through 2009. These swap agreements are designated as fair value hedges. Changes in the fair values of the Company’s fair value hedges, as well as the offsetting fair value changes in the hedged items, are recorded on the statement of operations. The Company estimates the amount that will be reclassified into earnings in 2003 is approximately $2.1 million. There is no ineffectiveness related to the Company’s hedges.
Maturities. Maturities of the Company’s debt for each of the next five years at December 31, 2002 are as follows (in thousands):
2003 $ 183,419 2004 26,554 2005 6,068 2006 152,802 2007 531,563 Thereafter 1,612,392
The maturities in 2003 are comprised primarily of amounts outstanding under the accounts receivable securitization facility. As described above, the annual renewal of the Company’s accounts receivable securitization facility requires the lenders’ consent. If the Company does not obtain this consent, then the facility will terminate in June 2003 and the Company will repay the borrowings thereunder.
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10. Income Taxes
The provision for federal, state and provincial income taxes is as follows:
Year ended December 31
2002 2001 2000
(In thousands) Domestic federal: Current $ 10,419 Deferred $ 3,963 $ 81,507 97,756
3,963 81,507 108,175 Domestic state: Current 1,057 1,978 3,587 Deferred (1,825) 4,570 6,815
(768) 6,548 10,402
Total domestic 3,195 88,055 118,577 Foreign federal: Current 1,529 1,626 1,061 Deferred 2,109 1,603 3,590
3,638 3,229 4,651 Foreign provincial: Current 774 Deferred 1,269 693 1,119
1,269 693 1,893
Total foreign 4,907 3,922 6,544
$ 8,102 $ 91,977 $ 125,121
A reconciliation of the provision for income taxes and the amount computed by applying the statutory federal income tax rate of 35% to income before provision for income taxes and extraordinary item is as follows:
Year ended December 31
2002 2001 2000
(In thousands) Computed tax at statutory tax rate $ (35,483) $ 75,064 $ 105,524 State income taxes, net of federal tax benefit (499) 4,256 6,762 Non-deductible expenses 41,871 13,072 9,992 Other 2,213 (415) 2,843
$ 8,102 $ 91,977 $ 125,121
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The components of deferred income tax assets (liabilities) are as follows:
December 31
2002 2001
(In thousands) Property and equipment $ (539,431) $ (431,515) Intangibles 32,799 (48,163) Reserves and allowances 57,057 38,767 Net operating loss and credit carryforwards 221,905 140,455 Other 2,083 3,432
$ (225,587) $ (297,024)
The current and deferred tax assets and liabilities at December 31, 2002 include the effects of certain reclassifications related to differences between the income tax provisions and tax returns for prior years. These reclassifications had no effect on net income.
For financial reporting purposes, income before income taxes and extraordinary items for the Company’s foreign subsidiaries was $9.2 million, $8.6 million and $15.6 million for the years ended December 31, 2002, 2001 and 2000, respectively. At December 31, 2002 and 2001, unremitted earnings (deficit) of foreign subsidiaries were approximately $(1.7) million and $27.6 million, respectively. Since it is the Company’s intention to indefinitely reinvest these earnings, no United States taxes have been provided. Determination of the amount of unrecognized deferred tax liability on these unremitted taxes is not practicable.
The Company has net operating loss carryforwards (“NOL’s”) of $564.2 million for federal income tax purposes that expire through 2022.
11. Company-Obligated Mandatorily Redeemable Convertible Preferred Securities of a Subsidiary Trust and Series A, B, C and D Preferred Stock
Trust Securities. In August 1998, a subsidiary trust (the “Trust”) of Holdings issued and sold in a private offering (the “Preferred Securities Offering”) $300.0 million of 30 year, 6 1/2% Convertible Quarterly Income Preferred Securities (the “Preferred Securities”). The Trust used the proceeds from the Preferred Securities Offering to purchase 6 1/2% convertible subordinated debentures due 2028 (the “Debentures”) from Holdings which resulted in Holdings receiving all of the net proceeds of the Preferred Securities Offering. Holdings in turn contributed the net proceeds of the Preferred Securities Offering to URI. The Preferred Securities are non-voting securities, carry a liquidation value of $50 per security and are convertible into the Company’s common stock at an initial rate of 1.146 shares per security (equivalent to an initial conversion price of $43.63 per share). They are convertible at any time at the holders’ option and are redeemable, at the Company’s option, after three years, subject to certain conditions.
Holders of the Preferred Securities are entitled to preferential cumulative cash distributions from the Trust at an annual rate of 6 1/2% of the liquidation value, accruing from the original issue date and payable quarterly in arrears beginning February 1, 1999. The distribution rate and dates correspond to the interest rate and payment dates on the Debentures. Holdings may defer interest payments on the Debentures for up to twenty consecutive quarters, but not beyond the maturity date of the Debentures. If interest payments on the Debentures are deferred, so are the payments on the Preferred Securities. Under this circumstance, Holdings will be prohibited from paying dividends on any of its capital stock or making payments with respect to its debt that rank pari passu with or junior to the Debentures.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Holdings has executed a guarantee with regard to payment of the Preferred Securities to the extent that the Trust has sufficient funds to make the required payments.
Series A Preferred and Series B Preferred. The Company sold 300,000 shares of its Series A Preferred on January 7, 1999 and sold 150,000 shares of its Series B Preferred on September 30, 1999. On September 28, 2001, the Company entered into an agreement effecting (a) the exchange of the outstanding Series A Preferred for an equal number of shares of Series C Preferred and (b) the exchange of the outstanding Series B Preferred for an equal number of shares of Series D Preferred.
Series C Preferred and Series D Preferred. There are 300,000 shares of the Company’s Series C Preferred outstanding and 150,000 shares of the Company’s Series D Preferred outstanding. The Series D Preferred includes 105,252 shares designated as Class D-1 and 44,748 shares designated as Class D-2. The rights of the two classes of Series D Preferred are substantially the same, except that only the Class D-1 has the voting rights described below.
Principal terms of the Series C Preferred and Series D Preferred include the following (subject to the special provisions described below that will apply in the event of certain Non-Approved Change of Control transactions): (i) each share is entitled to a liquidation preference of $1,000 per share; (ii) at holder’s option, each share of Series C Preferred is convertible into 40 shares of common stock subject to adjustment (representing a conversion price of $25 per share based on the liquidation preference) and each share of Series D Preferred is convertible into 33 1/3 shares of common stock subject to adjustment (representing a conversion price of $30 per share based on the liquidation preference); (iii) the holders of the Series C Preferred and Series D Preferred (on an as converted basis) and the holders of the common stock vote together as a single class on all matters (except that the Series C Preferred may vote as a separate class as described in the next clause); (iv) the holders of the Series C Preferred, voting separately as a single class, may elect two directors (subject to reduction to one, if the shares of Series C Preferred owned by specified holders cease to represent, on an as converted basis, at least eight million shares of common stock, and reduction to zero, if such shares of Series C Preferred cease to represent at least four million shares of common stock), (v) there are no stated dividends on the Series C Preferred or Series D Preferred, but the Series C Preferred and Series D Preferred, on an as converted basis, will participate in any dividends declared on the common stock, (vi) upon the occurrence of specified change of control transactions, other than a Non-Approved Change of Control (as defined below), the Company must offer to redeem the Series C Preferred and Series D Preferred at a price per share equal to the liquidation preference plus an amount equal to 6.25% of the liquidation preference compounded annually from the date of the issuance of the Series A Preferred, in the case of the Series C Preferred, and the date of the issuance of the Series B Preferred, in the case of the Series D Preferred, to the redemption date, (vii) if the Company issues for cash common stock (or a series of preferred stock convertible into common stock) and the price for the common stock is below the conversion price of the Series C Preferred, then the Company must offer to repurchase a specified portion of the outstanding Series C Preferred at the price per share set forth in the preceding clause, and (viii) if the Company issues for cash common stock (or a series of preferred stock convertible into common stock) for a price for the common stock below the conversion price of the Series D Preferred, then the Company must offer to repurchase a specified portion of the outstanding Series D Preferred at the price per share specified in the second preceding clause.
Special Rights of Series C Preferred and Series D Preferred Upon Non-Approved Change of Control. In general, a Non-Approved Change of Control transaction is a change of control transaction that the Board of Directors (the “Board”) has disapproved and which the Board has not facilitated by such actions as weakening or eliminating the Company’s Stockholder Rights Plan. If a Non-Approved Change of Control occurs, and the Board does not offer the holders of the Series C Preferred and Series D Preferred essentially the same redemption
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) rights that apply to an Approved Change of Control transaction: (i) the holders of the Series C Preferred would elect a majority of the Board for a specified period, (ii) the holders of the Series C Preferred and Series D Preferred would be entitled to an additional 6.25% return on the liquidation preference, compounded annually from January 1999 for the Series C Preferred and from September 1999 for the Series D Preferred, (iii) after the holders of the common stock receive an amount equivalent to the liquidation preference, the holders of the Series C Preferred and Series D Preferred would share with the holders of the common stock, on an as converted basis, in any remaining amounts available for distribution, and (iv) the Series C Preferred and Series D Preferred would accrue dividends at a maximum annual rate, compounded annually, equal to 18% of the liquidation preference.
12. Capital Stock
Warrants. As of December 31, 2002 there are outstanding warrants to purchase an aggregate of 7,144,298 shares of common stock. The weighted average exercise price of the warrants is $11.76 per share. The warrants may be exercised through 2011 and there were 7,116,930 warrants exercisable as of December 31, 2002.
Common Stock. The Company has a share repurchase program to acquire up to $200 million of its issued and outstanding common stock. Share repurchases under the program may be made from time to time, subject to certain restrictions under the Company’s credit agreements, continuing through May 2003. The Company repurchased and retired 1,066,641 and 1,350,600 shares of common stock during 2002 and 2001, respectively.
2001 Senior Stock Plan. In June 2001, the Company’s shareholders approved the adoption of the 2001 Senior Stock Plan. This plan provides for the awarding of common stock and other equity-linked awards to our officers and directors. The maximum number of shares of common stock that can be issued under the plan is 4,000,000. The Company records each share that is awarded under this plan at an amount not less than 100% of the fair market value per share at the date of the award. No shares may be awarded under this plan after June 5, 2011. As of December 31, 2002, 2,026,592 shares had been awarded under this plan at a weighted-average price of $23.79 per share with vesting periods up to ten years. Determinations concerning the persons to receive awards, the form, amount and timing of such awards and terms and provisions of such awards are made by the Board (or a committee appointed by the Board).
2001 Stock Plan. In March 2001, the Company adopted the 2001 Stock Plan. This plan provides for the awarding of common stock and other equity-linked awards to certain employees (other than officers and directors) and others who render services to the Company. The maximum number of shares of common stock that can be issued under the plan is 2,000,000. The Company records each share that is awarded under this plan at an amount not less than 100% of the fair market value per share at the date of the award. No shares may be awarded under this plan after March 23, 2011. As of December 31, 2002, 1,370,837 shares had been awarded under this plan at a weighted-average price of $17.14 per share with vesting periods up to three years. Determinations concerning the persons to receive awards, the form, amount and timing of such awards and terms and provisions of such awards are made by the Board (or a committee appointed by the Board).
The Company records the issuance of common shares at the quoted market price on the date of the grants. Amortization of deferred compensation is then recognized on a straight-line basis over the related vesting period. Amortization expense recognized for the years ended December 31, 2002 and 2001 for the awards of the above stock plans was approximately $11.4 million and $6.2 million, respectively.
1997 Stock Option Plan. The Company’s 1997 Stock Option Plan provides for the granting of options to purchase not more than an aggregate of 5,000,000 shares of common stock. Some or all of such options may be “incentive stock options” within the meaning of the Internal Revenue Code. All officers, directors and employees
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) of the Company and other persons who perform services on behalf of the Company are eligible to participate in this plan. Each option granted pursuant to this plan must provide for an exercise price per share that is at least equal to the fair market value per share of common stock on the date of grant. No options may be granted under this plan after August 31, 2007. As of December 31, 2002 and 2001, options to purchase an aggregate of 4,033,030 shares and 4,845,783 shares of common stock, respectively, were outstanding under this plan. The exercise price of each option, the period during which each option may be exercised and other terms and conditions of each option are determined by the Board (or by a committee appointed by the Board).
1998 Stock Option Plan. The Company’s 1998 Stock Option Plan provides for the granting of options to purchase not more than an aggregate of 4,200,000 shares of common stock. Some or all of the options issued under the 1998 Stock Option Plan may be “incentive stock options” within the meaning of the Internal Revenue Code. All officers and directors of the Company and its subsidiaries are eligible to participate in the 1998 Stock Option Plan. Each option granted pursuant to the 1998 Stock Option Plan must provide for an exercise price per share that is at least equal to the fair market value per share of common stock on the date of grant. No options may be granted under the 1998 Stock Option Plan after August 20, 2008. As of December 31, 2002 and 2001, options to purchase an aggregate of 2,250,000 shares and 3,686,667 shares of common stock, respectively, were outstanding pursuant to this plan to executive officers and directors. The exercise price of each option, the period during which each option may be exercised and other terms and conditions of each option are determined by the Board (or by a committee appointed by the Board).
1998 Supplemental Stock Option Plan. The Company has adopted a stock option plan pursuant to which options, for up to an aggregate of 5,600,000 shares of common stock, may be granted to employees who are not officers or directors and to consultants and independent contractors who perform services for the Company or its subsidiaries. As of December 31, 2002 and 2001, options to purchase an aggregate of 4,752,565 shares and 5,342,097 shares of common stock, respectively, were outstanding pursuant to this plan. The exercise price of each option, the period during which each option may be exercised and other terms and conditions of each option are determined by the Board (or by a committee appointed by the Board).
1997 Performance Award Plan. Effective February 20, 1997, U.S. Rentals adopted the 1997 Performance Award Plan under which stock options and other awards could be granted to key employees and directors at prices and terms established by U.S. Rentals at the date of grant. The options expire in 2007. As a result of the merger, all outstanding options to purchase shares of U.S. Rentals common stock became fully vested and were converted into options to purchase the Company’s common stock. As of December 31, 2002 and 2001, options to purchase an aggregate of 1,561,123 shares and 2,547,467 shares of common stock, respectively, were outstanding pursuant to this plan.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A summary of the transactions within the Company’s stock option plans follows:
Weighted Average Exercise Shares Price
Outstanding at December 31, 1999 15,653,242 20.86 Granted 1,921,125 16.56 Exercised (26,307) 16.91 Canceled (451,965) 27.03
Outstanding at December 31, 2000 17,096,095 20.23 Granted 633,400 19.78 Exercised (715,143) 14.24 Canceled (592,338) 23.94
Outstanding at December 31, 2001 16,422,014 20.22 Granted 722,550 11.94 Exercised (3,735,666) 17.32 Canceled (812,180) 25.03
Outstanding at December 31, 2002 12,596,718 $ 20.20
Exercisable at December 31, 2002 10,693,526 $ 21.02
Options Outstanding Options Exercisable
Weighted Average Weighted Average Remaining Exercise Weighted Average Range of Exercise Prices Amount Outstanding Contractual Life Price Amount Exercisable Exercise Price
$10.00-$15.00 3,237,029 6.6 years $12.17 2,490,731 $ 12.49 15.01-20.00 1,807,765 7.4 years 16.38 999,953 16.68 20.01-25.00 5,285,578 5.3 years 21.78 5,023,161 21.73 25.01-30.00 1,176,597 6.3 years 27.35 1,089,932 27.27 30.01-50.00 1,089,749 5.7 years 34.97 1,089,749 34.97
12,596,718 6.1 years 20.20 10,693,526 21.02
At December 31, 2002 there are (i) 7,144,298 shares of common stock reserved for the exercise of warrants, (ii) 12,596,718 shares of common stock reserved for issuance pursuant to options granted and that may be granted in the future under the Company’s stock option plans, (iii) 5,192,526 shares of common stock reserved for the issuance of outstanding preferred securities of a subsidiary trust, (iv) 17,000,000 shares of common stock reserved for the issuance of Series C and Series D preferred stock, and (v) 203,495 shares of common stock reserved for the conversion of convertible debt.
Stockholders’ Rights Plan. The Company adopted a Stockholders’ Rights Plan on September 28, 2001 (with a record date of October 19, 2001). This plan and other provisions of the Company’s charter and bylaws may have the effect of deferring hostile takeovers or delaying or preventing changes in control or management of the Company, including transactions in which the shareholders of the Company might otherwise receive a premium for their shares over then current market prices. The rights expire on September 27, 2011.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
13. Comprehensive Income
The following table sets forth the components of the Company’s accumulated other comprehensive income (loss):
Foreign Accumulated Currency Derivatives Other Translation Qualifying Comprehensive Adjustments as Hedges Income/(Loss)
Balance at December 31, 1999 $ 317 $ 317 2000 activity (7,264) (7,264)
Balance at December 31, 2000 (6,947) (6,947) 2001 activity (16,137) $ (7,043) (23,180)
Balance at December 31, 2001 (23,084) (7,043) (30,127) 2002 activity 2,484 795 3,279
Balance at December 31, 2002 $ (20,600) $ (6,248) $ (26,848)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
14. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share:
Year Ended December 31
2002 2001 2000
(In thousands, except share and
per share data) Numerator: Income (loss) before extraordinary item and cumulative effect of change in accounting principle $ (109,486) $ 122,573 $ 176,375 Plus: preferred dividends of a subsidiary trust, net of taxes 11,406
Income (loss) available to common stockholders $ (109,486) $ 122,573 $ 187,781
Denominator: Denominator for basic earnings per share-weighted-average shares 75,787,693 72,141,128 71,069,174 Effect of dilutive securities: Employee stock options 1,162,530 1,507,820 1,517,015 Warrants 2,780,047 3,738,239 2,791,387 Series A Preferred 12,000,000 Series B Preferred 5,000,000 Series C Preferred 12,000,000 12,000,000 Series D Preferred 5,000,000 5,000,000 Company-obligated mandatorily redeemable convertible preferred securities of a
subsidiary trust 6,876,003
Denominator for dilutive earnings per share—adjusted weighted-average shares 96,730,270 94,387,187 99,253,579
Earnings (loss) per share-basic: Income (loss) before extraordinary item and cumulative effect of change in accounting principle $ (1.45) $ 1.70 $ 2.48 Extraordinary item, net 0.16 Cumulative effect of change in accounting principle, net (3.80)
Net income (loss) $ (5.25) $ 1.54 $ 2.48
Earnings (loss) per share-diluted: Income (loss) before extraordinary item and cumulative effect of change in accounting principle $ (1.45) $ 1.30 $ 1.89 Extraordinary item, net 0.12 Cumulative effect of change in accounting principle, net (3.80)
Net income (loss) $ (5.25) $ 1.18 $ 1.89
The diluted share base for years where the numerator represents a loss excludes incremental weighted shares for the above-captioned “-Effect of dilutive securities” due to their antidilutive effect.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
15. Commitments and Contingencies
Operating Leases
The Company leases rental equipment, real estate and certain office equipment under operating leases. Certain real estate leases require the Company to pay maintenance, insurance, taxes and certain other expenses in addition to the stated rentals. Future minimum lease payments, by year and in the aggregate, for non-cancelable operating leases with initial or remaining terms of one year or more are as follows at December 31, 2002:
Real Estate Rental Equipment Other Equipment Leases Leases Leases
(In thousands) 2003 $ 68,068 $ 110,642 $ 21,873 2004 63,613 88,189 15,847 2005 55,650 82,325 5,239 2006 50,574 246,719 2,063 2007 46,383 39,927 1,072 Thereafter 108,093 357
$ 392,381 $ 567,802 $ 46,451
As part of certain of its equipment operating leases, the Company guarantees that the value of the equipment at the end of the lease term will not be less than a specified projected residual value. The use of these guarantees helps to lower the Company’s monthly operating lease payments. The Company believes that the projected residual values are reasonable and, accordingly, that it is not likely to incur material obligations pursuant to such guarantees. However, the Company cannot be certain that the actual residual values will not turn out to be significantly below the projected values that the Company guaranteed. The Company’s maximum potential liability under these guarantees is $231.6 million, which represents the aggregate amount that it would be required to pay if the residual value was zero for all equipment subject to such guarantees. In conformity with applicable accounting standards, this potential liability is not recorded on the Company’s balance sheet.
The Company was the seller-lessee in sale-leaseback transactions with unrelated third parties in which it sold rental equipment for aggregate proceeds of $3.4 million in 2002, rental equipment and real estate for aggregate proceeds of $51.0 million in 2001, and rental equipment for aggregate proceeds of $218.8 million in 2000. For the 2002 transactions, the Company leased back the rental equipment for a minor period of one to eight months. For the 2001 transactions, the Company leased back the real estate over a 10-year period and the rental equipment for a minor period of one to eight months. For the 2000 transactions, the Company leased back a portion of the rental equipment for a minor period of one to eight months, and the balance over a five-year period. The total gains related to these transactions in 2002, 2001, and 2000 were, respectively, approximately $1.5 million of which none was deferred, $21.6 million of which $1.4 million was deferred, and approximately $16.5 million of which $4.0 million was deferred. The deferred gains are amortized over the respective lease periods on a straight-line basis.
Rent expense under all non-cancelable real estate, rental equipment and other equipment operating leases totaled $185.0 million, $170.9 million, and $137.3 million for the years ended December 31, 2002, 2001, and 2000, respectively. The Company’s real estate leases provide for varying terms, including leases subject to customary escalation clauses, and include 43 leases that are on a month-to-month basis and 36 leases that provide for a remaining term of less than one year and do not provide a renewal option.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Restricted Stock Awards
The Company has granted to employees other than executive officers and directors approximately 1,165,000 shares of restricted stock that contain the following provisions. The shares vest in 2004, 2005 or 2006 or earlier upon a change in control of the Company, death, disability, retirement or certain terminations of employment, and are subject to forfeiture prior to vesting on certain other terminations of employment, the violation of non-compete provisions and certain other events. The grants provide that the Company will pay to employees who vest in their restricted stock, and who sell their restricted stock within five trading days after vesting, a maximum aggregate amount for all these employees of approximately $300,000 for each dollar by which the per share proceeds of these sales are less than $27.26 but more than $15.17, a maximum aggregate amount for all these employees of approximately $500,000 for each dollar by which the per share proceeds of these sales are less than $15.17 but more than $9.18, and a maximum aggregate amount for all these employees of approximately $1,165,000 for each dollar by which the per share proceeds of these sales are less than $9.18.
Employee Benefit Plans
The Company currently sponsors one defined contribution 401(k) retirement plan which is subject to the provisions of ERISA. The Company also sponsors a deferred profit sharing plan for the benefit of the full-time employees of its Canadian subsidiaries. Under these plans, the Company matches a percentage of the participants’ contributions up to a specified amount. Company contributions to the plans were $5.2 million, $6.0 million, and $6.2 million for the years ended December 31, 2002, 2001, and 2000, respectively.
Legal and Insurance Matters
The Company is party to legal proceedings and potential claims arising in the ordinary course of its business. In the opinion of management, the Company has adequate legal defenses, reserves, or insurance coverage with respect to these matters so that the ultimate resolution will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows. The Company had accrued $22.2 million and $28.3 million at December 31, 2002 and 2001, respectively, to cover the uninsured portion of estimated costs arising from these pending claims and other potential unasserted claims.
Environmental Matters
The Company and its operations are subject to various laws and related regulations governing environmental matters. Under such laws, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, such property, as well as investigation of property damage. The Company incurs ongoing expenses associated with the removal of underground storage tanks and the performance of appropriate remediation at certain of its locations. The Company believes that such removal and remediation will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.
16. Segment Information
Each of the Company’s branch locations is an operating segment which consists of the rental and sales of equipment and related merchandise and parts. Certain of the Company’s branches also provide specialty traffic control services as a product line. Of the total revenues for these branches, the amount of revenue attributable to such traffic control services was $291.6 million, $272.2 million, and $245.0 million during the years ended December 31, 2002, 2001, and 2000, respectively. All of the Company’s branches have been aggregated into one reportable segment because they offer similar products and services in similar markets and the factors determining strategic decisions are comparable.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company operates in the United States, Canada and Mexico. Revenues are attributable to countries based upon the location of the customers. Geographic area information for the years ended December 31, 2002, 2001, and 2000 is as follows:
Year ended December 31
2002 2001 2000
(In thousands) Revenues from external customers Domestic $ 2,658,969 $ 2,740,694 $ 2,753,266 Foreign 162,020 145,911 165,595
Total revenues from external customers $ 2,820,989 $ 2,886,605 $ 2,918,861
Rental equipment, net Domestic $ 1,713,406 $ 1,630,411 $ 1,604,191 Foreign 132,269 116,771 128,644
Total consolidated rental equipment, net $ 1,845,675 $ 1,747,182 $ 1,732,835
Property and equipment, net Domestic $ 409,785 $ 393,541 $ 405,873 Foreign 15,567 16,512 16,366
Total consolidated property and equipment, net $ 425,352 $ 410,053 $ 422,239
Goodwill and other intangible assets, net Domestic $ 1,588,066 $ 2,086,481 $ 2,092,882 Foreign 122,946 121,220 134,126
Total consolidated goodwill and other intangible assets, net $ 1,711,012 $ 2,207,701 $ 2,227,008
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
17. Quarterly Financial Information (Unaudited)
Selected Financial Data
The following table of quarterly financial information has been prepared from unaudited financial statements of the Company, and reflects adjustments which are, in the opinion of management, necessary for a fair presentation of the interim periods presented.
First Quarter Second Quarter Third Quarter Fourth Quarter
(In thousands, except per share data) For the year ended December 31, 2002: Total revenues $ 598,965 $ 744,759 $ 783,103 $ 694,162 Gross profit 179,208 253,262 245,747 208,060 Goodwill impairment 247,913 Restructuring charge 28,262 Income (loss) before cumulative effect of change in accounting principle 7,584 51,114 40,767 (208,951) Cumulative effect of change in accounting principle (288,339) Net income (loss) (280,755) 51,114 40,767 (208,951) Basic earnings (loss) before cumulative effect of change in accounting principle per share $ 0.10 $ 0.67 $ 0.53 $ (2.73) Diluted earnings (loss) before cumulative effect of change in accounting principle per share 0.08 0.51 0.43 (2.73)
For the year ended December 31, 2001: Total revenues $ 619,104 $ 768,013 $ 795,483 $ 704,005 Gross profit 202,567 286,063 305,242 245,598 Restructuring charge 28,922 Income before extraordinary item 3,412 24,935 62,052 32,174 Extraordinary item 11,317 Net income 3,412 13,618 62,052 32,174 Basic earnings before extraordinary item per share $ 0.05 $ 0.35 $ 0.85 $ 0.45 Diluted earnings before extraordinary item per share 0.04 0.26 0.63 0.34
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
18. Condensed Consolidating Financial Information of Guarantor Subsidiaries
Certain indebtedness of URI, a wholly owned subsidiary of Holdings (the “Parent”), is guaranteed by URI’s United States subsidiaries (the “guarantor subsidiaries”) and, in certain cases, also by Parent. However, this indebtedness is not guaranteed by URI’s foreign subsidiaries (the “non-guarantor subsidiaries”). The guarantor subsidiaries are all wholly-owned and the guarantees are made on a joint and several basis and are full and unconditional (subject to subordination provisions and subject to a standard limitation which provides that the maximum amount guaranteed by each guarantor will not exceed the maximum amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws). Separate consolidated financial statements of the guarantor subsidiaries have not been presented because management believes that such information would not be material to investors. However, condensed consolidating financial information as of December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002, are presented. The condensed consolidating financial information of the Company and its subsidiaries are as follows:
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2002
Guarantor Non-Guarantor Other and Consolidated Parent URI Subsidiaries Subsidiaries Eliminations Total
(In thousands) ASSETS Cash and cash equivalents $ 16,908 $ 2,323 $ 19,231 Accounts receivable, net $ 7,354 426,733 32,109 466,196 Intercompany receivable (payable) 604,962 (422,624) (182,338) Inventory 36,602 50,450 4,746 91,798 Prepaid expenses and other assets 42,158 79,323 1,326 $ 8,486 131,293 Rental equipment, net 1,003,791 709,615 132,269 1,845,675 Property and equipment, net $ 25,765 137,713 246,307 15,567 425,352 Investment in subsidiaries 1,532,290 2,216,629 (3,748,919) Intangible assets, net 243,529 1,344,537 122,946 1,711,012
$1,558,055 $4,292,738 $ 2,451,249 $ 128,948 $ (3,740,433) $ 4,690,557
LIABILITIES AND STOCKHOLDER’S EQUITY Liabilities: Accounts payable $ 50,931 $ 139,922 $ 16,185 $ 207,038 Debt $ 226,550 2,454,119 711 57,968 $ (226,550) 2,512,798 Deferred taxes 226,392 (805) 225,587 Accrued expenses and other liabilities 58,968 115,430 8,699 3,982 187,079
Total liabilities 226,550 2,790,410 255,258 82,852 (222,568) 3,132,502 Commitments and contingencies Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust 226,550 226,550 Stockholders’ equity: Preferred stock 5 5 Common stock 765 765 Additional paid-in capital 1,341,290 1,562,410 1,901,936 68,395 (3,532,741) 1,341,290 Deferred compensation (52,988) (52,988) Retained earnings 69,281 (53,830) 294,055 (1,703) (238,522) 69,281 Accumulated other comprehensive loss (26,848) (6,252) (20,596) 26,848 (26,848)
Total stockholders’ equity 1,331,505 1,502,328 2,195,991 46,096 $ (3,744,415) 1,331,505
$1,558,055 $4,292,738 $ 2,451,249 $ 128,948 $ (3,740,433) $ 4,690,557
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CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2001
Guarantor Non-Guarantor Other and Consolidated Parent URI Subsidiaries Subsidiaries Eliminations Total
(In thousands) ASSETS Cash and cash equivalents $ 6,385 $ 19,798 $ 1,143 $ 27,326 Accounts receivable, net 7,142 418,260 24,871 450,273 Intercompany receivable (payable) 89,612 39,548 (129,160) Inventory 36,335 46,410 3,019 85,764 Prepaid expenses and other assets 57,764 64,699 1,935 $ 8,819 133,217 Rental equipment, net 885,442 744,969 116,771 1,747,182 Property and equipment, net $ 26,793 135,240 231,508 16,512 410,053 Investment in subsidiaries 1,904,000 2,414,710 (4,318,710) Intangible assets, net 855,360 1,231,121 121,220 2,207,701
$ 1,930,793 $ 4,487,990 $ 2,796,313 $ 156,311 $ (4,309,891) $ 5,061,516
LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Accounts payable $ 38,436 $ 155,029 $ 11,308 $ 204,773 Debt $ 300,000 2,193,380 203,896 62,246 $ (300,000) 2,459,522 Deferred income taxes 296,974 50 297,024 Accrued expenses and other liabilities 5,283 57,108 96,793 12,253 3,250 174,687
Total liabilities 305,283 2,585,898 455,768 85,807 (296,750) 3,136,006 Commitments and contingencies Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust 300,000 300,000 Stockholders’ equity: Preferred stock 5 5 Common stock 734 734 Additional paid-in capital 1,243,586 1,498,655 1,840,604 65,970 (3,405,229) 1,243,586 Deferred compensation (55,794) (55,794) Retained earnings 467,106 410,480 499,941 27,618 (938,039) 467,106 Accumulated other comprehensive loss (30,127) (7,043) (23,084) 30,127 (30,127)
Total stockholders’ equity 1,625,510 1,902,092 2,340,545 70,504 (4,313,141) 1,625,510
$ 1,930,793 $ 4,487,990 $ 2,796,313 $ 156,311 $ (4,309,891) $ 5,061,516
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2002
Guarantor Non-Guarantor Other and Consolidated Parent URI Subsidiaries Subsidiaries Eliminations Total
Revenues: Equipment rentals $ 905,752 $ 1,133,860 $ 115,069 $ 2,154,681 Sales of rental equipment 98,156 61,577 16,446 176,179 Sales of equipment and merchandise and other revenues 237,603 222,021 30,505 490,129
Total revenues 1,241,511 1,417,458 162,020 2,820,989 Cost of revenues: Cost of equipment rentals, excluding depreciation 419,854 661,794 55,961 1,137,609 Depreciation of rental equipment 152,163 151,619 21,766 325,548 Cost of rental equipment sales 62,689 44,037 10,095 116,821 Cost of equipment and merchandise sales and other operating costs 174,721 157,379 22,634 354,734
Total cost of revenues 809,427 1,014,829 110,456 1,934,712
Gross profit 432,084 402,629 51,564 886,277 Selling, general and administrative expenses 191,584 222,437 24,897 438,918 Goodwill impairment 81,494 159,802 6,617 247,913 Restructuring charge 8,362 17,962 1,938 28,262 Non-rental depreciation and amortization $ 8,938 25,716 21,909 2,738 59,301
Operating income (loss) (8,938) 124,928 (19,481) 15,374 111,883 Interest expense 18,206 183,882 7,567 4,512 $ (18,206) 195,961 Preferred dividends of a subsidiary trust 18,206 18,206 Other (income) expense, net 12,874 (15,435) 1,661 (900)
Income (loss) before provision (benefit) for income taxes and cumulative effect of change in accounting principle (27,144) (71,828) (11,613) 9,201 (101,384) Provision (benefit) for income taxes (10,586) (12,366) 26,195 4,859 8,102
Income (loss) before cumulative effect of change in accounting principle and equity in net earnings of subsidiaries (16,558) (59,462) (37,808) 4,342 (109,486) Cumulative effect of change in accounting principle (86,598) (168,078) (33,663) (288,339)
Income (loss) before equity in net earnings of subsidiaries (16,558) (146,060) (205,886) (29,321) (397,825) Equity in net loss of subsidiaries (381,267) (235,207) 616,474
Net income (loss) $(397,825) $ (381,267) $ (205,886) $ (29,321) $ 616,474 $ (397,825)
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UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2001
Guarantor Non-Guarantor Other and Consolidated Parent URI Subsidiaries Subsidiaries Eliminations Total
(In thousands) Revenues: Equipment rentals $ 907,070 $ 1,201,439 $ 104,391 $ 2,212,900 Sales of rental equipment 63,612 70,331 13,158 147,101 Sales of equipment and merchandise and other revenues 244,020 254,222 28,362 526,604
Total revenues 1,214,702 1,525,992 145,911 2,886,605
Cost of revenues: Cost of equipment rentals, excluding depreciation 376,634 626,867 50,134 1,053,635 Depreciation of rental equipment 150,619 149,868 20,476 320,963 Cost of rental equipment sales 38,702 42,088 7,952 88,742 Cost of equipment and merchandise sales and other operating costs 177,659 185,223 20,913 383,795
Total cost of revenues 743,614 1,004,046 99,475 1,847,135
Gross profit 471,088 521,946 46,436 1,039,470 Selling, general and administrative expenses 192,640 224,707 24,404 441,751 Restructuring charge 8,877 17,096 2,949 28,922 Non-rental depreciation and amortization $ 7,862 42,012 51,014 5,875 106,763
Operating income (loss) (7,862) 227,559 229,129 13,208 462,034 Interest expense 19,500 211,220 7,834 2,509 $ (19,500) 221,563 Preferred dividends of a subsidiary trust 19,500 19,500 Other (income) expense, net 25,586 (21,202) 2,037 6,421
Income (loss) before provision (benefit) for income taxes and extraordinary item (27,362) (9,247) 242,497 8,662 214,550 Provision (benefit) for income taxes (11,355) (1,226) 100,636 3,922 91,977
Income (loss) before extraordinary item and equity in net earnings of subsidiaries (16,007) (8,021) 141,861 4,740 122,573 Extraordinary item 11,317 11,317
Income (loss) before equity in net earnings of subsidiaries (16,007) (19,338) 141,861 4,740 111,256 Equity in net earnings of subsidiaries 127,263 146,601 (273,864)
Net income $111,256 $ 127,263 $ 141,861 $ 4,740 $ (273,864) $ 111,256
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UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended December 31, 2000
Guarantor Non-Guarantor Other and Consolidated Parent URI Subsidiaries Subsidiaries Eliminations Total
(In thousands) Revenues: Equipment rentals $ 851,541 $ 1,094,613 $ 110,529 $ 2,056,683 Sales of rental equipment 145,519 178,576 23,583 347,678 Sales of equipment and merchandise and other revenues 253,798 229,219 31,483 514,500
Total revenues 1,250,858 1,502,408 165,595 2,918,861
Cost of revenues: Cost of equipment rentals, excluding depreciation 364,047 494,350 49,080 907,477 Depreciation of rental equipment 152,640 155,239 20,252 328,131 Cost of rental equipment sales 87,161 106,617 14,404 208,182 Cost of equipment and merchandise sales and other operating costs 197,190 164,186 25,125 386,501
Total cost of revenues 801,038 920,392 108,861 1,830,291
Gross profit 449,820 582,016 56,734 1,088,570 Selling, general and administrative expenses 184,135 245,431 24,764 454,330 Non-rental depreciation and amortization $ 7,718 33,692 39,618 5,273 86,301
Operating income (loss) (7,718) 231,993 296,967 26,697 547,939 Interest expense 19,500 217,904 135 10,740 $ (19,500) 228,779 Preferred dividends of a subsidiary trust 19,500 19,500 Other (income) expense, net 2,129 (4,285) 320 (1,836)
Income (loss) before provision (benefit) for income taxes (27,218) 11,960 301,117 15,637 301,496 Provision (benefit) for income taxes (11,295) 4,908 124,964 6,544 125,121
Income (loss) before equity in net earnings of subsidiaries (15,923) 7,052 176,153 9,093 176,375 Equity in net earnings of subsidiaries 192,298 185,246 $ (377,544)
Net income $ 176,375 $ 192,298 $ 176,153 $ 9,093 $ (377,544) $ 176,375
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UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Year Ended December 31, 2002
Guarantor Non-Guarantor Other and Parent URI Subsidiaries Subsidiaries Eliminations Consolidated
(In thousands) Net cash provided by (used in) operating activities $(13,231) $ 387,190 $ 111,072 $ 28,536 $ 4,342 $ 517,909 Cash flows from investing activities: Purchases of rental equipment (302,417) (150,864) (38,978) (492,259) Purchases of property and equipment (4,975) (9,088) (23,054) (1,482) (38,599) Proceeds from sales of rental equipment 98,156 61,577 16,446 176,179 Capital contributed to subsidiary (63,755) 63,755 Purchases of other companies (172,583) (172,583) Deposits on rental equipment purchases (4,644) (4,644) In-process acquisition costs (4,342) (4,342)
Net cash used in investing activities (68,730) (390,576) (112,341) (24,014) 59,413 (536,248) Cash flows from financing activities: Proceeds from debt 505,567 82 2,667 508,316 Payments of debt (38,111) (483,081) (1,703) (6,944) 38,111 (491,728) Proceeds from sale-leaseback Payments of financing costs (6,197) (6,197) Capital contributions by parent 63,755 (63,755) Dividend distributions to parent (83,043) 83,043 Shares repurchased and retired (26,726) (26,726) Proceeds from the exercise of common stock options 63,755 63,755 Company-obligated mandatorily redeemable convertible preferred
securities of a subsidiary trust repurchased and retired (38,111) (38,111) Proceeds from dividends from subsidiary 83,043 (83,043)
Net cash provided by (used in) financing activities 81,961 (2,999) (1,621) (4,277) (63,755) 9,309 Effect of foreign exchange rates 935 935
Net increase (decrease) in cash and cash equivalents (6,385) (2,890) 1,180 (8,095) Cash and cash equivalents at beginning of period 6,385 19,798 1,143 27,326
Cash and cash equivalents at end of period $ 16,908 $ 2,323 $ 19,231
Supplemental disclosure of cash flow information: Cash paid for interest $ 18,946 $ 181,045 $ 1,232 $ 10,976 $ 212,199 Cash paid for income taxes, net of refunds $ (3,115) $ 1,661 $ (1,454) Supplemental disclosure of non-cash investing and financing activities: Conversion of operating leases to capital leases $ 31,451 $ 31,451 The Company acquired the net assets and assumed certain liabilities of other companies as follows: Assets, net of cash acquired $172,222 $ 172,222 Liabilities assumed (4,705) (4,705)
167,517 167,517 Due to seller and other payments 5,066 5,066
Net cash paid $ 172,583 $ 172,583
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UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Year Ended December 31, 2001
Guarantor Non-Guarantor Other and Parent URI Subsidiaries Subsidiaries Eliminations Consolidated
(In thousands) Net cash provided by (used in) operating activities $(16,826) $ 622,289 $ 97,695 $ (8,933) $ 2,485 $ 696,710 Cash flows from investing activities: Purchases of rental equipment (277,032) (148,125) (24,613) (449,770) Purchases of property and equipment (2,674) (13,159) (28,214) (3,501) (47,548) Proceeds from sales of rental equipment 63,612 70,331 13,158 147,101 Capital contributed to subsidiary (10,417) 10,417 Purchases of other companies (53,565) (1,273) (54,838) Payments of contingent purchase price (2,103) (2,103) In-process acquisition costs (2,485) (2,485)
Net cash used in investing activities (13,091) (282,247) (106,008) (16,229) 7,932 (409,643) Cash flows from financing activities: Proceeds from debt 2,008,644 65 44,758 2,053,467 Payments of debt (2,292,186) (1,687) (6,634) (2,300,507) Proceeds from sale-leaseback 12,435 12,435 Payments of financing costs (28,709) (333) (29,042) Capital contributions by parent 10,417 (10,417) Dividend distributions to parent (44,258) 44,258 Shares repurchased and retired (24,758) (24,758) Proceeds from the exercise of common stock options 10,417 10,417 Proceeds from dividends from subsidiary 44,258 (44,258)
Net cash provided by (used in) financing activities 29,917 (333,657) (1,622) 37,791 (10,417) (277,988) Effect of foreign exchange rates (16,137) (16,137)
Net increase (decrease) in cash and cash equivalents 6,385 (9,935) (3,508) (7,058) Cash and cash equivalents at beginning of period 29,733 4,651 34,384
Cash and cash equivalents at end of period $ 6,385 $ 19,798 $ 1,143 $ 27,326
Supplemental disclosure of cash flow information: Cash paid for interest $ 19,500 $ 197,315 $ 10,561 $ 3,009 $ 230,385 Cash paid for income taxes, net of refunds $ (31,122) $ 323 $ (30,799) Supplemental disclosure of non-cash investing and financing activities: The Company acquired the net assets and assumed certain
liabilities of other companies as follows: Assets, net of cash acquired $ 20,264 $ 1,201 $ 21,465 Liabilities assumed (4,468) (144) (4,612) Less: Amounts paid through issuance of debt (600) (600)
15,196 1,057 16,253 Due to seller and other payments 38,369 216 38,585
Net cash paid $ 53,565 $ 1,273 $ 54,838
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UNITED RENTALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION For the Year Ended December 31, 2000
Guarantor Non-Guarantor Other and Consolidated Parent URI Subsidiaries Subsidiaries Eliminations Total
(In thousands) Net cash provided by (used in) operating activities $ (6,429) $ 243,759 $ 227,855 $ 43,066 $ 4,470 $ 512,721 Cash flows from investing activities: Purchases of rental equipment (489,259) (283,488) (35,457) (808,204) Purchases of property and equipment (13,071) (34,477) (102,510) (3,712) (153,770) Proceeds from sales of rental equipment 145,519 178,576 23,583 347,678 Proceeds from sale of businesses 16,246 3,000 19,246 Payments of contingent purchase price (3,030) (13,236) (16,266) Purchases of other companies (337,257) (10,080) (347,337) Capital contributed to subsidiary (331) 331 In-process acquisition costs (4,285) (4,285)
Net cash used in investing activities (13,402) (702,258) (217,658) (25,666) (3,954) (962,938) Cash flows from financing activities: Shares repurchased and retired (30,950) (30,950) Dividend distributions to parent (50,450) 50,450 Proceeds from debt 452,912 3,290 456,202 Repayments of debt (125,238) (168) (9,193) (134,599) Proceeds from sale-leaseback 193,478 193,478 Payments of financing costs (16,223) (185) (16,408) Capital contributions by parent 331 (331) Proceeds from the exercise of stock options 331 331 Proceeds from dividends from subsidiary 50,450 (50,450)
Net cash provided by (used in) financing activities 19,831 454,810 3,122 (9,193) (516) 468,054 Effect of foreign exchange rates (7,264) (7,264)
Net increase (decrease) in cash and cash equivalents (3,689) 13,319 943 10,573 Cash and cash equivalents at beginning of period 3,689 16,414 3,708 23,811
Cash and cash equivalents at end of period $ $ 29,733 $ 4,651 $ 34,384
Supplemental disclosure of cash flow information: Cash paid for interest $ 19,500 $ 218,346 $ 135 $ 10,782 $ 248,763 Cash paid for income taxes $ 19,833 $ 3,913 $ 23,746 Supplemental disclosure of non-cash investing and financing activities: The Company acquired the net assets and assumed certain liabilities of
other companies as follows: Assets, net of cash acquired $ 518,167 $ 11,037 $ 529,204 Liabilities assumed (132,163) (957) (133,120) Less: Amounts paid in common stock of parent (10,000) (10,000) Amounts paid through issuance of debt (65,500) (65,500)
310,504 10,080 320,584 Due to seller and other payments 26,753 26,753
Net cash paid $ 337,257 $ 10,080 $ 347,337
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REPORT OF INDEPENDENT AUDITORS
Board of Directors United Rentals, Inc. (Parent Company of United Rentals (North America), Inc.)
We have audited the accompanying consolidated balance sheets of United Rentals (North America), Inc. as of December 31, 2002 and 2001 and the related consolidated statements of operations, stockholder’s equity, and cash flows for each of the three years in the period ended December 31, 2002. These consolidated financial statements are the responsibility of the management of United Rentals (North America), Inc. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of United Rentals (North America), Inc. at December 31, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States.
As discussed in Note 1 to the consolidated financial statements, the Company adopted Statement of Accounting Standard No. 142, “Goodwill and Other Intangible Assets,” effective January 1, 2002.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey February 20, 2003
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UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED BALANCE SHEETS
December 31
2002 2001
(In thousands,
except share data) Assets Cash and cash equivalents $ 19,231 $ 27,326 Accounts receivable, net of allowance for doubtful accounts of $48,542 and $47,744 in 2002 and 2001, respectively 466,196 450,273 Inventory 91,798 85,764 Prepaid expenses and other assets 122,807 124,398 Rental equipment, net 1,845,675 1,747,182 Property and equipment, net 399,587 383,260 Goodwill, net 1,705,191 2,199,774 Other intangible assets, net 5,821 7,927
$ 4,656,306 $ 5,025,904
Liabilities and Stockholder’s Equity Liabilities: Accounts payable $ 207,038 $ 204,773 Debt 2,512,798 2,459,522 Deferred taxes 225,587 297,024 Accrued expenses and other liabilities 209,728 166,154
Total liabilities 3,155,151 3,127,473 Commitments and contingencies Stockholder’s equity: Common stock—$.01 par value, 3,000 shares authorized, 1,000 shares issued and outstanding Additional paid-in capital 1,581,833 1,518,078 Retained earnings (53,830) 410,480 Accumulated other comprehensive loss (26,848) (30,127)
Total stockholder’s equity 1,501,155 1,898,431
$ 4,656,306 $ 5,025,904
See accompanying notes.
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UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31
2002 2001 2000
(In thousands) Revenues: Equipment rentals $2,154,681 $ 2,212,900 $ 2,056,683 Sales of rental equipment 176,179 147,101 347,678 Sales of equipment and merchandise and other revenues 490,129 526,604 514,500
Total revenues 2,820,989 2,886,605 2,918,861 Cost of revenues: Cost of equipment rentals, excluding depreciation 1,137,609 1,053,635 907,477 Depreciation of rental equipment 325,548 320,963 328,131 Cost of rental equipment sales 116,821 88,742 208,182 Cost of equipment and merchandise sales and other operating costs 354,734 383,795 386,501
Total cost of revenues 1,934,712 1,847,135 1,830,291
Gross profit 886,277 1,039,470 1,088,570 Selling, general and administrative expenses 438,918 441,751 454,330 Goodwill impairment 247,913 Restructuring charge 28,262 28,922 Non-rental depreciation and amortization 50,363 98,901 78,583
Operating income 120,821 469,896 555,657 Interest expense 195,961 221,563 228,779 Other (income) expense, net (900) 6,421 (1,836)
Income (loss) before provision for income taxes, extraordinary item and cumulative effect of change in accounting principle (74,240) 241,912 328,714 Provision for income taxes 18,688 103,332 136,416
Income (loss) before extraordinary item and cumulative effect of change in accounting principle (92,928) 138,580 192,298 Extraordinary item, net of tax benefit 11,317 Cumulative effect of change in accounting principle (288,339)
Net income (loss) $ (381,267) $ 127,263 $ 192,298
See accompanying notes.
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UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY
Common Stock Accumulated Other Additional Paid- Retained Comprehensive Comprehensive (Loss) Number of Shares Amount in Capital Earnings Income (Loss) Income
(In thousands except share amounts) Balance, December 31, 1999 1,000 $ 1,507,330 $ 185,627 $ 317 Comprehensive income: Net income 192,298 $ 192,298 Other comprehensive income: Foreign currency translation adjustments (7,264) (7,264)
Comprehensive income $ 185,034
Contributed capital from parent 331 Dividend distributions to parent (50,450)
Balance, December 31, 2000 1,000 1,507,661 327,475 (6,947) Comprehensive income: Net income 127,263 $ 127,263 Other comprehensive income: Foreign currency translation adjustments (16,137) (16,137) Cumulative effect on equity of adopting FAS 133,
net of tax of $1,784 (2,516) (2,516) Derivatives qualifying as hedges, net of tax
$3,212 (4,527) (4,527)
Comprehensive income $ 104,083
Contributed capital from parent 10,417 Dividend distributions to parent (44,258)
Balance, December 31, 2001 1,000 $ 1,518,078 $ 410,480 $ (30,127) Comprehensive loss: Net loss (381,267) $ (381,267) Other comprehensive income Foreign currency translation adjustments 2,484 2,484 Derivatives qualifying as hedges, net of tax 795 795
Comprehensive loss $ (377,988)
Contributed capital from parent 63,755 Dividend distributions to parent (83,043)
Balance, December 31, 2002 1,000 $ 1,581,833 $ (53,830) $ (26,848)
See accompanying notes.
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UNITED RENTALS (NORTH AMERICA), INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
2002 2001 2000
(In thousands) Cash Flows From Operating Activities: Net income (loss) $ (381,267) $ 127,263 $ 192,298 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 376,244 419,864 406,714 Gain on sales of rental equipment (59,359) (58,359) (139,496) Gain on sale of businesses (4,084) Restructuring charge 2,497 10,893 Goodwill impairment 247,913 Extraordinary item 18,076 Cumulative effect of change in accounting principle, net 288,339 Deferred taxes 5,871 100,683 109,280 Changes in operating assets and liabilities: Accounts receivable (6,949) 24,888 8,613 Inventory 21,189 87,084 69,706 Prepaid expenses and other assets 3,601 11,657 (77,579) Accounts payable 2,252 (58,713) 14,290 Accrued expenses and other liabilities 26,467 27,715 (65,062)
Net cash provided by operating activities 526,798 711,051 514,680
Cash Flows From Investing Activities: Purchases of rental equipment (492,259) (449,770) (808,204) Purchases of property and equipment (33,624) (44,874) (140,699) Proceeds from sales of rental equipment 176,179 147,101 347,678 Proceeds from sale of businesses 19,246 Purchases of other companies (172,583) (54,838) (347,337) Payments of contingent purchase price (2,103) (16,266) Deposits on rental equipment purchases (4,644)
Net cash used in investing activities (526,931) (404,484) (945,582)
Cash Flows From Financing Activities: Capital contributions by Parent 63,755 10,417 331 Proceeds from debt 508,316 2,053,467 456,202 Payments on debt (491,728) (2,300,507) (134,599) Proceeds from sale-leaseback 12,435 193,478 Dividend distributions to Parent (83,043) (44,258) (50,450) Payments of financing costs (6,197) (29,042) (16,223)
Net cash (used in) provided by financing activities (8,897) (297,488) 448,739 Effect of foreign exchange rates 935 (16,137) (7,264)
Net increase (decrease) in cash and cash equivalents (8,095) (7,058) 10,573 Cash and cash equivalents at beginning of year 27,326 34,384 23,811
Cash and cash equivalents at end of year $ 19,231 $ 27,326 $ 34,384
Supplemental disclosure of cash flow information: Cash paid for interest $ 193,253 $ 210,885 $ 229,263 Cash paid for taxes, net of refunds $ (1,454) $ (30,799) $ 23,746 Supplemental schedule of non cash investing and financing activities: Conversion of operating leases to capital leases $ 31,451 The Company acquired the net assets and assumed certain liabilities of other companies as follows: Assets, net of cash acquired $ 172,222 $ 21,465 $ 529,204 Liabilities assumed (4,705) (4,612) (133,120) Less: Amounts paid in common stock of the parent (10,000) Amounts paid through issuance of debt (600) (65,500)
167,517 16,253 320,584 Due to seller and other payments 5,066 38,585 26,753
Net cash paid $ 172,583 $ 54,838 $ 347,337
See accompanying notes.
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UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
United Rentals (North America), Inc., (“URI”) and subsidiaries is a wholly owned subsidiary of United Rentals, Inc., which is principally a holding company (“Holdings” or “Parent”). Holdings was incorporated in July 1998 and became the parent of URI on August 5, 1998, pursuant to the reorganization of the legal structure of URI. Prior to such reorganization, the name of URI was United Rentals, Inc. References herein to the “Company” refer to URI and its subsidiaries.
Certain footnotes are not provided for the accompanying financial statements as the information in Notes 1 through 10, 12, 13 and 15 through 17 to the consolidated financial statements of United Rentals, Inc. included elsewhere in this report is substantially equivalent to that required for the consolidated financial statements of URI and its subsidiaries. Earnings per share data is not provided for the operating results of URI and subsidiaries, as they are wholly owned subsidiaries of Holdings. URI’s various credit agreements and debt instruments place restrictions on its ability to transfer funds to its shareholder.
Holdings provides certain services to URI in connection with its operations. These services principally include: (i) senior management services, (ii) finance related services and support, (iii) information technology systems and support and (iv) acquisition related services. In addition, Holdings leases certain equipment and real property that are made available for use by URI and its subsidiaries. URI has made, and expects to continue to make, certain payments to Holdings in respect of the services provided by Holdings to the Company. The expenses relating to URI’s payments to Holdings are reflected on URI’s financial statements as selling, general and administrative expenses. In addition, although not legally obligated to do so, URI has in the past made, and expects that it will in the future make, distributions to Holdings for, among other things, enabling Holdings to pay dividends on its preferred securities.
2. Capital Stock and Contributions
At December 31, 2002, the Company had authorized 3,000 shares of its $0.01 par value common stock of which 1,000 shares were issued and outstanding. All of the issued and outstanding common shares of URI are owned by its Parent.
Pursuant to the reorganization described in Note 1, the net proceeds from the Company’s initial public offering completed in December 1997 and the public offering completed in March 1998 have been reflected as Contributed Capital from the Parent in the accompanying statement of stockholder’s equity. Holdings also contributed the net proceeds from the issuance of redeemable convertible preferred securities in August 1998 to URI. During 1999, Holdings contributed the net proceeds from the issuance of common stock in a public offering and the net proceeds from the issuance of perpetual convertible preferred stock to URI.
3. Condensed Consolidating Financial Information of Guarantor Subsidiaries
Certain indebtedness of URI is guaranteed by URI’s United States subsidiaries (the “guarantor subsidiaries”) but is not guaranteed by URI’s foreign subsidiaries (the “non-guarantor subsidiaries”). The guarantor subsidiaries are all wholly-owned and the guarantees are made on a joint and several basis and are full and unconditional (subject to subordination provisions and subject to a standard limitation which provides that the maximum amount guaranteed by each guarantor will not exceed the maximum amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws). Separate consolidated financial statements of the guarantor subsidiaries have not been presented because management believes that such
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UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) information would not be material to investors. However, condensed consolidating financial information as of December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002, are presented. The condensed consolidating financial information of URI and its subsidiaries are as follows:
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2002
Guarantor Non-Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total
(In thousands) ASSETS
Cash and cash equivalents $ 16,908 $ 2,323 $ 19,231 Accounts receivable, net $ 7,354 426,733 32,109 466,196 Intercompany receivable (payable) 604,962 (422,624) (182,338) Inventory 36,602 50,450 4,746 91,798 Prepaid expenses and other assets 42,158 79,323 1,326 122,807 Rental equipment, net 1,003,791 709,615 132,269 1,845,675 Property and equipment, net 137,713 246,307 15,567 399,587 Investment in subsidiaries 2,216,629 $(2,216,629) Intangible assets, net 243,529 1,344,537 122,946 1,711,012
$ 4,292,738 $ 2,451,249 $ 128,948 $(2,216,629) $ 4,656,306
LIABILITIES AND STOCKHOLDER’S EQUITY
Liabilities: Accounts payable $ 50,931 $ 139,922 $ 16,185 $ 207,038 Debt 2,454,119 711 57,968 2,512,798 Deferred taxes 226,392 (805) 225,587 Accrued expenses and other liabilities 58,968 115,430 8,699 $ 26,631 209,728
Total liabilities 2,790,410 255,258 82,852 26,631 3,155,151 Commitments and contingencies Stockholder’s equity: Common stock Additional paid-in capital 1,562,410 1,901,936 68,395 (1,950,908) 1,581,833 Retained earnings (53,830) 294,055 (1,703) (292,352) (53,830) Accumulated other comprehensive loss (6,252) (20,596) (26,848)
Total stockholder’s equity 1,502,328 2,195,991 46,096 (2,243,260) 1,501,155
$ 4,292,738 $ 2,451,249 $ 128,948 $(2,216,629) $ 4,656,306
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UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET December 31, 2001
Guarantor Non-Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total
(In thousands) ASSETS Cash and cash equivalents $ 6,385 $ 19,798 $ 1,143 $ 27,326 Accounts receivable, net 7,142 418,260 24,871 450,273 Intercompany receivable (payable) 89,612 39,548 (129,160) Inventory 36,335 46,410 3,019 85,764 Prepaid expenses and other assets 57,764 64,699 1,935 124,398 Rental equipment, net 885,442 744,969 116,771 1,747,182 Property and equipment, net 135,240 231,508 16,512 383,260 Investment in subsidiaries 2,414,710 $ (2,414,710) Intangible assets, net 855,360 1,231,121 121,220 2,207,701
$ 4,487,990 $ 2,796,313 $ 156,311 $ (2,414,710) $ 5,025,904
LIABILITIES AND STOCKHOLDER’S EQUITY Liabilities: Accounts payable $ 38,436 $ 155,029 $ 11,308 $ 204,773 Debt 2,193,380 203,896 62,246 2,459,522 Deferred taxes 296,974 50 297,024 Accrued expenses and other liabilities 57,108 96,793 12,253 166,154
Total liabilities 2,585,898 455,768 85,807 3,127,473 Commitments and contingencies Stockholder’s equity: Common stock Additional paid-in capital 1,498,655 1,840,604 65,970 $(1,887,151) 1,518,078 Retained earnings 410,480 499,941 27,618 (527,559) 410,480 Accumulated other comprehensive loss (7,043) (23,084) (30,127)
Total stockholder’s equity 1,902,092 2,340,545 70,504 (2,414,710) 1,898,431
$ 4,487,990 $ 2,796,313 $ 156,311 $ (2,414,710) $ 5,025,904
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UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Year Ended December 31, 2002
Guarantor Non-Guarantor Other and Consolidated URI Subsidiaries Subsidiaries Eliminations Total
(In thousands) Revenues: Equipment rentals $ 905,752 $ 1,133,860 $ 115,069 $2,154,681 Sales of rental equipment 98,156 61,577 16,446 176,179 Sales of equipment and merchandise and other revenues 237,603 222,021 30,505 490,129
Total revenues 1,241,511 1,417,458 162,020 2,820,989 Cost of revenues: Cost of equipment rentals, excluding depreciation 419,854 661,794 55,961 1,137,609 Depreciation of rental equipment 152,163 151,619 21,766 325,548 Cost of rental equipment sales 62,689 44,037 10,095 116,821 Cost of equipment and merchandise sales and other
operating costs 174,721 157,379 22,634 354,734
Total cost of revenues 809,427 1,014,829 110,456 1,934,712
Gross profit 432,084 402,629 51,564 886,277 Selling, general and administrative expenses 191,584 222,437 24,897 438,918 Goodwill impairment 81,494 159,802 6,617 247,913 Restructuring charge 8,362 17,962 1,938 28,262 Non-rental depreciation and amortization 25,716 21,909 2,738 50,363
Operating income 124,928 (19,481) 15,374 120,821 Interest expense 183,882 7,567 4,512 195,961 Other (income) expense, net 12,874 (15,435) 1,661 (900)
Income (loss) before provision (benefit) for income taxes and
cumulative effect of change in accounting principle (71,828) (11,613) 9,201 (74,240) Provision (benefit) for income taxes (12,366) 26,195 4,859 18,688
Income (loss) before cumulative effect of change in accounting principle and equity in net earnings of subsidiaries (59,462) (37,808) 4,342 (92,928) Cumulative effect of change in accounting principle, net of
tax (86,598) (168,078) (33,663) (288,339)
Income (loss) before equity in net earnings of subsidiaries (146,060) (205,886) (29,321) (381,267) Equity in net loss of subsidiaries (235,207) $ 235,207
Net income (loss) $ (381,267) $ (205,886) $ (29,321) $ 235,207 $ (381,267)
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UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Year Ended December 31, 2001
Guarantor Non-Guarantor Other and Consolidated URI Subsidiaries Subsidiaries Eliminations Total
(In thousands) Revenues: Equipment rentals $ 907,070 $ 1,201,439 $ 104,391 $ 2,212,900 Sales of rental equipment 63,612 70,331 13,158 147,101 Sales of equipment and merchandise and other revenues 244,020 254,222 28,362 526,604
Total revenues 1,214,702 1,525,992 145,911 2,886,605 Cost of revenues: Cost of equipment rentals, excluding depreciation 376,634 626,867 50,134 1,053,635 Depreciation of rental equipment 150,619 149,868 20,476 320,963 Cost of rental equipment sales 38,702 42,088 7,952 88,742 Cost of equipment and merchandise sales and other
operating costs 177,659 185,223 20,913 383,795
Total cost of revenues 743,614 1,004,046 99,475 1,847,135
Gross profit 471,088 521,946 46,436 1,039,470 Selling, general and administrative expenses 192,640 224,707 24,404 441,751 Restructuring charge 8,877 17,096 2,949 28,922 Non-rental depreciation and amortization 42,012 51,014 5,875 98,901
Operating income 227,559 229,129 13,208 469,896 Interest expense 211,220 7,834 2,509 221,563 Other (income) expense, net 25,586 (21,202) 2,037 6,421
Income (loss) before provision (benefit) for income taxes and
extraordinary item (9,247) 242,497 8,662 241,912 Provision (benefit) for income taxes (1,226) 100,636 3,922 103,332
Income (loss) before extraordinary item and equity in net
earnings of subsidiaries (8,021) 141,861 4,740 138,580 Extraordinary item 11,317 11,317
Income (loss) before equity in net earnings of subsidiaries (19,338) 141,861 4,740 127,263 Equity in net earnings of subsidiaries 146,601 $ (146,601)
Net income $ 127,263 $ 141,861 $ 4,740 $ (146,601) $ 127,263
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UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS For the Year Ended December 31, 2000
Guarantor Non-Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total
(In thousands) Revenues: Equipment rentals $ 851,541 $ 1,094,613 $ 110,529 $ 2,056,683 Sales of rental equipment 145,519 178,576 23,583 347,678 Sales of equipment and merchandise and other revenues 253,798 229,219 31,483 514,500
Total revenues 1,250,858 1,502,408 165,595 2,918,861 Cost of revenues: Cost of equipment rentals, excluding depreciation 364,047 494,350 49,080 907,477 Depreciation of rental equipment 152,640 155,239 20,252 328,131 Cost of rental equipment sales 87,161 106,617 14,404 208,182 Cost of equipment and merchandise sales and other
operating costs 197,190 164,186 25,125 386,501
Total cost of revenues 801,038 920,392 108,861 1,830,291
Gross profit 449,820 582,016 56,734 1,088,570 Selling, general and administrative expenses 184,135 245,431 24,764 454,330 Non-rental depreciation and amortization 33,692 39,618 5,273 78,583
Operating income 231,993 296,967 26,697 555,657 Interest expense 217,904 135 10,740 228,779 Other (income) expense, net 2,129 (4,285) 320 (1,836)
Income before provision for income taxes 11,960 301,117 15,637 328,714 Provision for income taxes 4,908 124,964 6,544 136,416
Income before equity in net earnings of subsidiaries 7,052 176,153 9,093 192,298 Equity in net earnings of subsidiaries 185,246 $(185,246)
Net income $ 192,298 $ 176,153 $ 9,093 $(185,246) $ 192,298
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UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION For the Year Ended December 31, 2002
Guarantor Non-Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total
(In thousands) Net cash provided by operating activities $ 387,190 $ 111,072 $ 28,536 $ 526,798 Cash flows from investing activities: Purchases of rental equipment (302,417) (150,864) (38,978) (492,259) Purchases of property and equipment (9,088) (23,054) (1,482) (33,624) Proceeds from sales of rental equipment 98,156 61,577 16,446 176,179 Purchases of other companies (172,583) (172,583) Deposits on rental equipment purchases (4,644) (4,644)
Net cash used in investing activities (390,576) (112,341) (24,014) (526,931) Cash flows from financing activities: Dividend distributions to parent (83,043) (83,043) Proceeds from debt 505,567 82 2,667 508,316 Repayments of debt (483,081) (1,703) (6,944) (491,728) Payments of financing costs (6,197) (6,197) Capital contributions by parent 63,755 63,755
Net cash provided by (used in) financing activities (2,999) (1,621) (4,277) (8,897) Effect of foreign exchange rates 935 935
Net increase (decrease) in cash and cash equivalents (6,385) (2,890) 1,180 (8,095) Cash and cash equivalents at beginning of period 6,385 19,798 1,143 27,326
Cash and cash equivalents at end of period $ 16,908 $ 2,323 $ 19,231
Supplemental disclosure of cash flow information: Cash paid for interest $ 181,045 $ 1,232 $ 10,976 $ 193,253 Cash paid for income taxes $ (3,115) $ 1,661 $ (1,454)
Supplemental disclosure of non-cash investing and financing
activities: Conversion of operating leases to capital leases $ 31,451 $ 31,451 The Company acquired the net assets and assumed certain liabilities
of other companies as follows: Assets, net of cash acquired $ 172,222 $ 172,222 Liabilities assumed (4,705) (4,705)
167,517 167,517 Due to seller and other payments 5,066 5,066
Net cash paid $ 172,583 $ 172,583
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UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION For the Year Ended December 31, 2001
Guarantor Non-Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total
(In thousands) Net cash provided by operating activities $ 622,289 $ 97,695 $ (8,933) $ 711,051 Cash flows from investing activities: Purchases of rental equipment (277,032) (148,125) (24,613) (449,770) Purchases of property and equipment (13,159) (28,214) (3,501) (44,874) Proceeds from sales of rental equipment 63,612 70,331 13,158 147,101 Payments of contingent purchase price (2,103) (2,103) Purchases of other companies (53,565) (1,273) (54,838)
Net cash used in investing activities (282,247) (106,008) (16,229) (404,484) Cash flows from financing activities: Dividend distributions to parent (44,258) (44,258) Proceeds from debt 2,008,644 65 44,758 2,053,467 Repayments of debt (2,292,186) (1,687) (6,634) (2,300,507) Proceeds from sale-leaseback 12,435 12,435 Payments of financing costs (28,709) (333) (29,042) Capital contributions by parent 10,417 10,417
Net cash provided by (used in) financing activities (333,657) (1,622) 37,791 (297,488) Effect of foreign exchange rates (16,137) (16,137)
Net increase (decrease) in cash and cash equivalents 6,385 (9,935) (3,508) (7,058) Cash and cash equivalents at beginning of period 29,733 4,651 34,384
Cash and cash equivalents at end of period $ 6,385 $ 19,798 $ 1,143 $ 27,326
Supplemental disclosure of cash flow information: Cash paid for interest $ 197,315 $ 10,561 $ 3,009 $ 210,885 Cash paid for income taxes $ (31,122) $ 323 $ (30,799) Supplemental disclosure of non-cash investing and financing activities: The Company acquired the net assets and assumed certain
liabilities of other companies as follows: Assets, net of cash acquired $ 20,264 $ 1,201 $ 21,465 Liabilities assumed (4,468) (144) (4,612) Less: Amounts paid through issuance of debt (600) (600)
15,196 1,057 16,253 Due to seller and other payments 38,369 216 38,585
Net cash paid $ 53,565 $ 1,273 $ 54,838
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UNITED RENTALS (NORTH AMERICA), INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION For the Year Ended December 31, 2000
Guarantor Non-Guarantor Consolidated URI Subsidiaries Subsidiaries Eliminations Total
(In thousands) Net cash provided by operating activities $ 243,759 $ 227,855 $ 43,066 $ 514,680 Cash flows from investing activities: Purchases of rental equipment (489,259) (283,488) (35,457) (808,204) Purchases of property and equipment (34,477) (102,510) (3,712) (140,699) Proceeds from sales of rental equipment 145,519 178,576 23,583 347,678 Proceeds from sale of businesses 16,246 3,000 19,246 Payments of contingent purchase price (3,030) (13,236) (16,266) Purchases of other companies (337,257) (10,080) (347,337)
Net cash used in investing activities (702,258) (217,658) (25,666) (945,582) Cash flows from financing activities: Dividend distributions to parent (50,450) (50,450) Proceeds from debt 452,912 3,290 456,202 Repayments of debt (125,238) (168) (9,193) (134,599) Proceeds from sale-leaseback 193,478 193,478 Payments of financing costs (16,223) (16,223) Capital contributions by parent 331 331
Net cash provided by (used in) financing activities 454,810 3,122 (9,193) 448,739 Effect of foreign exchange rates (7,264) (7,264)
Net increase (decrease) in cash and cash equivalents (3,689) 13,319 943 10,573 Cash and cash equivalents at beginning of period 3,689 16,414 3,708 23,811
Cash and cash equivalents at end of period $ $ 29,733 $ 4,651 $ 34,384
Supplemental disclosure of cash flow information: Cash paid for interest $ 218,346 $ 135 $ 10,782 $ 229,263 Cash paid for income taxes $ 19,833 $ 3,913 $ 23,746 Supplemental disclosure of non-cash investing and financing activities: The Company acquired the net assets and assumed certain
liabilities of other companies as follows: Assets, net of cash acquired $ 518,167 $ 11,037 $ 529,204 Liabilities assumed (132,163) (957) (133,120) Less: Amounts paid in common stock of parent (10,000) (10,000) Amounts paid through issuance of debt (65,500) (65,500)
310,504 10,080 320,584 Due to seller and other payments 26,753 26,753
Net cash paid $ 337,257 $ 10,080 $ 347,337
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REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES
Board of Directors United Rentals, Inc.
We have audited the consolidated financial statements of United Rentals, Inc. as of December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002, and have issued our report thereon dated February 20, 2003, included elsewhere in this Form 10-K. Our audits also included the financial statement schedules listed in Item 15(a)(2). These schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
/S/ ERNST & YOUNG LLP
MetroPark, New Jersey February 20, 2003
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SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED RENTALS, INC.
CONDENSED BALANCE SHEET
December 31
2002 2001
(in thousands) ASSETS Property and equipment, net $ 25,765 $ 26,793 Investment in and advances to subsidiaries 1,532,290 1,904,000
$ 1,558,055 $ 1,930,793
LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities: Debt $ 226,550 $ 300,000 Accrued expenses and other liabilities 5,283
Total liabilities 226,550 305,283
Commitments and contingencies
Stockholders’ equity: Preferred stock 5 5 Common stock 765 734 Additional paid-in capital 1,341,290 1,243,586 Deferred compensation (52,988) (55,794) Retained earnings 69,281 467,106 Accumulated other comprehensive loss (26,848) (30,127)
Total stockholders’ equity 1,331,505 1,625,510
$ 1,558,055 $ 1,930,793
See accompanying notes.
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SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED RENTALS, INC.
CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31
2002 2001 2000
(In thousands) Non-rental depreciation and amortization $ 8,938 $ 7,862 $ 7,718
Operating loss (8,938) (7,862) (7,718) Interest expense 18,206 19,500 19,500
Loss before benefit for income taxes (27,144) (27,362) (27,218) Benefit for income taxes 10,586 11,355 11,295
Net loss before equity in earnings of subsidiaries (16,558) (16,007) (15,923) Equity in earnings (loss) of subsidiaries (381,267) 127,263 192,298
Net income (loss) $ (397,825) $ 111,256 $ 176,375
See accompanying notes.
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SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED RENTALS, INC.
CONDENSED CASH FLOW INFORMATION
Year Ended December 31,
2002 2001 2000
(In thousands) Net cash used in operating activities $ (13,231) $ (16,826) $ (6,429) Cash flows from investing activities: Purchase of property and equipment (4,975) (2,674) (13,071) Capital contributed to subsidiary (63,755) (10,417) (331)
Net cash used in investing activities (68,730) (13,091) (13,402)
Cash flows from financing activities: Payments of debt (38,111) Shares repurchased and retired (26,726) (24,758) (30,950) Proceeds from the exercise of stock options 63,755 10,417 331 Proceeds from dividends from subsidiary 83,043 44,258 50,450
Net cash provided by financing activities 81,961 29,917 19,831
Net change in cash and cash equivalents Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
See accompanying notes.
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SCHEDULE I—CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED RENTALS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
United Rentals, Inc. is principally a holding company (“Holdings”) and conducts its operations primarily through its wholly owned subsidiary United Rentals (North America), Inc. (“URI”) and subsidiaries. In the parent company-only financial statements, Holdings investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the date of acquisition. Holdings share of net income of its unconsolidated subsidiaries is included in consolidated income using the equity method. The parent company-only financial statements should be read in conjunction with the Company’s consolidated financial statements.
2. Debt
See Note 11 to the Consolidated Financial Statements for information concerning debt.
3. Guarantee
See Note 11 to the Consolidated Financial Statements for information concerning the guarantee.
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SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
UNITED RENTALS, INC.
Additions
Balance at Balance Beginning Charged to at End Description of Period Costs and Expenses Other Deductions of Period
(In thousands) Year ended December 31, 2002: Allowance for doubtful accounts $ 47,744 $ 36,791 $ (1,378)(a) $ 34,615(d) $ 48,542 Reserve for inventory obsolescence and shrinkage 9,395 10,586 910(b) 14,433(e) 6,458 Insurance reserves 18,559 105,957 6,232(c) 108,522(f) 22,226
Year ended December 31, 2001: Allowance for doubtful accounts $ 55,624 $ 31,194 $ 906(a) $ 39,980(d) $ 47,744 Reserve for inventory obsolescence and shrinkage 15,461 9,229 544(b) 15,839(e) 9,395 Insurance reserves 15,428 87,238 84,107(f) 18,559
Year ended December 31, 2000: Allowance for doubtful accounts $ 58,376 $ 38,431 $14,791(a) $ 55,974(d) $ 55,624 Reserve for inventory obsolescence and shrinkage 16,782 9,124 11,302(b) 21,747(e) 15,461 Insurance reserves 22,750 63,728 71,050(f) 15,428
(a) Represents allowance for doubtful accounts established through acquisitions offset, in the case of 2002, for reductions to the allowance through purchase accounting. (b) Represents reserve for inventory obsolescence and shrinkage assumed through acquisitions. (c) Represents reclassification to other assets of receivable claims. (d) Represents write-offs of accounts, net of recoveries. (e) Represents write-offs of inventory items. (f) Represents payments.
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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item is incorporated by reference to the applicable information in the 2003 Proxy Statement, including the information set forth under the captions “Election of Directors” and “Compliance with Section 11(A) of the Securities Exchange Act of 1934”. The “2003 Proxy Statement” refers to the Company’s definitive Proxy Statement for its 2003 Annual Meeting of Stockholders, to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, prior to April 30, 2003.
Item 11. Executive and Director Compensation
The information required by this Item is incorporated by reference to the applicable information in the 2003 Proxy Statement, including the information set forth under the captions “Executive and Director Compensation” and “Compensation Committee Interlocks and Insider Participation”.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item with respect to security ownership of certain beneficial owners and management is incorporated by reference to the applicable information in the 2003 Proxy Statement, including the information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management”.
The Company has six equity compensation plans as of December 31, 2002. See note 12 to the Notes to Consolidated Financial Statements of the Company included in this report for additional information regarding these plans. The following table gives information about the Company’s equity compensation plans as of December 31, 2002.
Number of shares of Common Stock Number of shares of Common Weighted-average exercise price of remaining available for future issuance Stock to be issued upon outstanding options, warrants and under equity compensation plans (excluding Plan category exercise of outstanding options, warrants and rights rights shares reflected in the first column)
Equity compensation plans approved by stockholders 9,870,745 $20.38 2,203,481 Equity compensation plans not approved by stockholders 6,123,402 $20.41 612,863
15,994,147 2,816,344
The Company’s equity compensation plans that have not been approved by its stockholders are the 2001 Stock Plan and the 1998 Supplemental Stock Option Plan. For further information about these plans, see note 12 to the Notes to Consolidated Financial Statements of the Company included elsewhere in this report.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to the applicable information in the 2003 Proxy Statement, including the information set forth under the caption “Certain Transactions”.
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Item 14. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
An evaluation has been carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and the operation of our “disclosure controls and procedures” (as such term is defined in Rules 13a- 14(c) under the Securities Exchange Act of 1934). This evaluation took place as of a date within 90 days prior to the filing date of this annual report (“Evaluation Date”). Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, the disclosure controls and procedures are reasonably designed and effective to ensure that (i) information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii) such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in Internal Controls.
Since the Evaluation Date, there have not been any significant changes in our internal controls or in other factors that could significantly affect such controls.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Consolidated Financial Statements:
Report of Independent Auditors
United Rentals, Inc. Consolidated Balance Sheets—December 31, 2002 and 2001
United Rentals, Inc. Consolidated Statements of Operations for the years ended December 31, 2002, 2001, and 2000
United Rentals, Inc. Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2002, 2001, and 2000
United Rentals, Inc. Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001, and 2000
Notes to Consolidated Financial Statements
Report of Independent Auditors
United Rentals (North America), Inc. Consolidated Balance Sheets—December 31, 2002 and 2001
United Rentals (North America), Inc. Consolidated Statements of Operations for the years ended December 31, 2002, 2001, and 2000
United Rentals (North America), Inc. Consolidated Statements of Stockholder’s Equity for the years ended December 31, 2002, 2001, and 2000
United Rentals (North America), Inc. Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001, and 2000
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules:
Report of Independent Auditors on Financial Statement Schedules
Schedule I Condensed Financial Information of Registrant
Schedule II Valuation and Qualifying Accounts
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Schedules other than those listed are omitted as they are not applicable or the required or equivalent information has been included in the financial statements or notes thereto.
(a)(3) Exhibits
Exhibit Number Description of Exhibit
2(a) Amended and Restated Agreement and Plan of Merger dated as of August 31, 1998, among United Rentals, Inc., UR Acquisition Corporation and U.S. Rentals, Inc. (incorporated by reference to Exhibit 2 of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171) 3(a) Amended and Restated Certificate of Incorporation of United Rentals, Inc., (incorporated by reference to exhibit 3.1 of United Rentals, Inc. Report on Form 10-Q for the quarter ended June 30, 1998) 3(b) Certificate of Amendment to the United Rentals, Inc. Amended and Restated Certificate of Incorporation dated September 29, 1998 (incorporated by reference to Exhibit 4.2 to the United Rentals, Inc. Registration Statement on Form S-3, No. 333-70151) 3(c) By-laws of United Rentals, Inc. (incorporated by reference to exhibit 3.2 of United Rentals, Inc. Report on Form 10-Q for the quarter ended June 30, 1998) 3(d) Form of Certificate of Designation for Series C Perpetual Convertible Preferred Stock (incorporated by reference to exhibit 3(f) of United Rentals, Inc. Report on Form 10-Q for the quarter ended September 30, 2001) 3(e) Form of Certificate of Designation for Series D Perpetual Convertible Preferred Stock (incorporated by reference to exhibit 3(g) of United Rentals, Inc. Report on Form 10-Q for the quarter ended September 30, 2001) 3(f) Form of Certificate of Designation for Series E Junior Participating Preferred Stock (incorporated by reference to Exhibit A of Exhibit 4 of the United Rentals, Inc. Current Report on Form 8-K filed on October 5, 2001) 3(g) Rights Agreement dated September 28, 2001 between United Rentals, Inc. and American Stock Transfer & Trust Co., as Rights Agent (incorporated by reference to Exhibit 4 of the United Rentals, Inc. Current Report on Form 8-K filed on October 5, 2001) 3(h) Amended and Restated Certificate of Incorporation of United Rentals (North America), Inc., (incorporated by reference to Exhibit 3.3 of the United Rentals (North America), Inc. Report on Form 10-Q for the quarter ended June 30, 1998) 3(i) By-laws of United Rentals (North America), Inc., (incorporated by reference to Exhibit 3.4 of the United Rentals (North America), Inc. Report on Form 10-Q for the quarter ended June 30, 1998) 4(a) Form of certificate representing United Rentals, Inc. Common Stock (incorporated by reference to Exhibit 4 of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117) 4(b) Certificate of Trust of United Rentals Trust I (incorporated by reference to Exhibit 4(a) of the United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-64463) 4(c) Amended and Restated Trust Agreement dated August 5, 1998 among United Rentals, Inc., The Bank of New York, as Property Trustee, The Bank of New York (Delaware), as Delaware Trustee, and the Administrative Trustees named therein (incorporated by reference to Exhibit 10(ii) of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171) 4(d) Indenture dated August 5, 1998 by and between United Rentals, Inc. and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10(hh) of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171)
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Exhibit Number Description of Exhibit
4(e) Guarantee Agreement dated August 5, 1998 between United Rentals, Inc. and The Bank of New York (incorporated by reference to Exhibit 10(jj) of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171) 4(f) Form of Certificate representing 6 1/2% Convertible Quarterly Income Preferred Securities (incorporated by reference to Exhibit 4(e) of the United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-64463) 4(g) Form of Certificate representing 6 1/2% Convertible Subordinated Debentures (incorporated by reference to Exhibit 4(f) of the United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-64463) 4(h) Indenture dated May 22, 1998, among United Rentals (North America), Inc., the Guarantors named therein and State Street Bank and Trust Company, as trustee (incorporated by reference to Exhibit 4(b) of the Registration Statement on Form S-4 filed by United Rentals (North America), Inc., Registration No. 333-60467) 4(i) Indenture dated August 12, 1998, among United Rentals (North America), Inc., the Guarantors named therein and State Street Bank and Trust Company, as trustee (incorporated by reference to Exhibit 10(bb) of United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171) 4(j) Indenture dated December 15, 1998, among United Rentals (North America), Inc., the Guarantors named therein and State Street Bank and Trust Company, as trustee (incorporated by reference to Exhibit 10(uu) to Amendment No. 1 to the United Rentals (North America), Inc. Registration Statement on Form S-4, No. 333-64227) 4(k) Indenture dated March 23, 1999 among United Rentals (North America), Inc., the Guarantors named therein and The Bank of New York, as trustee (incorporated by reference to exhibit 4(q) of the United Rentals, Inc. Annual Report on Form 10-K for the Year Ended December 31, 1998) 4(l) Indenture dated as of April 20, 2001 among United Rentals (North America), Inc., the Guarantors named therein and The Bank of New York, as Trustee (incorporated by reference to Exhibit 10(b) to United Rentals, Inc. Report on Form 10-Q for the quarterly period ended March 31, 2001) 4(m) Indenture dated as of December 24, 2002, among United Rentals (North America), Inc., the Guarantors named therein and The Bank of New York, as trustee (incorporated by reference to exhibit 4(a) of United Rentals (North America), Inc. Registration Statement on Form S-4, Registration No. 333-103744-09) 4(n) Form of Registration Rights Agreement relating to the Series B Perpetual Convertible Preferred Stock between United Rentals, Inc. and Chase Equity Associates, LP (incorporated by reference to exhibit 10(c) of the United Rentals, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 1999) 4(o) Amended and Restated Registration Rights Agreement relating to Series A Perpetual Convertible Preferred Stock and Series B Perpetual Convertible Preferred Stock among United Rentals, Inc., Bradley S. Jacobs, Apollo Investment Fund IV, LP and Apollo Overseas Partners IV, LP (incorporated by reference to exhibit D of the United Rentals, Inc. Proxy Statement dated July 22, 1999) 4(p) Registration Rights Agreement dated as of April 20, 2001, among United Rentals (North America), Inc., the Guarantors named therein, and the initial purchasers named therein (incorporated by reference to Exhibit 10(d) to United Rentals, Inc. Report on Form 10-Q for the quarterly period ended March 31, 2001)
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Exhibit Number Description of Exhibit
4(q) Registration Rights Agreement dated as of December 24, 2002, among United Rentals (North America), Inc., the Guarantors named therein, and the initial purchasers named therein (incorporated by reference to exhibit 4(b) of United Rentals (North America), Inc. Registration Statement on Form S-4, Registration No. 333-103744-09) 10(a) Amended and Restated Credit Agreement dated as of April 20, 2001 between United Rentals, Inc., United Rentals (North America), Inc., various financial institutions, and The Chase Manhattan Bank, as U.S. Administrative Agent (incorporated by reference to Exhibit 10(a) to United Rentals, Inc. Report on Form 10-Q for the quarterly period ended March 31, 2001) 10(b)* First Amendment to the Amended and Restated Credit Agreement dated as of October 2, 2001, among United Rentals, Inc., United Rentals (North America), Inc., United Rentals of Canada, Inc., United Rentals of Nova Scotia (no.1), ULC, the lenders party thereto, JPMorgan Chase Bank, as U.S. administrative agent and J.P. Morgan Bank Canada, as Canadian administrative agent 10(c) Second Amendment to the Amended and Restated Credit Agreement dated as of September 30, 2002, among United Rentals, Inc., United Rentals (North America), Inc., United Rentals of Canada, Inc., United Rentals of Nova Scotia (no.1), ULC, the lenders party thereto, JPMorgan Chase Bank, as U.S. administrative agent and J.P. Morgan Bank Canada, as Canadian administrative agent (incorporated by reference to Exhibit 99.1 of the United Rentals, Inc. Report on Form 8-K filed on October 1, 2002) 10(d) Third Amendment to the Amended and Restated Credit Agreement dated as of December 17, 2002, among United Rentals, Inc., United Rentals (North America), Inc., United Rentals of Canada, Inc., United Rentals of Nova Scotia (no.1), ULC, the lenders party thereto, JPMorgan Chase Bank, as U.S. administrative agent and J.P. Morgan Bank Canada, as Canadian administrative agent (incorporated by reference to Exhibit 99.2 of the United Rentals, Inc. Report on Form 8-K filed on December 26, 2002) 10(e) Form of Warrant Agreement (incorporated by reference to exhibit 10(c) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)‡(1) 10(f) Form of Indemnification Agreement for Officers and Directors (incorporated by reference to exhibit 10(f) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)‡ 10(g) 1997 Stock Option Plan (incorporated by reference to exhibit 10(b) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)‡ 10(h) 1998 Stock Option Plan of United Rentals, Inc. (incorporated by reference to Exhibit 99.1 to United Rentals, Inc. Registration Statement on Form S-4, Registration No. 333-63171)‡ 10(i) 1998 Supplemental Stock Option Plan of United Rentals, Inc. (incorporated by reference to Exhibit 4.6 to the United Rentals, Inc. Registration Statement on Form S-8, No. 333-70345) 10(j) 2001 Senior Stock Plan of United Rentals, Inc. (incorporated by reference to Appendix B to United Rentals, Inc. Definitive Proxy Statement dated April 30, 2001)‡ 10(k) 2001 Stock Plan of United Rentals, Inc. (incorporated by reference to Exhibit 4.6 to United Rentals, Inc. Registration Statement on Form S-8, No. 333-60458)‡ 10(l) Deferred Compensation Plan for Directors of United Rentals, Inc. (incorporated by reference to exhibit 10(a) of the United Rentals, Inc. Report on Form 10-Q for the quarter ended March 31, 2002)‡ 10(m) Employment Agreement with Bradley S. Jacobs, dated as of September 19, 1997 (incorporated by reference to exhibit 10(g) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)‡
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Exhibit Number Description of Exhibit
10(n) Amendment No. 1 to Employment Agreement with Bradley S. Jacobs, dated as of December 24, 1999 (incorporated by reference to exhibit 10(p) of the United Rentals Annual Report on Form 10-K for the year ended December 31, 1999)‡ 10(o) Employment Agreement with John N. Milne, dated as of September 19, 1997 (incorporated by reference to exhibit 10(h) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)‡ 10(p) Amendment No. 1 to Employment Agreement with John N. Milne, dated as of December 24, 1999 (incorporated by reference to exhibit 10(r) of the United Rentals Annual Report on Form 10-K for the year ended December 31, 1999)‡ 10(q) Subscription Agreement dated November 14, 1997, from Wayland R. Hicks (Incorporated by reference to exhibit 10(r) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)‡ 10(r) Agreement dated November 14, 1997, with Wayland R. Hicks (incorporated by reference to exhibit 10(s) of United Rentals, Inc., Registration Statement on Form S-1, Registration No. 333-39117)‡ 10(s) Amendment No. 1 to Employment Agreement with Wayland R. Hicks, dated as of December 24, 1999 (incorporated by reference to exhibit 10(y) of the United Rentals Annual Report on Form 10-K for the year ended December 31, 1999)‡ 10(t) Amendment No. 2 to Employment Agreement with Wayland R. Hicks, dated as of November 14, 2000 (incorporated by reference to exhibit 10(z) of the United Rentals Annual Report on Form 10-K for the year ended December 31, 2000)‡ 10(u) Employment Agreement with Michael J. Nolan, dated as of October 14, 1997 (incorporated by reference to exhibit 10(i) of United Rentals, Inc. Registration Statement on Form S-1, Registration No. 333-39117)‡ 10(v) Amendment No. 1 to Employment Agreement with Michael J. Nolan, dated as of December 24, 1999 (incorporated by reference to exhibit 10(t) of the United Rentals Annual Report on Form 10-K for the year ended December 31, 1999)‡ 10(w) Senior Restricted Stock Agreement with Bradley S. Jacobs, dated June 5, 2001 (incorporated by reference to Exhibit 10.1 of United Rentals, Inc. Registration Statement on Form S-3, Registration No. 333-64662)‡ 10(x) Senior Restricted Stock Agreement with Wayland R. Hicks, dated June 5, 2001 (incorporated by reference to Exhibit 10.2 of United Rentals, Inc. Registration Statement on Form S-3, Registration No. 333-64662)‡ 10(y) Senior Restricted Stock Agreement with John N. Milne, dated June 5, 2001 (incorporated by reference to Exhibit 10.3 of United Rentals, Inc. Registration Statement on Form S-3, Registration No. 333-64662)‡ 10(z) Senior Restricted Stock Agreement with Michael J. Nolan, dated June 5, 2001 (incorporated by reference to Exhibit 10.4 of United Rentals, Inc. Registration Statement on Form S-3, Registration No. 333-64662)‡ 10(aa) Preferred Stock Purchase Agreement dated December 21, 1998 between United Rentals, Inc., Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P. (incorporated by reference to exhibit 10(y) of the United Rentals, Inc. Annual Report on Form 10-K for the Year Ended December 31, 1998) 10(bb) Preferred Stock Purchase Agreement, Series B Perpetual Convertible Preferred Stock, dated June 28, 1999, among United Rentals, Inc., Apollo Investment Fund IV, L.P. and Apollo Overseas Partners IV, L.P., together with an Amendment dated as of July 16, 1999 (incorporated by reference to exhibit C of the United Rentals, Inc. Proxy Statement dated July 22, 1999)
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Exhibit Number Description of Exhibit
10(cc) Preferred Stock Purchase Agreement, Series B Perpetual Convertible Preferred Stock dated July 16, 1999 between United Rentals, Inc. and Chase Equity Associates, L.P. (incorporated by reference to exhibit 10(c) of the United Rentals, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 1999) 10(dd) Purchase Agreement dated April 12, 2001 relating to the initial sale by United Rentals (North America), Inc. of $450 million aggregate principal amount of 10¾% Senior Notes due 2008 (incorporated by reference to exhibit 10(c) of the United Rentals, Inc. Report on Form 10-Q for the quarter ended March 31, 2001) 10(ee)* Purchase Agreement dated December 17, 2002 relating to the initial sale by United Rentals (North America), Inc. of $210 million aggregate principal amount of 10¾% Senior Notes due 2008 10(ff) Agreement dated September 28, 2001 among United Rentals, Inc., Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P., and Chase Equity Associates, L.P. relating to the exchange of Series A Perpetual Convertible Preferred Stock for Series C Perpetual Convertible Preferred Stock and the exchange of Series B Perpetual Convertible Preferred Stock for Series D Perpetual Convertible Preferred Stock (incorporated by reference to Exhibit 10 of the United Rentals, Inc. Report on Form 8-K filed on October 5, 2001) 10(gg) Purchase and Lock-Up Agreement among Richard D. Colburn and AYR Inc. and United Rentals, Inc., dated March 17, 2002 (incorporated by reference to Exhibit 99.1 of the United Rentals, Inc. Report on Form 8-K filed on March 18, 2002) 10(hh) Purchase and Lock-Up Agreement between Colburn Music Fund and United Rentals, Inc., dated March 17, 2002 (incorporated by reference to Exhibit 99.2 of the United Rentals, Inc. Report on Form 8-K filed on March 18, 2002) 10(ii) Underwriting Agreement dated March 19, 2002, among United Rentals, Inc., Bradley S. Jacobs, Bradley Jacobs LLC, John Milne, Michael Nolan, Wayland Hicks and Credit Suisse First Boston Corporation (incorporated by reference to exhibit 10(dd) of the United Rentals, Inc. Report on Form 10-K for the year ended December 31, 2001) 10(jj) Amended and Restated Receivables Purchase Agreement dated as of June 26, 2001 among United Rentals, Inc., as collection agent, United Rentals Receivables LLC II, various financial institutions and Credit Lyonnais New York Branch, as agent. (incorporated by reference to exhibit 10(b) of the United Rentals, Inc. Report on Form 10-Q for the quarter ended September 30, 2002) 10(kk) Amendment No. 1 to Amended and Restated Receivables Purchase Agreement dated as of June 21, 2002 among United Rentals, Inc., as collection agent, United Rentals Receivables LLC II, various financial institutions and Credit Lyonnais New York Branch, as agent. (incorporated by reference to exhibit 10(c) of the United Rentals, Inc. Report on Form 10-Q for the quarter ended September 30, 2002) 10(ll) Amendment No. 2 and Waiver to Amended and Restated Receivables Purchase Agreement dated as of October 29, 2002 among United Rentals, Inc., as collection agent, United Rentals Receivables LLC II, various financial institutions and Credit Lyonnais New York Branch, as agent. (incorporated by reference to exhibit 10(d) of the United Rentals, Inc. Report on Form 10-Q for the quarter ended September 30, 2002) 10(mm) Purchase and Contribution Agreement dated as of December 21, 2000 among United Rentals (North America), Inc., various subsidiaries of United Rentals (North America), Inc., United Rentals Receivables LLC I and United Rentals, Inc., as collection agent. (incorporated by reference to exhibit 10(e) of the United Rentals, Inc. Report on Form 10-Q for the quarter ended September 30, 2002)
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Exhibit Number Description of Exhibit
10(nn) Amendment 1 to Purchase and Contribution Agreement dated as of January 9, 2001 among United Rentals (North America), Inc., various subsidiaries of United Rentals (North America), Inc., United Rentals Receivables LLC I and United Rentals, Inc., as collection agent. (incorporated by reference to exhibit 10(f) of the United Rentals, Inc. Report on Form 10-Q for the quarter ended September 30, 2002) 10(oo) Amendment 2 to Purchase and Contribution Agreement dated as of June 26, 2001 among United Rentals (North America), Inc., various subsidiaries of United Rentals (North America), Inc., United Rentals Receivables LLC I and United Rentals, Inc., as collection agent. (incorporated by reference to exhibit 10(g) of the United Rentals, Inc. Report on Form 10-Q for the quarter ended September 30, 2002) 10(pp) Purchase and Contribution Agreement dated as of December 21, 2000 among United Rentals Receivables LLC I, United Rentals Receivables LLC II and United Rentals, Inc., as collection agent. (incorporated by reference to exhibit 10(h) of the United Rentals, Inc. Report on Form 10- Q for the quarter ended September 30, 2002) 10(qq) Amendment 1 to Purchase and Contribution Agreement dated as of January 9, 2001 among United Rentals Receivables LLC I, United Rentals Receivables LLC II and United Rentals, Inc., as collection agent. (incorporated by reference to exhibit 10(i) of the United Rentals, Inc. Report on Form 10-Q for the quarter ended September 30, 2002) 10(rr) Amendment 2 to Purchase and Contribution Agreement dated as of June 26, 2001 among United Rentals Receivables LLC I, United Rentals Receivables LLC II and United Rentals, Inc., as collection agent. (incorporated by reference to exhibit 10(j) of the United Rentals, Inc. Report on Form 10-Q for the quarter ended September 30, 2002) 10(ss) Parent Undertaking Agreement dated as of December 21, 2000 between United Rentals, Inc. and Credit Lyonnais New York Branch, as agent. (incorporated by reference to exhibit 10(k) of the United Rentals, Inc. Report on Form 10-Q for the quarter ended September 30, 2002)
21* Subsidiaries of United Rentals, Inc.
23* Consent of Ernst & Young LLP 99(a)* Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99(b)* Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Filed herewith. ‡ This document is a management contract or compensatory plan or arrangement. (1) United Rentals, Inc. issued a warrant in this form to the following current and former officers and other employees of United Rentals, Inc. (or in certain cases to an entity controlled by such officer) for the number of shares indicated: Bradley S. Jacobs (5,000,000); John N. Milne (714,286); others (628,562).
(b) Reports on Form 8-K:
1. Form 8-K filed on October 1, 2002 (earliest event reported September 30, 2002); Item 5 was reported.
2. Form 8-K filed on December 9, 2002 (earliest event reported December 9, 2002); Item 5 was reported.
3. Form 8-K filed on December 10, 2002 (earliest event reported December 10, 2002); Item 5 was reported.
4. Form 8-K filed on December 17, 2002 (earliest event reported December 17, 2002); Item 5 was reported.
5. Form 8-K filed on December 26, 2002 (earliest event reported December 17, 2002); Item 5 was reported.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
UNITED RENTALS, INC.
Date: March 27, 2003 By: /s/ JOHN N. MILNE
John N. Milne
President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signatures Title Date
/s/ BRADLEY S. JACOBS Chairman of the Board of Directors and Chief Executive March 27, 2003 Officer (Principal Executive Officer) Bradley S. Jacobs
/s/ WAYLAND R. HICKS Director March 27, 2003
Wayland R. Hicks
/s/ JOHN N. MILNE Director March 27, 2003
John N. Milne
/s/ LEON D. BLACK Director March 27, 2003
Leon D. Black
/s/ RONALD M. DEFEO Director March 27, 2003
Ronald M. DeFeo
/s/ MICHAEL S. GROSS Director March 27, 2003
Michael S. Gross
/s/ JOHN S. MCKINNEY Director March 27, 2003
John S. McKinney
/s/ GERALD TSAI, JR. Director March 27, 2003
Gerald Tsai, Jr.
/s/ CHRISTIAN M. WEYER Director March 27, 2003
Christian M. Weyer
/s/ JOHN N. MILNE President and Chief Financial Officer (Principal Financial March 27, 2003 Officer) John N. Milne
/s/ JOSEPH B. SHERK Vice President, Corporate Controller (Principal Accounting March 27, 2003 Officer) Joseph B. Sherk
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
UNITED RENTALS (NORTH AMERICA), INC.
Date: March 27, 2003 By: /s/ JOHN N. MILNE
John N. Milne
President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signatures Title Date
/s/ BRADLEY S. JACOBS Chairman of the Board of Directors and Chief Executive March 27, 2003 Officer (Principal Executive Officer) Bradley S. Jacobs
/s/ WAYLAND R. HICKS Director March 27, 2003
Wayland R. Hicks
/s/ JOHN N. MILNE Director March 27, 2003
John N. Milne
/s/ LEON D. BLACK Director March 27, 2003
Leon D. Black
/s/ RONALD M. DEFEO Director March 27, 2003
Ronald M. DeFeo
/s/ MICHAEL S. GROSS Director March 27, 2003
Michael S. Gross
/s/ JOHN S. MCKINNEY Director March 27, 2003
John S. McKinney
/s/ GERALD TSAI, JR. Director March 27, 2003
Gerald Tsai, Jr.
/s/ DAVID C. KATZ Director March 27, 2003
David C. Katz
/s/ CHRISTIAN M. WEYER Director March 27, 2003
Christian M. Weyer
/s/ JOHN N. MILNE President and Chief Financial Officer (Principal Financial March 27, 2003 Officer) John N. Milne
/s/ JOSEPH B. SHERK Vice President, Corporate Controller (Principal Accounting March 27, 2003 Officer) Joseph B. Sherk
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CERTIFICATIONS
I, Bradley S. Jacobs, certify that:
1. I have reviewed this annual report on Form 10-K of United Rentals, Inc. and United Rentals (North America), Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in this annual report;
4. The registrants’ other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrants and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrants, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrants’ disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual
report (the “Evaluation Date”); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrants’ other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants’ auditors and the audit committee of registrants’ boards of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants’ ability to record, process,
summarize and report financial data and have identified for the registrants’ auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants’ internal controls;
and
6. The registrants’ other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
March 27, 2003
/s/ BRADLEY S. JACOBS Bradley S. Jacobs Chief Executive Officer
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CERTIFICATIONS
I, John N. Milne, certify that:
1. I have reviewed this annual report on Form 10-K of United Rentals, Inc. and United Rentals (North America), Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in this annual report;
4. The registrants’ other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrants and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrants, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrants’ disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual
report (the “Evaluation Date”); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrants’ other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants’ auditors and the audit committee of registrants’ boards of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants’ ability to record, process,
summarize and report financial data and have identified for the registrants’ auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants’ internal controls;
and
6. The registrants’ other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
March 27, 2003
/s/ JOHN N. MILNE John N. Milne President and Chief Financial Officer
104 Exhibit 10 (b)
EXECUTION COPY
FIRST AMENDMENT dated as of October 2, 2001 (this “ Amendment”), among UNITED RENTALS , INC. (“Holdings”). UNITED RENTALS (NORTH AMERICA), INC. (the “U.S. Borrower”). UNITED RENTALS OF CANADA, INC. (the “Existing Canadian Borrower”), UNITED RENTALS OF NOVA SCOTIA (NO. 1), ULC, a Nova Scotia unlimited liability company (the “New Canadian Borrower” and, together with the U.S. Borrower and the Existing Canadian Borrower, the “ Borrowers”), the other subsidiaries of Holdings identified on the signature pages hereto, the lenders party hereto, THE CHASE MANHATTAN BANK, as U.S. administrative agent (in such capacity, the “U.S. Administrative Agent”), and THE CHASE MANHATTAN BANK OF CANADA, as Canadian administrative agent (in such capacity, the “Canadian Administrative Agent” and, together with the U.S. Administrative Agent, the “Administrative Agents”).
A. Reference is made to the Amended and Restated Credit Agreement dated as of April 20, 2001 (as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among Holdings, the U.S. Borrower, the Existing Canadian Borrower, the lenders party thereto, the U.S. Administrative Agent and the Canadian Administrative Agent. Capitalized terms used but not otherwise defined herein have the meanings assigned to them in the Credit Agreement.
B. Holdings and the Borrowers have requested that the Required Lenders and the C $ Revolving Lenders amend certain provisions of the Credit Agreement. The Required Lenders and the C $ Revolving Lenders are willing to agree to such amendments on the terms and subject to the conditions of this Amendment.
Accordingly, in consideration of the mutual agreements herein contained and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. General Amendment to the Credit Agreement. (a) The Credit Agreement (other than Section 9.02(b)) is hereby amended by, except as otherwise provided in Sections 2(d), 2(g) and 4(a) below, deleting the words “the Canadian Borrower” each time they appear in the Credit Agreement and inserting the words “the Canadian Borrowers”, “the applicable Canadian Borrower”, “each Canadian Borrower” or “either Canadian Borrower” in their place, as the context requires.
(b) The Credit Agreement is hereby amended by deleting the words “either Borrower” or “either of the Borrowers” each time they appear in the Credit Agreement and inserting the words “any Borrower” in their place.
SECTION 2. Amendment to Section 1.01 of the Credit Agreement. (a) Section 1.01 of the Credit Agreement is hereby amended by inserting the following definitions in proper alphabetical order:
“UR Canada” means United Rentals of Canada, Inc., a corporation organized and existing under the laws of Canada.
“UR Nova Scotia (No. 1)” means United Rentals of Nova Scotia (No. 1), ULC, a Nova Scotia unlimited liability company.
“UR Nova Scotia (No. 2)” means United Rentals of Nova Scotia (No. 2), ULC, a Nova Scotia unlimited liability company.
“UR Partnership” means UR Canadian Financing Partnership, a partnership formed under the laws of Nova Scotia. 2
(b) The definition of the term “Canadian Borrower” is hereby deleted and replaced with the following:
“Canadian Borrowers” means UR Canada and UR Nova Scotia (No. 1).
(c) The definition of the term “Canadian Pledge Agreement” is hereby amended by (i) inserting the word “either (a)” immediately following the word “means”, (ii) inserting the words “(other than UR Nova Scotia (No. 1) or UR Nova Scotia (No. 2))” immediately following the words “the Canadian Subsidiary Loan Parties” and (iii) inserting the following at the end thereof: “or (b) in the case of each of UR Nova Scotia (No. 1) and UR Nova Scotia (No. 2), a pledge agreement in form and substance reasonably satisfactory to the Canadian Collateral Agent”.
(d) The definition of the term “Canadian Security Agreement” is hereby amended by (i) inserting the word “either (a)” immediately following the word “means”, (ii) deleting the words “the Canadian Borrower” and inserting in their place the words “UR Canada”, (iii) inserting the words “(other than UR Nova Scotia (No. 1) or UR Nova Scotia (No. 2))” immediately following the words “the Canadian Subsidiary Loan Parties” and (iv) inserting the following at the end thereof: “or (b) in the case of each of UR Nova Scotia (No. 1) and UR Nova Scotia (No. 2), a security agreement in form and substance reasonably satisfactory to the Canadian Collateral Agent”.
(e) The definition of the term “Canadian Subsidiary Guarantee Agreement” is hereby amended by (i) inserting the word “either (a)” immediately following the word “means”, (ii) inserting the words “(other than UR Nova Scotia (No. 1) or UR Nova Scotia (No. 2))” immediately following the words “the Canadian Subsidiary Loan Parties” and (iii) inserting the following at the end thereof: “or (b) in the case of each of UR Nova Scotia (No. 1) and UR Nova Scotia (No. 2), a subsidiary guarantee agreement (which may be a supplement to an existing agreement) in form and substance reasonably satisfactory to the Canadian Collateral Agent”.
(f) The definition of the term “Excluded Taxes” is hereby deleted and replaced with the following:
“Excluded Taxes” means, with respect to the Agents, any Lender, the Issuing Bank or any other recipient (including a Participant) of any payment to be made by or on account of any obligation of any Borrower hereunder or under any other Loan Document, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction described in clause (a) above and (c) in the case of a Foreign Lender (or a Participant that would be a Foreign Lender if it were a Lender) or any other recipient (other than an assignee pursuant to a request by such Borrower under Section 2.19(b)), any withholding tax that (i) is in effect and would apply to amounts payable to such Foreign Lender (or such Participant) or such other recipient by or on account of any Borrower hereunder or under any other Loan Document at the time such Foreign Lender (or such Participant) or such other recipient becomes a party (or becomes entitled to any payment with respect) to this Agreement or any other Loan Document (or designates a new lending office), except to the extent that (A) such Foreign Lender (or such Participant) or such other recipient (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from such Borrower with respect to any withholding tax pursuant to Section 2.17(a), (B) such withholding tax is attributable to the designation of a Subsidiary after the date upon which such Foreign Lender (or such Participant) or such other recipient becomes a party to this Agreement, (C) such withholding tax is imposed on payments made to such Foreign Lender (or such Participant) or such other recipient following a CAM Exchange or (D) such 3
withholding tax is imposed by the United States of America on payments made by the Canadian Borrowers to the C $ Revolving Lenders or (i) is attributable to the failure of such Foreign Lender (or such Participant) or such other recipient to comply with Section 2.17(e).
(g) The definition of the term “Existing Revolving Credit Agreement” is hereby amended by deleting the words “the Canadian Borrower” and inserting in their place the words “UR Canada”.
SECTION 3. Amendment to Section 2.17 of the Credit Agreement. Section 2.17 of the Credit Agreement is hereby amended by inserting as a new subsection (g) the following:
(g) (i) In the event that any C $ Revolving Lender receives written notice specifying that any withholding tax imposed or proposed by the United States of America on any payment made by any Canadian Borrower to such C $ Revolving Lender (“ Withholding Tax”) for which indemnification is provided by this Section 2.17 is an item under consideration in the course of any audit or examination of or other proceeding (“Proceeding”) against such C $ Revolving Lender, such C $Revolving Lender shall promptly inform the Canadian Borrowers thereof and shall permit the Canadian Borrowers to participate in such Proceeding (but only to the extent relating to such Withholding Tax) at the Canadian Borrowers’ option and sole expense; provided, however, that such Lender shall not be required to permit any such participation that such Lender determines in its reasonable discretion would adversely affect such Lender. Notwithstanding anything in this paragraph (g) to the contrary, such C $ Revolving Lender shall have the exclusive right to control the conduct of any such Proceeding.
(ii) The provisions of this paragraph (g) shall apply solely with respect to Proceedings relating to Withholding Taxes and shall have no effect whatsoever on any other rights or obligations of the parties hereto.
SECTION 4. Amendment to Section 5.11 of the Credit Agreement. Section 5.11 of the Credit Agreement is hereby amended by (a) deleting the words “the Canadian Borrower” in paragraph (b) thereof and inserting in their place the words “ JR Canada”, (b) inserting the words “made to UR Canada” immediately after the words “C $ Revolving Loans” in paragraph (b) thereof and (c) inserting the following as a new paragraph (e):
(e) The proceeds of C $ Revolving Loans made to UR Nova Scotia (No. 1) will be used by UR Nova Scotia (No. 1) (i) to make a capital contribution to UR Partnership in an amount equal to at least 49% and up to 99% of the principal amount of such Loans, (ii) to make a loan to UR Nova Scotia (No. 2) in an amount equal to 1% of the principal amount of such Loans, (iii) to make one or more loans from time to time to UR Canada in an aggregate amount equal to up to 10% of the principal amount of such Loans and (iv) to make one or more loans from time to time to one or more subsidiaries of the U.S. Borrower that are Loan Parties (other than UR Canada) in an aggregate amount equal to up to 50% of the principal amount of such Loans. The U.S. Borrower will cause UR Nova Scotia (No. 2) to use the proceeds received by it pursuant to this paragraph to make a capital contribution to UR Partnership in an amount equal to such proceeds. UR Nova Scotia (No. 1) will cause UR Partnership to use the proceeds received by it pursuant to this paragraph to make a loan to UR Canada in an amount equal to such proceeds. The proceeds received by UR Canada pursuant to this paragraph shall be used (i) to the extent that UR Canada has any indebtedness outstanding and owing to the U.S. Borrower on the date such proceeds are received, to repay or prepay such indebtedness, and (ii) to the extent such proceeds are not applied pursuant to the foregoing clause (i), for general corporate purposes, including repayment of indebtedness, acquisitions, investments, loans, purchases of Equity Interests and other payments permitted under this Agreement. The proceeds received by any subsidiary of the U.S. Borrower pursuant to clause (iv) of 4
the first sentence of this paragraph (e) shall be used for general corporate purposes, including repayment of indebtedness, acquisitions, investments, loans, purchases of Equity Interests and other payments permitted under this Agreement.
SECTION 5. Amendment to Article VI of the Credit Agreement. Article VI of the Credit Agreement is hereby amended by inserting as a new Section 6.14 the following:
SECTION 6.14. Activities of Certain Loan Parties. None of UR Nova Scotia (No. 1), UR Nova Scotia (No. 2) or UR Partnership shall engage in any activities other than the performance of its obligations under the Loan Documents (including the activities referred to in Section 5.11), the entering into as lessee, and performance of its obligations under, an operating lease with respect to the office space to be used by it, the making of investments permitted by this Agreement on Loan Parties with its income and activities reasonably incidental to the foregoing.
SECTION 6. Amendment to the Canadian Security Documents. Each Canadian Subsidiary Guarantee Agreement is hereby amended by deleting the words “Guaranteed Obligations” each time they appear therein and inserting the word “Liabilities” in their place. Each Canadian Security Agreement and the Canadian Pledge Agreement are each hereby amended by deleting the word “Obligations” each time it appears therein and inserting the word “Liabilities” in its place. The Hypothec on Moveables dated as of April 19, 2001, by the Existing Canadian Borrower in favor of the Canadian Collateral Agent is hereby amended by deleting the word “Obligations” each time it appears therein and inserting the word “Liabilities” in its place.
SECTION 7. Waivers. Each of the parties hereto hereby waives, for purposes of increasing the C $ Revolving Commitments under Section 2. 24 of the Credit Agreement on or prior to November 1, 2001, (a) the requirement under Section 2.24(a) of the Credit Agreement that the C $ Commitment Increase Notice be given at least ten Business Days prior to the beginning of the next Fiscal Quarter and (b) the requirement Under Section 2.24(d) of the Credit Agreement that any increase in the C $ Revolving Commitments be made on, and be effective as of, the first day of a Fiscal Quarter.
SECTION 8. The Credit Agreement. The New Canadian Borrower by its signature below becomes a Canadian Borrower under the Credit Agreement with the same force and effect as if originally named therein as a Canadian Borrower and the New Canadian Borrower hereby (i) agrees to all the terms and provisions of the Credit Agreement, as amended by this Amendment, applicable to it as a Canadian Borrower thereunder and (ii) represents and warrants that the representations and warranties made by it as a Canadian Borrower thereunder are true and correct on and as of the date hereof, except to the extent such representations and warranties expressly relate to an earlier date. The New Canadian Borrower acknowledges receipt of a true and correct copy of the Credit Agreement.
SECTION 9. Representations, Warranties and Agreements. Each of Holdings and the Borrowers hereby represents and warrants to and agrees with each Lender and the Administrative Agents that:
(a) The representations and warranties set forth in Article III of the Credit Agreement are true and correct in all material respects with the same effect as if made on the Amendment Effective Date (as defined below), except to the extent such representations and warranties expressly relate to an earlier date.
(b) Each of Holdings and the Borrowers has the requisite power and authority to execute, deliver and perform its obligations under this Amendment and to perform its obligations under the Credit Agreement as amended bythis Amendment. 5
(c) The execution, delivery and performance by each of Holdings and the Borrowers of this Amendment and the performance by each of Holdings and the Borrowers of the Credit Agreement, as amended by this Amendment, (i) does not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect and except filings necessary to perfect Liens created under the Loan Documents, (ii) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of Holdings or any Subsidiary or any order of any Governmental Authority, (iii) will not violate or result in a default under any indenture, agreement or other instrument binding upon Holdings or any Subsidiary or its assets that is material to Holdings and its Subsidiaries, taken as a whole, or give rise to a right thereunder to require any payment to be made by Holdings or any Subsidiary and (iv) will not result in the creation or imposition of any Lien on any asset of Holdings or any Subsidiary, except Liens created under the Loan Documents.
(d) This Amendment has been duly executed and delivered by each of Holdings and the Borrowers. Each of this Amendment and the Credit Agreement, as amended by this Amendment, constitutes a legal, valid and binding obligation of each of Holdings and the Borrowers, enforceable against each of Holdings and the Borrowers in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
(e) As of the Amendment Effective Date, no Default has occurred and is continuing.
SECTION 10. Conditions to Effectiveness. This amendment shall become effective on the date of the satisfaction in full of the following conditions precedent (the “Amendment Effective Date”):
(a) The Administrative Agents shall have received duly executed counterparts hereof which, when taken together, bear the authorized signatures of Holdings, the Borrowers, the Administrative Agents, the Required Lenders and all the C $ Revolving Lenders.
(b) The U.S. Administrative Agent shall have received a favorable written opinion (addressed to the Agents and the Lenders and dated the Amendment Effective Date) of each of (i) Macleod Dixon, Canadian counsel for UR Nova Scotia (No. 1), UR Nova Scotia (No. 2) and UR Partnership, (ii) Oscar D. Folger, Esq., counsel for the Loan Parties, and (iii) Weil, Gotshal & Manges LLP, U.S. counsel for Holdings and the U.S. Borrower, in each case in a form satisfactory to the U.S. Administrative Agent and covering such matters relating to UR Nova Scotia (No.1), UR Nova Scotia (No. 2), UR Partnership or this Amendment as the Agents shall reasonably request. Each of Holdings and the Borrowers hereby request such counsel to deliver such opinions.
(c) The U.S. Administrative Agent shall have received such documents and certificates as the U.S. Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of UR Nova Scotia (No. 1), UR Nova Scotia (No. 2) and UR Partnership, the authorisation of this Amendment and any other legal matters relating to UR Nova Scotia (No. 1), UR Nova Scotia (No. 2) or UR Partnership, all in form and substance satisfactory to the U.S. Administrative Agent and its counsel.
(d) The U.S. Administrative Agent shall have received a certificate, in a form reasonably acceptable to the U.S. Administrative Agent, dated the Amendment Effective Date and signed by the Chief Executive Officer, the President, a Vice President or a 6
Financial Officer of Holdings and the U.S. Borrower, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02 of the Credit Agreement.
(e) The Canadian Collateral Agent shall have received in certificated form, along with a stock power executed in blank, (i) from UR Nova Scotia (No. 1), 64%, and from UR Nova Scotia (No.2), 1% of the outstanding voting Equity Interests of UR Partnership and (ii) from the U.S. Borrower, all outstanding Equity Interests of each of UR Nova Scotia (No. 1) and UR Nova Scotia (No. 2).
(f) The Canadian Collateral Agent shall have received from UR Nova Scotia (No. 1) a counterpart of each of (i) a subsidiary guarantee agreement guaranteeing the Obligations of UR Canada and the U.S. Borrower, (i) a pledge agreement securing all Obligations under the Credit Agreement and (iii) a Security agreement securing all Obligations under the Credit Agreement, in each case in form and substance satisfactory to the Canadian Collateral Agent and duly executed and delivered on behalf of UR Nova Scotia (No. 1).
(g) The Canadian Collateral Agent shall have received from UR Nova Scotia (No. 2) a counterpart of each of (i) a subsidiary guarantee agreement guaranteeing all Obligations under the Credit Agreement, (ii) a pledge agreement securing all Obligations under the Credit Agreement and (iii) a security agreement securing all Obligations under the Credit Agreement, in each case in form and substance satisfactory to the Canadian Collateral Agent and duly executed and delivered on behalf of UR Nova Scotia (No. 2).
(h) The Canadian Collateral Agent shall have received from UR Partnership a counterpart of each of (i) the Canadian Subsidiary Guarantee Agreement, (ii) the Canadian Pledge Agreement and (iii) the Canadian Security Agreement, in each case duly executed and delivered on behalf of UR Partnership.
(i) The Administrative Agents shall have received copies of, and shall be reasonably satisfied with the form of, all documentation in respect of the intercompany loans contemplated by Section 5.11 of the Credit Agreement (as amended hereby).
(j) The Administrative Agents shall have received all amounts due and payable under this Amendment and the Credit Agreement on or prior to the Amendment Effective Date, including, to the extent invoiced, all reasonable out-of-pocket costs and expenses of the Administrative Agents (including, without limitation, the reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the Administrative Agents).
(k) The applicable Collateral Agent shall have received from each Loan Party that is anticipated to make any loan to any Subsidiary of Holdings as contemplated by Section 5.11 of the Credit Agreement (as amended hereby) a promissory note (in form and substance reasonably satisfactory to such Collateral Agent), along with a note power executed in blank, representing each such loan.
SECTION 11. Acknowledgment. Each of the parties hereto acknowledges and agrees that no Canadian Subsidiary Loan Party (other than UR novaScotia (No. 2)) has any obligation to guarantee any of the Obligations of UR Nova Scotia (No. 3) under the Credit Agreement.
SECTION 12. Credit Agreement. Except as specifically stated herein, the Credit Agreement shall continue in full force and effect in accordance with the provisions thereof.
SECTION 13. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT THAT SECTION 6 OF THIS AMENDMENT, AS TO ANY LOAN 7
DOCUMENT REFERRED TO THEREIN, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE JURISDICTION GOVERNING SUCH LOAN DOCUMENT.
SECTION 14. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be an original but all of which, when taken together, shall constitute but one instrument. Delivery of an executed counterpart of a signature page of this Amendment by telecopy shall be effective as delivery of a manually executed counterpart of this Amendment.
SECTION 15. Expenses. Holdings and the Borrowers agree to reimburse the Administrative Agents for their out-of-pocket expenses in connection with this Amendment, including the reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the Administrative Agents. IN WITNESS whereof, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the date first above written (except with respect to UR Nova Scotia (No. 1), which caused this Amendment to be duly executed by its authorized officer as of October 16, 2001).
UNITED RENTALS INC.,
by: /s/ UNITED RENTALS INC.
Name: Title:
UNITED RENTALS (NORTH AMERICA), INC.,
by: /s/ UNITED RENTALS (NORTH AMERICA), INC.
Name: Title:
UNITED RENTALS OF CANADA, INC.,
by: /s/ UNITED RENTALS OF CANADA, INC.
Name: Title:
UNITED RENTALS OF NOVA SCOTIA (N0.1), ULC.,
by: /s/ UNITED RENTALS OF NOVA SCOTIA (N0.1), ULC.
Name: Title:
THE CHASE MANHATTAN BANK, INDIVIDUALLY AND AS U.S. ADMINISTRATIVE AGENT,
by: /s/ THE CHASE MANHATTAN BANK
Name: Title:
THE CHASE MANHATTAN BANK OF CANADA, AS AGENT,
by: /s/ THE CHASE MANHATTAN BANK OF CANADA
Name: Title:
Exhibit 10(ee)
EXECUTION COPY
$210,000,000
UNITED RENTALS (NORTH AMERICA), INC.
10¾% Senior Notes Due April 15, 2008
PURCHASE AGREEMENT
December 17, 2002
CREDIT SUISSE FIRST BOSTON CORPORATION As Representative of the Several Purchasers, Eleven Madison Avenue, New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. United Rentals (North America), Inc., a Delaware corporation (the “ Company”), proposes, subject to the terms and conditions stated herein, to issue and sell to the several initial purchasers named in Schedule A hereto (the “ Purchasers”) U.S.$210,000,000 principal amount of its 10¾% Senior Notes Due April 15, 2008 (“Notes”). The Notes will be unconditionally guaranteed (each, a “ Guaranty”) on a senior unsecured basis by United Rentals, Inc., a Delaware corporation and parent of the Company (“ Holdings”), and each of the Company’s subsidiaries listed on Schedule B hereto (the “Subsidiary Guarantors” and, together with Holdings, the “Guarantors”). The Notes will also be guaranteed by each subsequently organized domestic subsidiary of the Company that becomes a guarantor pursuant to the Indenture (as hereinafter defined). The Notes will be issued under an indenture dated as of December 17, 2002 (the “Indenture”), among the Company, the Guarantors and The Bank of New York, as trustee (the “Trustee”). The Notes and the Guaranties are together referred to as the “ Offered Securities”. The United States Securities Act of 1933 is herein referred to as the “ Securities Act”.
Concurrently with the consummation of the issue and sale of the Offered Securities as set forth herein the Company will obtain an amendment (the “Amendment”) to the terms of the credit agreement dated as of April 20, 2001 (as amended, the “ Credit Agreement”) among Holdings, the Company, United Rentals of Canada, Inc., the lenders party thereto, The Chase Manhattan Bank, The Chase Manhattan Bank of Canada, JPMorgan, a division of Chase Securities Inc., Banc of America Securities LLC, Bank of America, N.A., Credit Suisse First Boston, Citicorp North America, Inc. and Fleet National Bank. The Amendment (the “Amendment”) will be in the form attached hereto as Exhibit A.
The Company will use the proceeds of the Notes on the Closing Date to repay amounts outstanding under its existing term loan and to repay borrowings under its revolving credit facility, as provided in the Amendment.
The obligation of the Company to sell to the several Purchasers the Offered Securities is subject to the Company’s obtaining the requisite consents (the “Consents”)from the lenders required to effect the Amendment.
This Agreement, the Registration Rights Agreement (as hereinafter defined), the Indenture and the Guaranties are referred to herein as the “Operative Documents”.
Holders (including subsequent transferees) of the Offered Securities will be entitled to the benefit of a Registration Rights Agreement dated the Closing Date (the “Registration Rights Agreement”), among the Company, the Guarantors and the Purchasers, pursuant to which the Company and the Guarantors will be obligated to file with the Securities and Exchange Commission (the “ Commission”) (i) a registration statement (the “Exchange Offer Registration Statement”) under the Securities Act registering an issue of senior notes of the Company guaranteed by the Guarantors (the “ Exchange Securities”), which shall be identical in all material respects to the Offered Securities (except that the Exchange Securities will not contain terms with respect to registration rights or transfer restrictions) to be offered in exchange for the Offered Securities (the “ Registered Exchange Offer”) and (ii) under certain circumstances specified in the Registration Rights Agreement, a shelf registration statement (the “ Shelf Registration Statement”) pursuant to Rule 415 under the Securities Act.
The Company and the Guarantors jointly and severally agree with the several Purchasers as follows:
2. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the several Purchasers that:
(a) A preliminary offering circular relating to the Offered Securities, dated December 11, 2002 (the “ Preliminary Offering Circular”), has been prepared by the Company. A final offering circular relating to the Offered Securities, dated December 17, 2002 (the “ Final Offering Circular”), has been prepared by the Company, and as supplemented as of the date of this Agreement, together with any exhibit thereto, any documents incorporated therein by reference or any other document approved by the Company for use in connection with the contemplated resale of the Offered Securities, is hereinafter referred to as the “ Offering Document”. The Offering Document as of its date does not, and as of the Closing Date will not, include any untrue statement of a
2 material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The preceding sentence does not apply to statements in or omissions from the Offering Document based upon written information furnished to the Company by any Purchaser through Credit Suisse First Boston Corporation (the “Representative”) specifically for use therein, it being understood and agreed that the only such information is that described as such in Section 7(b) hereof. Except as disclosed in the Offering Document, on the date of this Agreement, the Company’s Annual Report on Form 10-K most recently filed with the Commission and all subsequent reports (collectively, the “Exchange Act Reports”) which have been filed by the Company with the Commission or sent to stockholders pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”) do not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. Such documents, when they were filed with the Commission, conformed in all material respects to the requirements of the Exchange Act and the rules and regulations of the Commission thereunder.
(b) The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Delaware, with power and authority (corporate and other) to own its properties and conduct its business as described in the Offering Document; and the Company is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect (as hereinafter defined).
(c) Each subsidiary of the Company that is a corporation has been duly incorporated and is an existing corporation in good standing under the laws of the jurisdiction of its incorporation, with power and authority (corporate and other) to own its properties and conduct its business as described in the Offering Document; and each subsidiary of the Company that is a corporation is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect.
(d) Each subsidiary of the Company that is a limited partnership has been duly formed and is validly existing and in good standing under the laws of the jurisdiction of its formation, with power and authority (partnership and other) to own its properties and conduct its business as described in the Offering Document; and each subsidiary of the Company that is a limited partnership is duly qualified to do business as a foreign limited partnership in good standing in all other jurisdictions in which its ownership or lease of
3 property or the conduct of its business requires such qualification, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect.
(e) Each subsidiary of the Company that is a limited liability company has been duly formed and is validly existing and in good standing under the laws of the jurisdiction of its formation, with power and authority (limited liability company and other) to own its properties and conduct its business as described in the Offering Document; and each subsidiary of the Company that is a limited liability company is duly qualified to do business as a foreign limited liability company in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect.
(f) All of the issued and outstanding capital stock of the Company and each subsidiary of the Company that is a corporation has been duly authorized and validly issued and is fully paid and nonassessable; and the capital stock of the Company and each such subsidiary owned by the Company, directly or indirectly, will be owned, as of the Closing Date, free from liens, encumbrances and defects, except liens and encumbrances arising under or not prohibited by the Credit Agreement.
(g) All of the outstanding partnership interests of each subsidiary of the Company that is a limited partnership have been issued in accordance with the applicable limited partnership law; and the partnership interests of each such subsidiary owned by the Company, directly or indirectly, will be owned, as of the Closing Date, free from liens, encumbrances and defects, except liens and encumbrances arising under or not prohibited by the Credit Agreement.
(h) All of the outstanding limited liability company interests of each subsidiary of the Company that is a limited liability company have been issued in accordance with the applicable limited liability company law; and the limited liability company interests of each such subsidiary owned by the Company, directly or indirectly, will be owned, as of the Closing Date, free from liens, encumbrances and defects, except liens and encumbrances arising under or not prohibited by the Credit Agreement.
(i) The Notes have been duly authorized by the Company; each Guaranty has been duly authorized by each respective Guarantor; the Indenture has been duly authorized by the Company and each Guarantor; and when the Offered Securities are delivered and paid for pursuant to this Agreement on the Closing Date, the Indenture will have been duly executed and delivered, such Offered Securities will have been duly executed, authenticated, issued and delivered and will conform to the description thereof contained in the Offering Document, and the Indenture and such Offered Securities will constitute valid and legally binding obligations of the Company and each Guarantor, enforceable in
4 accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles.
(j) No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required for the consummation of (i) the transactions contemplated by the Amendment or (ii) the transactions contemplated by each of the Operative Documents in connection with the issuance and sale of the Offered Securities by the Company, except for any of the foregoing contemplated by the Registration Rights Agreement, and except for the Consents and filings contemplated by the Credit Agreement in connection with perfecting security interests.
(k) Neither the Company nor any of its subsidiaries is in (i) violation of its respective charter, by-laws or other constitutive documents or (ii) default in the performance of any obligation, agreement, covenant or condition contained in any indenture, loan agreement, mortgage, lease or other agreement or instrument that is material to the Company and its subsidiaries, taken as a whole, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or their respective property is bound, except for any default that would not have a Material Adverse Effect.
(l) The execution, delivery and performance of each of the Operative Documents, and the issuance and sale of the Offered Securities and compliance with the terms and provisions thereof, will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, any rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any subsidiary of the Company or any of their properties, or any agreement or instrument to which the Company or any such subsidiary is a party or by which the Company or any such subsidiary is bound or to which any of the properties of the Company or any such subsidiary is subject, or the charter or by-laws of the Company or any such subsidiary. The Company has full power and authority to authorize, issue and sell the Notes, and each Guarantor has full power and authority to authorize and deliver the Guaranties, as contemplated by this Agreement.
(m) The execution, delivery and performance of the Amendment by the Company, Holdings, and United Rentals of Canada, Inc. will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, any statute, any rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any subsidiary of the Company or any of their properties, or, any agreement or instrument to which the Company or any such subsidiary is a party or by which the Company or any such subsidiary is bound or to which any of the
5 properties of the Company or any such subsidiary is subject, or the charter or by-laws of the Company or any such subsidiary.
(n) Each of this Agreement and the Registration Rights Agreement (i) has been duly authorized by the Company and each Guarantor, (ii) as of the Closing Date, will have been executed and delivered by the Company and each Guarantor and (iii) conforms in all material respects to the description thereof contained in the Offering Document. Each of this Agreement and the Registration Rights Agreement will, when so executed, constitute a valid and legally binding obligation of the Company and each Guarantor and will be enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equitable principles.
(o) The Company and its subsidiaries have good and marketable title to all real property described in the Offering Document as owned by the Company and its subsidiaries and good title to all other properties described in the Offering Document as owned by them, in each case, free and clear as of the Closing Date of all mortgages, pledges, liens, security interests, claims, restrictions or encumbrances of any kind except such as (i) are pursuant to the Credit Agreement as described in the Offering Document or (ii) do not, singly or in the aggregate, materially interfere with the use made and proposed to be made of such property by the Company or any of its subsidiaries; and all of the leases and subleases material to the business of the Company and its subsidiaries, considered as one enterprise, and under which the Company or any of its subsidiaries holds properties described in the Offering Document, are in full force and effect, and neither the Company nor any subsidiary has any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease, which claim, if upheld, would result in a Material Adverse Effect.
(p) The Company and its subsidiaries possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by them, except where the lack thereof would not have a Material Adverse Effect; and the Company and its subsidiaries have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a material adverse effect on the condition (financial or other), business, properties, results of operations or prospects of the Company and its subsidiaries taken as a whole ( “Material Adverse Effect”).
6 (q) No labor dispute with the employees of the Company or any subsidiary exists or, to the knowledge of the Company, is imminent that might have a Material Adverse Effect.
(r) The Company and its subsidiaries own, possess or can acquire on reasonable terms, adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property (collectively, “ intellectual property rights”) necessary to conduct the business now operated by them, or presently employed by them (except where the lack thereof would not have a Material Adverse Effect), and have not received any notice of infringement of or conflict with asserted rights of others with respect to any intellectual property rights that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect.
(s) Except as disclosed in the Offering Document, neither the Company nor any of its subsidiaries is in violation of any statute, any rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, “environmental laws”), owns or operates any real property contaminated with any substance that is subject to any environmental laws, is liable for any off-site disposal or contamination pursuant to any environmental laws, or is subject to any claim relating to any environmental laws, which violation, contamination, liability or claim would individually or in the aggregate have a Material Adverse Effect; and the Company is not aware of any pending investigation which might lead to such a claim.
(t) To the knowledge of the Company, there are no costs or liabilities associated with environmental laws (including, without limitation, any capital or operating expenditures required for clean-up, closure of properties or compliance with environmental laws or any certificates, authorities or permits, any related constraints on operating activities and any potential liabilities to third parties) which would, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect.
(u) Except as disclosed in the Offering Document, there are no pending actions, suits or proceedings against or affecting the Company, any of its subsidiaries or any of their respective properties that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect, or would materially and adversely affect the ability of the Company to perform its obligations under any Operative Document or which are otherwise material in the context of the sale of the Offered Securities; and no such actions, suits or proceedings are, to the Company’s knowledge, threatened or contemplated.
7 (v) The accountants, Ernst & Young LLP, that have certified the financial statements and supporting schedules included in the Preliminary Offering Circular and the Offering Document are independent public accountants with respect to Holdings, the Company and the Guarantors, as required by the Securities Act and the Exchange Act. The historical financial statements, together with related schedules and notes, set forth in the Preliminary Offering Circular and the Offering Document comply as to form in all material respects with the requirements applicable to registration statements on Form S-1 under the Securities Act.
(w) The historical financial statements, together with related schedules and notes forming part of the Offering Document (and any amendment or supplement thereto), present fairly the consolidated financial position, results of operations and changes in financial position of the Company and its subsidiaries on the basis stated in the Offering Document at the respective dates or for the respective periods to which they apply; such statements and related schedules and notes have been prepared in accordance with generally accepted accounting principles in the United States consistently applied throughout the periods involved, except as disclosed therein; and the other financial and statistical information and data set forth in the Offering Document (and any amendment or supplement thereto) are, in all material respects, accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Company
(x) Except as disclosed in the Offering Document, since the date of the latest audited financial statements included in the Offering Document there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties, results of operations or prospects of the Company and its subsidiaries taken as a whole, and, except as disclosed in or contemplated by the Offering Document, there has been no dividend or distribution of any kind declared, paid or made by Holdings on any class of its capital stock.
(y) None of the Company or any Guarantor is an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the United States Investment Company Act of 1940 (the “ Investment Company Act”); and none of the Company or any Guarantor is and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Offering Document, will be an “investment company” as defined in the Investment Company Act.
(z) No securities of the same class (within the meaning of Rule 144A(d)(3) under the Securities Act) as the Offered Securities are listed on any national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system.
8 (aa) Subject to compliance by the Purchasers with their covenants hereunder and assuming the accuracy of the Purchasers’ representations and warranties, the offer and sale of the Offered Securities by the Company to the several Purchasers in the manner contemplated by this Agreement and the Offering Document will be exempt from the registration requirements of the Securities Act by reason of Section 4(2) thereof and Regulation S thereunder (“Regulation S”); and it is not necessary to qualify an indenture in respect of the Offered Securities under the United States Trust Indenture Act of 1939, as amended (the “Trust Indenture Act”).
(bb) None of the Company, the Guarantors, any of their affiliates, or any person acting on its or their behalf (i) has, within the six-month period prior to the date hereof, offered or sold in the United States or to any U.S. person (as such terms are defined in Regulation S under the Securities Act) the Offered Securities or any security of the same class or series as the Offered Securities or (ii) has offered or will offer or sell the Offered Securities (A) in the United States by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act or (B) with respect to any such securities sold in reliance on Rule 903 of Regulation S, by means of any directed selling efforts within the meaning of Rule 902(c) of Regulation S. The Company, the Guarantors, their affiliates and any person acting on any of their behalf (other than the Purchasers) have complied and will comply with the offering restrictions requirement of Regulation S. None of the Company or the Guarantors has entered or will enter into any contractual arrangement with respect to the distribution of the Offered Securities except for this Agreement.
(cc) The Company is subject to Section 13 or 15(d) of the Exchange Act.
(dd) There are no contracts, agreements or understandings between the Company or any Guarantor and any person granting such person the right to require the Company or such Guarantor to file a registration statement under the Securities Act with respect to any securities of the Company or such Guarantor or to require the Company or such Guarantor to include such securities with the Offered Securities registered pursuant to any Registration Statement, except for (i) the Registration Rights Agreement dated September 29, 1998, among the Company, Richard D. Colburn and certain other persons that were affiliates of U.S. Rentals, Inc., that was entered into in connection with the Company’s merger with U.S. Rentals as described in the Company’s proxy statement relating to such transaction, (ii) the Amended and Restated Registration Rights Agreement dated as of September 30, 1999, among Holdings, Bradley S. Jacobs, Apollo Investment Fund IV, L.P., and Apollo Overseas Partners IV, L.P., (iii) the Registration Rights Agreement dated as of September 30, 1999, among Holdings, Bradley S. Jacobs and Chase Equity Associates, L.P., and (iv) other agreements pursuant to which Holdings has already filed a registration statement covering all the shares entitled to registration thereunder.
9 (ee) Neither the Company nor any of its subsidiaries nor any agent thereof acting on the behalf of them has taken, and none of them will take, any action that might cause this Agreement or the issuance or sale of the Notes to violate, Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal Reserve System.
(ff) No “nationally recognized statistical rating organization” as such term is defined for purposes of Rule 436(g)(2) under the Act (i) has imposed (or has informed the Company or any Guarantor that it is considering imposing) any condition (financial or otherwise) on the Company’s or any Guarantor’s retaining any rating assigned to the Company or any Guarantor, any securities of the Company or any Guarantor or (ii) has indicated to the Company or any Guarantor that it is considering (a) the downgrading, suspension, or withdrawal of, or any review for a possible change that does not indicate the direction of the possible change in, any rating so assigned or (b) any change in the outlook for any rating of the Company, any Guarantor or any securities of the Company or any Guarantor.
(gg) Each of the Preliminary Offering Circular and the Offering Document, as of its date, contains all the information specified in, and meeting the requirements of, Rule 144A(d)(4) under the Act.
(hh) The sale of the Notes pursuant to Regulation S is not part of a plan or scheme to evade the registration provisions of the Securities Act.
(ii) Each certificate signed by any officer of the Company or any Guarantor and delivered to the Purchasers or counsel for the Purchasers shall be deemed to be a representation and warranty by the Company or such Guarantor to the Purchasers as to the matters covered thereby.
(jj) The Amendment has been duly authorized by Holdings, United Rentals of Canada, Inc. and the Company; on the Closing Date, the Amendment will have been duly executed and delivered by Holdings, United Rentals of Canada, Inc. and the Company; and the Amendment conforms in all material respects to the description thereof in the Offering Document, and on the Closing Date, assuming the due authorization, execution, and delivery by the agents and lenders thereunder, the Amendment will constitute the valid and legally binding obligation of each of Holdings, United Rentals of Canada, Inc. and the Company, respectively, enforceable against each of them in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles (regardless of whether considered in a proceeding in equity or law). On the Closing Date, assuming the Consents are obtained, the Amendment shall be in full force and effect and the Purchasers shall have received true and correct copies of all
10 documents pertaining thereto and evidence reasonably satisfactory to the Purchasers of the effectiveness thereof.
The Company acknowledges that the Purchasers and, for purposes of the opinions to be delivered to the Purchasers pursuant to Section 6 hereof, counsel to the Company and the Guarantors and counsel to the Purchasers will rely upon the accuracy and truth of the foregoing representations and hereby consents to such reliance.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Purchasers, and the Purchasers agree, severally and not jointly, to purchase from the Company, at a purchase price of 96.045% of the principal amount thereof plus accrued interest from October 15, 2002 to the Closing Date (as hereinafter defined), the respective principal amounts of Offered Securities set forth opposite the names of the several Purchasers in Schedule A hereto.
The Company will deliver against payment of the purchase price the Offered Securities in the form of one or more permanent Global Securities in definitive form (the “Global Securities”) deposited with the Trustee as custodian for The Depository Trust Company (“ DTC”) and registered in the name of Cede & Co., as nominee for DTC. Interests in any permanent Global Securities will be held only in book-entry form through DTC, except in the limited circumstances described in the Offering Document. Payment for the Offered Securities shall be made by the Purchasers in Federal (same day) funds by wire transfer to an account at a bank acceptable to the Representative on December 24, 2002, or at such other time not later than seven full business days thereafter as the Representative and the Company determine, such time being herein referred to as the “ Closing Date”, against delivery to the Trustee as custodian for DTC of the Global Securities representing all of the Offered Securities at the office of Cravath, Swaine & Moore, 825 Eighth Avenue, New York, NY 10019 at 10:00 A.M. (New York time) on such date. The Global Securities will be made available for checking at the above office of Cravath, Swaine & Moore at least 24 hours prior to the Closing Date.
4. Representations by Purchasers; Resale by Purchasers. (a) Each Purchaser severally represents and warrants to the Company that it is an “accredited investor” within the meaning of Regulation D under the Securities Act.
(b) Each Purchaser severally acknowledges that the Offered Securities have not been registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S or pursuant to an exemption from the registration requirements of the Securities Act. Each Purchaser severally represents and agrees
11
that it has offered and sold the Offered Securities and will offer and sell the Offered Securities (i) as part of their distribution at any time and (ii) otherwise until the later of the commencement of the offering and the Closing Date, only in accordance with Rule 144A (“ Rule 144A”) or Rule 903 under the Securities Act. Accordingly, neither such Purchaser nor its affiliates, nor any persons acting on its or their behalf, have engaged or will engage in any directed selling efforts with respect to the Offered Securities, and such Purchaser, its affiliates and all persons acting on its or their behalf have complied and will comply with the offering restrictions requirement of Regulation S. Each Purchaser severally agrees that, at or prior to confirmation of sale of the Offered Securities, other than a sale pursuant to Rule 144A, such Purchaser will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases the Offered Securities from it during the restricted period a confirmation or notice to substantially the following effect:
“The Securities covered hereby have not been registered under the U.S. Securities Act of 1933 (the “Securities Act”) and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the date of the commencement of the offering and the closing date, except in either case in accordance with Regulation S (or Rule 144A if available) under the Securities Act. Terms used above have the meanings given to them by Regulation S.”
Terms used in this subsection (b) have the meanings given to them by Regulation S.
(c) Each Purchaser severally agrees that it and each of its affiliates has not entered and will not enter into any contractual arrangement with respect to the distribution of the Offered Securities except for any such arrangements with the other Purchasers or affiliates of the other Purchasers or with the prior written consent of the Company.
(d) Each Purchaser severally agrees that it and each of its affiliates will not offer or sell the Offered Securities in the United States by means of any form of general solicitation or general advertising, within the meaning of Rule 502(c) under the Securities Act, including, but not limited to (i) any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or (ii) any seminar or meeting whose attendees have been invited by any general solicitation or general advertising. Each Purchaser severally agrees, with respect to resales made in reliance on Rule
12 144A of any of the Offered Securities, to deliver either with the confirmation of such resale or otherwise prior to settlement of such resale a notice to the effect that the resale of such Offered Securities has been made in reliance upon the exemption from the registration requirements of the Securities Act provided by Rule 144A.
(e) Each Purchaser severally represents and agrees that (i) it has not offered or sold, and prior to the expiry of a period six months from the Closing Date will not offer or sell, any Offered Securities to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (the “FSMA”)) received by it in connection with the issue or sale of any notes in circumstances in which section 21(1) of the FSMA does not apply to the Company or any of the Guarantors; and (iii) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the Offered Securities in, from or otherwise involving the United Kingdom.
(f) Each Purchaser represents and agrees that (i) it has not solicited, and will not solicit, offers to purchase any of the Offered Securities from, (ii) it has not sold, and will not sell, any of the Offered Securities to, and (iii) it has not distributed, and will not distribute, the Offered Document to, any person or entity in any jurisdiction outside of the United States except, in each case, in compliance in all material respects with all applicable laws. For the purpose of this Agreement, “United States” means the United States of America, its territories, its possessions and other areas subject to its jurisdiction.
5. Certain Agreements of the Company. The Company agrees with the several Purchasers that:
(a) The Company will advise the Representative promptly of any proposal to amend or supplement the Offering Document and will not effect such amendment or supplementation without the Representative’s consent, which shall not be unreasonably withheld. If, at any time prior to the completion of the resale of the Offered Securities by the Purchasers any event occurs as a result of which the Offering Document as then amended or supplemented would include (as of its date or the last date of its amendment or supplementation, whichever is later) an
13 untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Company promptly will notify the Representative of such event and promptly will prepare, at its own expense, an amendment or supplement which will correct such statement or omission. Neither the Representative’s consent to, nor the Purchasers’ delivery to offerees or investors of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 6.
(b) The Company will furnish to the Representative copies of any Preliminary Offering Circular, the Offering Document and all amendments and supplements to such documents, in each case as soon as available and in such quantities as the Representative may from time to time request, and the Company will furnish to the Representative on the date hereof three copies of the Final Offering Circular signed by a duly authorized officer of the Company, one of which will include the independent accountants’ reports therein manually signed by such independent accountants. At any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, for so long as any Offered Securities are outstanding, the Company will promptly furnish or cause to be furnished to the Representative (and, upon request, to each of the other Purchasers) and, upon request of holders and prospective purchasers of the Offered Securities, to such holders and purchasers, copies of the information required to be delivered to holders and prospective purchasers of the Offered Securities pursuant to Rule 144A(d)(4) under the Securities Act (or any successor provision thereto) in order to permit compliance with Rule 144A in connection with resales by such holders of the Offered Securities. The Company will pay the expenses of printing and distributing to the Purchasers all such documents.
(c) The Company will promptly from time to time take such action as any Purchaser may reasonably request to arrange for the qualification of the Offered Securities for sale and the determination of their eligibility for investment under the laws of such jurisdictions in the United States and Canada as any Purchaser designates and will continue such qualifications in effect so long as required for the resale of the Offered Securities by the Purchasers provided that the Company will not be required to qualify as a foreign corporation or to file a general consent to service of process in any such state or province.
(d) During the period of five years hereafter, the Company will furnish to the Representative and, upon request, to each of the other Purchasers, as soon as practicable after the end of each fiscal year, a copy of its annual report to stockholders for such year; and the Company will furnish to the Representative and, upon request, to each of the other Purchasers (i) as soon as available, a copy
14 of each report and any definitive proxy statement of the Company filed with the Commission under the Exchange Act or mailed to stockholders, and (ii) from time to time, such other public information concerning the Company as the Representative may reasonably request.
(e) During the period of two years after the Closing Date, the Company will, upon request, furnish to the Representative, each of the other Purchasers and any holder of Offered Securities a copy of the restrictions on transfer applicable to the Securities.
(f) During the period of two years after the Closing Date, the Company will not, and will not permit any of its affiliates (as defined in Rule 144 under the Securities Act) to, resell any of the Offered Securities (but not the Exchange Securities) that have been reacquired by any of them.
(g) During the period of two years after the Closing Date, the Company will not be or become an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act.
(h) The Company will pay all expenses incidental to the performance of its obligations under the Operative Documents including (i) the fees and expenses of the Trustee and its professional advisers; (ii) all expenses in connection with the execution, issue, authentication, packaging and initial delivery of the Offered Securities and, as applicable, the Exchange Securities, the preparation and printing of this Agreement, the Registration Rights Agreement, the Offered Securities, the Indenture, the Offering Document and amendments and supplements thereto, and any other document relating to the issuance, offer, sale and delivery of the Offered Securities and, as applicable, the Exchange Securities; (iii) the cost of qualifying the Offered Securities for trading in The PortalSM Market (“PORTAL”) of The Nasdaq Stock Market, Inc. and any expenses incidental thereto; (iv) expenses (including fees and disbursements of counsel) incurred in connection with qualification of the Offered Securities or the Exchange Securities for sale under the laws of such jurisdictions in the United States and Canada as any Purchaser designates and the printing of memoranda relating thereto; (v) any fees charged by investment rating agencies for the rating of the Offered Securities or the Exchange Securities; and (vi) expenses incurred in distributing Preliminary Offering Circulars and the Offering Document (including any amendments and supplements thereto) to the Purchasers. The Purchasers will pay for all travel expenses of the Company’s officers and employees and any other expenses of the Company in connection with attending meetings with prospective purchasers of the Offered Securities, including the cost of an airplane for such travel. It is understood that,
15 except as provided in this Section and in Sections 7 and 9 hereof, the Purchasers will also pay for all travel expenses of the Purchasers’ employees and any other out-of-pocket expenses of the Purchasers in connection with attending or hosting meetings with prospective purchasers of the Offered Securities, the fees of their counsel, transfer taxes on the resale of any of the Offered Securities by them and any advertising expenses connected with any offers they make.
(i) In connection with the Offering (except for purchases disclosed in the Offering Document), until the Representative shall have notified the Company and the other Purchasers of the completion of the resale of the Offered Securities, neither the Company nor any of its affiliates has or will, either alone or with one or more other persons, bid for or purchase for any account in which it or any of its affiliates has a beneficial interest any Offered Securities or attempt to induce any person to purchase any Offered Securities; and neither it nor any of its affiliates will make bids or purchases for the purpose of creating actual, or apparent, active trading in, or of raising the price of, the Offered Securities.
(j) For a period of 90 days after the date of the initial offering of the Offered Securities by the Purchasers, the Company will not offer, sell, contract to sell, pledge, or otherwise dispose of, directly or indirectly, any United States dollar-denominated debt securities that are substantially similar to the Offered Securities and are issued or guaranteed by the Company or guaranteed by Holdings, and having a maturity of more than one year from the date of issue, without the prior written consent of Credit Suisse First Boston Corporation. The Company will not at any time offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any securities under circumstances where such offer, sale, pledge, contract or disposition would cause the exemption afforded by Section 4(2) of the Securities Act to cease to be applicable to the offer and sale of the Securities.
(k) The Company will use its best efforts to effect the inclusion of the Offered Securities in PORTAL and to maintain the listing of the Offered Securities on PORTAL for so long as the Offered Securities (not including the Exchange Securities) are outstanding.
(l) The Company will obtain the approval of DTC for “book-entry” transfer of the Offered Securities, and will comply with all of its agreements set forth in the representation letters of the Company and the Guarantors to DTC relating to the approval of the Offered Securities by DTC for “book-entry” transfer.
16 (m) The Company will not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) that would be integrated with the sale of the Offered Securities to the Purchasers or pursuant to exempt resales of the Offered Securities in a manner that would require the registration of any such sale of the Offered Securities under the Securities Act.
(n) The Company will not voluntarily claim, and will actively resist any attempts to claim, the benefit of any usury laws against the holders of any Notes and the related Guaranties.
(o) The Company will cause, as required by the Registration Rights Agreement, and subject to the terms, conditions and limitations thereof, the Registered Exchange Offer to be made in the appropriate form to permit Exchange Securities and guarantees thereof by the Guarantors registered pursuant to the Securities Act to be offered in exchange for the Offered Securities and to comply with all applicable federal and state securities laws in connection with the Registered Exchange Offer.
(p) The Company will comply with all of its agreements set forth in the Registration Rights Agreement; provided, however, that the sole monetary damages for breach of this obligation and the obligations set forth in the preceding paragraph shall be the liquidated damages provided for by the Registration Rights Agreement.
(q) The Company will use its reasonable best efforts to do and perform all things required or necessary to be done and performed under this Agreement by it prior to the Closing Date and to satisfy all conditions precedent to the delivery of the Offered Securities.
6. Conditions of the Obligations of the Purchasers. The obligations of the several Purchasers to purchase and pay for the Offered Securities will be subject to the accuracy of the representations and warranties on the part of the Company and each Guarantor herein, to the accuracy of the statements of officers of the Company and each Guarantor made pursuant to the provisions hereof, to the performance by the Company and each Guarantor of their respective obligations hereunder and to the following additional conditions precedent:
(a) The Purchasers shall have received a letter, dated the date of this Agreement, of Ernst & Young LLP confirming that they are independent public accountants within the meaning of the Securities Act and the applicable published rules and regulations thereunder (“ Rules and Regulations”) and to the effect that:
17 (i) in their opinion the financial statements examined by them and included in the Offering Document comply as to form in all material respects with the accounting requirements of the Securities Act and the related published Rules and Regulations that would be applicable if the Offering were registered under the Securities Act;
(ii) they have performed the procedures specified by the American Institute of Certified Public Accountants for a review of interim financial information as described in Statement of Auditing Standards No. 71, Interim Financial Information, on the unaudited financial statements included in the Offering Document and in the Exchange Act Reports;
(iii) on the basis of the review referred to in clause (ii) above, a reading of the latest available interim financial statements of the Company, inquiries of officials of the Company who have responsibility for financial and accounting matters and other specified procedures, nothing came to their attention that caused them to believe that:
(A) the unaudited financial statements included in the Offering Document or in the Exchange Act Reports do not comply as to form in all material respects with the applicable accounting requirements of the Securities Act and the related published Rules and Regulations or any material modifications should be made to such unaudited financial statements for them to be in conformity with generally accepted accounting principles;
(B) at the date of the latest available balance sheet read by such accountants, or at a subsequent specified date not more than three business days prior to the date of this Agreement, there was any change in the consolidated capital stock or any increase in short-term indebtedness or long-term indebtedness of the Company and its consolidated subsidiaries or, at the date of the latest available balance sheet read by such accountants, there was any decrease in consolidated net current assets, as compared with amounts shown on the latest balance sheet included in the Offering Document; or
(C) for the period from the closing date of the latest income statement included in the Offering Document to the closing date of the latest available income statement read by such accountants there were any decreases, as compared with the corresponding period of the previous year, in total consolidated revenues, gross profit, net
18 operating income, consolidated income before extraordinary items or net income;
except in all cases set forth in clauses (A) and (B) above for changes, increases or decreases which are described in such letter; and
(iv) they have compared specified dollar amounts (or percentages derived from such dollar amounts) and other financial information contained in the Offering Document (in each case to the extent that such dollar amounts, percentages and other financial information are derived from the general accounting records of the Company and its subsidiaries subject to the internal controls of the Company’s accounting system or are derived directly from such records by analysis or computation) with the results obtained from inquiries, a reading of such general accounting records and other procedures specified in such letter and have found such dollar amounts, percentages and other financial information to be in agreement with such results, except as otherwise specified in such letter.
(b) Subsequent to the execution and delivery of this Agreement, there shall not have occurred (i) any change, or any development or event involving a prospective change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as one enterprise which, in the judgment of a majority in interest of the Purchasers, including the Representative, is material and adverse and makes it impracticable or inadvisable to proceed with completion of the Offering or the sale of and payment for the Offered Securities; (ii) any downgrading in the rating of any debt securities of the Company by any “nationally recognized statistical rating organization” (as defined for purposes of Rule 436(g) under the Securities Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating); (iii) any suspension or limitation of trading in securities generally on the New York Stock Exchange or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of the Company on any exchange or in the over-the- counter market; (iv) any banking moratorium declared by U.S. Federal or New York authorities; or (v) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of a majority in interest of the Purchasers, including the Representative, the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the Offering or sale of and payment for the Offered Securities.
19 (c) Concurrently with or prior to the issuance and sale of the Offered Securities by the Company, the Amendment shall have been duly authorized, executed and delivered by Holdings, United Rentals of Canada, Inc. and the Company and the Amendment shall conform in all material respects to the description thereof in the Offering Document. The Amendment shall be in full force and effect and the Purchasers shall have received true and correct copies of all documents pertaining thereto and evidence reasonably satisfactory to the Purchasers of the effectiveness thereof. There shall exist at and as of the Closing Date (after giving effect to the transactions contemplated by this Agreement and the Amendment) no condition that would constitute a default (or an event that with notice or lapse of time, or both, would constitute a default) under the Credit Agreement.
(d) The Purchasers shall have received an opinion, dated the Closing Date, of (i) Ehrenreich Eilenberg & Krause LLP, counsel for the Company and the Guarantors, to the effect set forth in Annex I hereto, and (ii) Weil, Gotshal & Manges LLP, counsel for the Company and the Guarantors, to the effect set forth in Annex II hereto.
(e) The Purchasers shall have received from Cravath, Swaine & Moore, counsel for the Purchasers, such opinion or opinions, dated the Closing Date, with respect to the incorporation of the Company, the validity of the Offered Securities, the Offering Document, the exemption from registration for the offer and sale of the Offered Securities by the Company to the several Purchasers and the resales by the several Purchasers as contemplated hereby and other related matters as the Representative may require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters.
(f) The Purchasers shall have received a certificate, dated the Closing Date, of the President or any Vice President and a principal financial or accounting officer of each of the Company and the Guarantors in which such officers, to the best of their knowledge after reasonable investigation, shall state that the representations and warranties of the Company or the applicable Guarantor (as the case may be) in this Agreement are true and correct, that the Company or the applicable Guarantor (as the case may be) has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to the Closing Date, and that, subsequent to the dates of the most recent consolidated financial statements of Holdings in the Offering Document there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and its subsidiaries taken as a
20 whole except as set forth in or contemplated by the Offering Document or as described in such certificate.
(g) The Purchasers shall have received a letter, dated the Closing Date, of Ernst & Young LLP which meets the requirements of subsection (a) of this Section, except that the specified date referred to in such subsection will be a date not more than three days prior to the Closing Date for the purposes of this subsection.
(h) The Company, the Guarantors and the Trustee shall have entered into the Indenture, and the Purchasers shall have received an executed counterpart thereof.
(i) The Purchasers shall have received a counterpart of the Registration Rights Agreement that shall have been executed by a duly authorized officer of the Company and each of the Guarantors.
The Company will furnish the Purchasers with such conformed copies of such opinions, certificates, letters and documents as the Purchasers reasonably request. The Representative may in its sole discretion waive on behalf of the Purchasers compliance with any conditions to the obligations of the Purchasers hereunder.
7. Indemnification and Contribution. (a) The Company and each Guarantor will indemnify and hold harmless each Purchaser, its partners, directors and officers and each person, if any, who controls such Purchaser within the meaning of Section 15 of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such Purchaser may become subject, under the Securities Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto, or any related Preliminary Offering Circular, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, including any losses, claims, damages or liabilities arising out of or based upon the Company’s failure to perform its obligations under Section 5(a) of this Agreement, and, subject to Section 7(c) of this Agreement, will reimburse each Purchaser for any legal or other expenses reasonably incurred by such Purchaser in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished
21 to the Company by any Purchaser through the Representative specifically for use therein, it being understood and agreed that the only such information consists of the information described as such in subsection (b) below.
(b) Each Purchaser will severally and not jointly indemnify and hold harmless the Company, the Guarantors, their respective directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act, against any losses, claims, damages or liabilities to which the Company or a Guarantor (as the case may be) may become subject, under the Securities Act or the Exchange Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Offering Document, or any amendment or supplement thereto, or any related Preliminary Offering Circular, or arise out of or are based upon the omission or the alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company or a Guarantor (as the case may be) by such Purchaser through the Representative specifically for use therein, and will reimburse any legal or other expenses reasonably incurred by the Company or a Guarantor (as the case may be) in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred, it being understood and agreed that the only such information furnished by any Purchaser consists of the following information in the Offering Document furnished on behalf of each Purchaser under the caption “Plan of Distribution”: (i) the third and fourth sentences of paragraph seven, (ii) the information contained in paragraph eight and (iii) the information in paragraphs nine, and eleven and the first three sentences of paragraph ten furnished on behalf of the Purchasers and the second sentence of paragraph six under the caption “Notice to Canadian Residents”; provided however, that the Purchasers shall not be liable for any losses, claims, damages or liabilities arising out of or based upon the Company’s failure to perform its obligations under Section 5(a) of this Agreement.
(c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under subsection (a) or (b) above, notify the indemnifying party of the commencement thereof; but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under subsection (a) or (b) above. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified
22
party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement includes (i) an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action and (ii) does not include a statement as to or an admission of fault or failure to act by or on behalf of any indemnified party. An indemnifying party shall not be required to indemnify an indemnified party hereunder with respect to any settlement or compromise of, or consent to entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder if (i) such settlement, compromise or consent is entered into or made or given by the indemnified party without the consent of the indemnifying party and (ii) the indemnifying party has not unreasonably withheld or delayed any such consent.
(d) If the indemnification provided for in this Section is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Guarantors on the one hand and the Purchasers on the other from the offering of the Offered Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Guarantors on the one hand and the Purchasers on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Company and the Guarantors on the one hand and the Purchasers on the other shall be deemed to be in the same proportion as the total net proceeds from the Offering (before deducting expenses) received by the Company and the Guarantors bear to the total discounts and commissions received by the Purchasers from the Company under this Agreement. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or any Guarantor or the Purchasers and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities
23 referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), no Purchaser shall be required to contribute any amount in excess of the amount by which the discounts and commissions such Purchaser received in connection with the purchase of the Offered Securities exceeds the amount of any damages which such Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. The Purchasers’ obligations in this subsection (d) to contribute are several in proportion to their respective purchase obligations and not joint.
(e) The obligations of the Company or any Guarantor under this Section shall be in addition to any liability which the Company or any Guarantor may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Purchaser within the meaning of the Securities Act or the Exchange Act; and the obligations of the Purchasers under this Section shall be in addition to any liability which the respective Purchasers may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the Company or any Guarantor within the meaning of the Securities Act or the Exchange Act.
8. Default of Purchasers. If any Purchaser or Purchasers default in their obligations to purchase Offered Securities hereunder and the aggregate principal amount of Offered Securities that such defaulting Purchaser or Purchasers agreed but failed to purchase does not exceed 10% of the total principal amount of Offered Securities, the Representative may make arrangements satisfactory to the Company for the purchase of such Offered Securities by other persons, including any of the Purchasers, but if no such arrangements are made by the Closing Date, the non-defaulting Purchasers shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Offered Securities that such defaulting Purchasers agreed but failed to purchase. If any Purchaser or Purchasers so default and the aggregate principal amount of Offered Securities with respect to which such default or defaults occur exceeds 10% of the total principal amount of Offered Securities and arrangements satisfactory to the Representative and the Company for the purchase of such Offered Securities by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Purchaser or the Company, except as provided in Section 9. As used in this Agreement, the term “Purchaser” includes any person substituted for a Purchaser under this Section. Nothing herein will relieve a defaulting Purchaser from liability for its default.
9. Survival of Certain Representations and Obligations . The respective indemnities, agreements, representations, warranties and other statements of the Company or its officers and of the several Purchasers set forth in or made pursuant to this
24
Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Purchaser, the Company or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Offered Securities. If this Agreement is terminated pursuant to Section 8 or if for any reason the purchase of the Offered Securities by the Purchasers is not consummated, the Company shall remain responsible for the expenses to be paid or reimbursed by it pursuant to Section 5(h) and the respective obligations of the Company and the Purchasers pursuant to Section 7 shall remain in effect. If the purchase of the Offered Securities by the Purchasers is not consummated for any reason other than solely because of the termination of this Agreement pursuant to Section 8 or the occurrence of any event specified in clause (iii), (iv) or (v) of Section 6(b), the Company will reimburse the Purchasers for all out-of-pocket expenses (including fees and disbursements of counsel) reasonably incurred by them in connection with the offering of the Offered Securities.
10. Notices. All communications hereunder will be in writing and, if sent to the Purchasers will be mailed, delivered or telegraphed and confirmed to the Purchasers, c/o Credit Suisse First Boston Corporation, Eleven Madison Avenue, New York, NY 10010-3629, Attention: Transactions Advisory Group, or, if sent to the Company, will be mailed, delivered or telegraphed and confirmed to it at Five Greenwich Office Park, Greenwich, CT 06830, Attention: Chief Financial Officer; provided, however, that any notice to a Purchaser pursuant to Section 7 will be mailed, delivered or telegraphed and confirmed to such Purchaser.
11. Representation of the Purchasers. The Representative will act for the several Purchasers in connection with this Purchase Agreement, and any action under this Agreement taken by the Representative will be binding upon all the Purchasers.
12. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and affiliates, and the controlling persons referred to in Section 7, and no other person will have any right or obligation hereunder, except that holders of Offered Securities shall be entitled to enforce the agreements for their benefit contained in the second and third sentences of Section 5(b) hereof against the Company as if such holders were parties thereto.
13. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement.
14. Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without regard to principles of conflicts of laws.
25 The Company hereby submits to the non-exclusive jurisdiction of the Federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
26 If the foregoing is in accordance with the Purchasers’ understanding of our agreement, kindly sign and return to us one of the counterparts hereof, whereupon it will become a binding agreement among the Company, the Guarantors and the several Purchasers in accordance with its terms.
Very truly yours,
UNITED RENTALS (NORTH AMERICA), INC.,
By
Name: Title:
THE GUARANTORS LISTED ON SCHEDULE B HERETO,
By
Name: Title:
The foregoing Purchase Agreement is hereby confirmed and accepted as of the date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
Acting on behalf of itself and as the Representative of the several Purchasers.
By
Name: Title:
27 SCHEDULE A
[Table omitted] SCHEDULE B
Place of Guarantor Formation
United Rentals, Inc. Delaware United Rentals (Delaware), Inc. Delaware United Rentals Gulf, Inc. Delaware United Equipment Rentals Gulf, L.P. Texas United Rentals Highway Technologies, Inc. Massachusetts United Rentals Highway Technologies Gulf, Inc. Delaware United Rentals Highway Technologies, L.P. Texas United Rentals Highway Technologies of Florida, Inc. Florida United Rentals Northwest, Inc. Oregon United Rentals Southeast Holding LLC Georgia United Rentals Southeast, Inc. Delaware United Rentals Southeast, L.P. Georgia Wynne Systems, Inc. California ANNEX I
FORM OF OPINION OF EHRENREICH EILENBERG & KRAUSE LLP TO BE DELIVERED PURSUANT TO SECTION 6(d)
As to various questions of fact material to our opinion, we have relied upon the certificates of officers and upon certificates of public officials. With regard to the due incorporation of corporations or formation of limited partnerships and limited liability companies, as the case may be (other than the Company and the Significant Subsidiaries), and the good standing of entities, we have (subject to the next sentence) relied entirely upon certificates of public officials. With regard to the tax good standing of certain corporations (other than the Company and the Significant Subsidiaries), we have relied solely upon a certificate of an officer of such corporation to the effect that the corporation has filed the most recent annual report required by the law of such jurisdiction and that all franchise taxes required to be paid under such law have been paid. We have also examined such corporate documents and records and other certificates, and have made such investigations of law, as we have deemed necessary in order to render the opinion hereinafter set forth. We have assumed the authenticity of all documents submitted to us as originals, the genuineness of all signatures, the legal capacity of natural persons and the conformity to the originals of all documents submitted to us as copies. We have also assumed that all documents examined by us have been duly and validly authorized, executed and delivered by each of the parties thereto other than the Company or any Significant Guarantors.
In this opinion, (i) “Significant Guarantor” or “Significant Subsidiary” means United Rentals Northwest, Inc., an Oregon corporation, United Rentals Gulf, Inc., a Delaware corporation, and United Equipment Rentals Gulf, L.P., a Texas limited partnership, and (ii) “Corporate Significant Subsidiary” means each Significant Guarantor other than United Equipment Rentals Gulf, L.P.
(1) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware.
(2) The Company has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Offering Document and to enter into and perform its obligations under the Purchase Agreement.
(3) The Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. (4) The authorized, issued and outstanding capital stock of the Company consists of 3,000 shares of Common Stock, par value $0.01 per share (the “Common Stock”). As of the date hereof, there were 1,000 shares of Common Stock outstanding. The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of capital stock of the Company was issued in violation of any preemptive or other similar rights of any security holder of the Company arising by statute or the Company’s certificate of incorporation or by-laws or, to the best of our knowledge (after due inquiry), any other preemptive or other similar rights of any security holder of the Company. All of the outstanding capital stock of the Company is owned by United Rentals, Inc., to the best of our knowledge (after due inquiry) free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity (except for any security interest or pledge contemplated by the Transaction Documents).
(5) Each Corporate Significant Subsidiary is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect.
(6) Each Corporate Significant Subsidiary has been duly incorporated and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Offering Document. Except as otherwise disclosed in the Offering Document and other than as contemplated by the Transaction Documents, all of the issued and outstanding capital stock of each Significant Subsidiary has been duly authorized and validly issued and is fully paid and non-assessable and, to the best of our knowledge, is owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity. None of the outstanding shares of capital stock of any Corporate Significant Subsidiary was issued in violation of the preemptive or similar rights of any security holder of such Corporate Significant Subsidiary arising pursuant to statute or such subsidiary’s certificate of incorporation or by-laws or, to the best of our knowledge, any other preemptive or other similar rights of any security holder of such Corporate Significant Subsidiary.
(7) United Equipment Rentals Gulf, L.P. is duly organized and validly existing as a limited partnership under the laws of the State of Texas and is duly qualified as a foreign limited partnership to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify
2 or to be in good standing would not result in a Material Adverse Effect. Except as otherwise disclosed in the Offering Document and other than as contemplated by the Transaction Documents, all partnership interests in such partnership have been duly issued in accordance with the Texas Revised Limited Partnership Act and, to the best of our knowledge, are owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity.
(8) The Purchase Agreement has been duly authorized, executed and delivered by the Company and each Significant Guarantor.
(9) The execution, delivery and performance of the Indenture, the Registration Rights Agreement and the Guarantees, and the consummation of the transactions contemplated thereby, have been duly authorized by all necessary corporate action on the part of each Significant Guarantor. Each Significant Guarantor has duly executed and delivered (i) the Indenture, (ii) the Registration Rights Agreement and (iii) their respective Guarantees relating to the Offered Securities being issued on the date hereof that appear on or are attached to such Offered Securities.
(10) The Registration Rights Agreement has been duly authorized, executed and delivered by the Company, and constitutes a valid and binding agreement of the Company and each Guarantor, enforceable against the Company and each Guarantor in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws relating to or affecting enforcement of creditors’ rights generally, or by general principles of equity (regardless of whether enforcement is considered in a proceeding in equity or at law).
(11) If any documents are incorporated by reference in the Offering Document, such documents (other than the financial statements and supporting schedules therein, as to which no opinion need be rendered), when they were filed with the Commission, complied as to form in all material respects with the requirements of the Exchange Act and the rules and regulations of the Commission thereunder.
(12) To the best of our knowledge, there is not pending or threatened any action, suit, proceeding, inquiry or investigation, to which the Company or any subsidiary is a party, or to which the property or assets of the Company or any subsidiary thereof is subject, before or brought by any court or governmental agency or body, domestic or foreign, which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the consummation of the transactions contemplated in the Purchase Agreement or the
3 performance by the Company of its obligations thereunder or the transactions contemplated by the Offering Document;
(13) The information in the Offering Document under “Business-Environmental Regulation,” to the extent that it constitutes summaries of matters of law, has been reviewed by us and is correct in all material respects. Additionally, the information in the Offering Document in the first sentence of the third paragraph under the caption “Description of Notes - Exchange Offer; Registration Rights” is correct in all material respects. We have drawn your attention to the fact that (i) the interpretations of the Commission described in such sentence are contained solely in no-action letters issued by the Commission to various third parties, (ii) the Company has not requested a no-action letter from the Commission relating to the transactions contemplated by the Offering Document and (iii) the Commission is not precluded from changing the interpretations set forth in such no-action letters or from not following such interpretations with respect to the transactions contemplated by the Offering Document.
(14) To the best of our knowledge, neither United Rentals, Inc., the Company nor any subsidiary thereof is in violation of its respective charter or by- laws, nor is United Rentals, Inc., the Company or any subsidiary thereof in default in the due performance or observance of, or is in violation of, any material obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, loan agreement, note, lease or other agreement or instrument that is described or referred to in the Offering Document which violations or defaults are required to be described in the Offering Document and are not so described or would, individually or in the aggregate, have a Material Adverse Effect or affect the validity of the Offered Securities or the Guarantees.
(15) Assuming (a) the accuracy of the representations and warranties of the Purchasers contained in Section 4 of the Purchase Agreement and (b) compliance by the Purchasers with their covenants and agreements set forth in the Purchase Agreement, no filing, authorization, approval, consent or order of any court or governmental authority or agency (other than such as may be required (i) under the Act and 1939 Act pursuant to the Registration Rights Agreement, or (ii) under the applicable securities laws of the various jurisdictions in which the Offered Securities will be offered or sold, as to which we express no opinion) is required by the Company in connection with the due authorization, execution and delivery of the Purchase Agreement or by the Company or any Guarantor in connection with the due authorization, execution, delivery or performance of the Indenture or the Registration Rights Agreement or in connection with the offering, issuance, sale or delivery of the Offered Securities and the Guarantees, as applicable, to the Purchasers or the initial
4 resale thereof by the Purchasers in accordance with the Purchase Agreement. We express no opinion as to any subsequent resale of the Offered Securities.
(16) Assuming (a) the accuracy of the representations and warranties of the Purchasers contained in Section 4 of the Purchase Agreement and (b) compliance by the Purchasers with their covenants and agreements set forth in the Purchase Agreement, it is not necessary in connection with the offer, sale and delivery of the Offered Securities to the Purchasers pursuant to the Purchase Agreement or the initial resales of the Offered Securities by the Purchasers in the manner contemplated by and in accordance with the Purchase Agreement to register the Offered Securities under the Act or to qualify the Indenture under the 1939 Act, it being understood that we express no opinion as to any subsequent resale of the Offered Securities.
(17) The execution, delivery and performance of the Purchase Agreement, the letter agreement with DTC, the Indenture, the Registration Rights Agreement, the Offered Securities, the Exchange Securities, the Guarantees and the consummation of the transactions contemplated in the Purchase Agreement and in the Offering Document and compliance by the Company and each Guarantor, as applicable, with its obligations under the Purchase Agreement, the Indenture, the Registration Rights Agreement, the Offered Securities, the Exchange Securities and the Guarantees, (A) to our knowledge, do not and will not (subject to the next sentence), whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of, or default or prepayment event under or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any subsidiary thereof pursuant to any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any other agreement or instrument, known to us, to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any subsidiary is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any subsidiary is subject (except for such conflicts, breaches or defaults, prepayment events or liens, charges or encumbrances that would not have a Material Adverse Effect), (B) result in any violation of the provisions of the charter or by-laws of the Company or any subsidiary, or (C) to the best of our knowledge (after due inquiry), result in any violation by the Company or any subsidiary of the provisions of any applicable law, statute, rule or regulation of the United States of America or included in the Delaware General Corporate Law or Delaware Revised Uniform Limited Partnership Act (except we express no opinion as to “blue sky” laws), judgment, order, writ or decree, known to us, of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company or any subsidiary or any of their respective properties, assets or operations. No opinion is rendered pursuant to clause (A) of the preceding sentence with respect to (collectively, the “Excluded Agreements”): (i) any agreement relating to any
5
indebtedness or proposed indebtedness described in the Offering Document under “Information Concerning Certain Indebtedness, Other Obligations and Preferred Securities” or in the Company’s Report on Form 10-K for the year ended December 31, 2000 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Certain Information Concerning the Credit Facility and Other Indebtedness” (excluding the indebtedness described in the paragraph that begins “Other Debt”), (ii) Master Lease Agreement, dated as of December 17, 1999, between United Rentals (North America), Inc. and UR (NA) 1999 Trust, as amended by the amendment thereto dated as of December 27, 2000, and (iii) Master Lease Agreement, dated as of June 30, 2000, between United Rentals (North America), Inc. and UR (NA) 2000 Trust, as amended by the amendment thereto dated as of December 27, 2000.
(18) Neither the Company nor any subsidiary which is a Guarantor is an “investment company” or an entity “controlled” by an “investment company,” as such terms are defined in the 1940 Act.
In addition, we have participated in conferences with officers and representatives of the Company, counsel to the Purchasers, representatives of the independent accountants for the Company and the Purchasers at which the contents of the Offering Document and related matters were discussed. Although we have not undertaken, except as otherwise indicated in this opinion, to investigate or verify independently, and do not assume responsibility for, the accuracy, completeness or fairness of the statements contained in the Offering Document, except for those referred to in paragraph 12 above, on the basis of the information that we gained in the course of the performance of such services and our representation of the Company, we confirm to you that nothing that came to our attention in the course of such review or representation has caused us to believe that (i) the Offering Document (except for financial statements and schedules and other financial data included or incorporated by reference therein, as to which we make no statement), contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Offering Document (except for financial statements and schedules and other financial data included or incorporated by reference therein, as to which we make no statement), at the time the Offering Document was issued or at the Closing Date, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading or (ii) that there are any franchise agreements, indentures, mortgages, loan agreements, notes, leases or other contracts or instruments required to be described or referred to in the Offering Document that are not described or referred to in the Offering Document or that any descriptions of or references to any of the foregoing are not correct in all material respects (except that we express no view with respect to the descriptions of the Offered Securities, the Indenture or the Excluded Agreements).
6 The opinions set forth herein are limited to the laws of the State of New York, the General Corporation Law and the Revised Uniform Limited Partnership Act of the State of Delaware, and the federal laws of the United States (except that the opinions in paragraph 5, 6, 7 and 8 cover with respect to each Significant Subsidiary or Significant Guarantor the laws of the jurisdiction of incorporation of such Significant Subsidiary or Significant Guarantor). We have, with your permission, relied without independent investigation on the opinions of local counsel identified on Exhibit B hereto (copies of which have been delivered to you) in rendering the following opinions: (a) the opinions in paragraphs 6, 7 and 8 above insofar as such opinions relate to any Significant Subsidiary that is not incorporated under the laws of the State of New York or the State of Delaware, (b) the opinions in the first sentence of paragraph 9 above insofar as such opinions relate to any Significant Guarantor that is not incorporated under the laws of the State of New York or the State of Delaware and (c) the opinions in the second sentence of paragraph 9 above insofar as it expresses any opinion with respect to the laws of any jurisdiction other than the State of New York or the State of Delaware. The opinion in paragraph 10 hereof requires that the Registration Rights Agreement shall have been duly authorized , executed and delivered by each Guarantor under the laws of its jurisdiction of incorporation. Accordingly, such opinion, insofar as it relates to Significant Guarantors, is based in part on the opinion in paragraph 9 and so relies in part on the opinions of local counsel identified on Exhibit B hereto, as aforesaid. In rendering the opinion in paragraph 10 hereof, we have assumed with your permission that the Registration Rights Agreement has been duly authorized, executed and delivered by each Guarantor that is not a Significant Guarantor.
We have reviewed the opinions of local counsel identified on Exhibit B hereto and, based upon such review, we believe that you are we are justified in relying upon them.
7 ANNEX II
FORM OF OPINION OF WEIL GOTSHAL & MANGES LLP TO BE DELIVERED PURSUANT TO SECTION 6(d)
(1) The Company is a corporation validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as described in the Offering Document and to execute and deliver the Purchase Agreement and to perform its obligations thereunder.
(2) The Offered Securities are in the form contemplated by the Indenture. The Securities have been duly authorized by all necessary corporate action on the part of the Company and, when executed by the Company, authenticated by the Trustee, and issued and delivered in the manner provided in the Purchase Agreement and the Indenture against payment of the consideration therefor, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity), and will be entitled to the benefits of the Indenture.
(3) The Guarantees are in the form contemplated by the Indenture. Assuming the Guarantees have been duly authorized, executed and delivered on the part of each Guarantor, the Guarantees will constitute a valid and binding obligation of each such Guarantor, enforceable against each such Guarantor in accordance with their terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity), and will be entitled to the benefits of the Indenture.
(4) The execution, delivery and performance of the Purchase Agreement by the Company have been duly authorized by all necessary corporate action on the part of the Company. The Purchase Agreement has been duly and validly executed and delivered by the Company.
(5) The execution, delivery and performance of the Indenture by the Company have been duly authorized by all necessary corporate action on the part of the Company. The Indenture has been duly and validly executed and delivered by the Company. Assuming the due authorization, execution and delivery of the Indenture by each Guarantor and assuming the due authorization, execution and delivery thereof by the Trustee, the Indenture constitutes the legal, valid and binding obligation of the Company and each such Guarantor, enforceable against the Company and each such Guarantor in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity), and except to the extent that the provision relating to the waiver of any usury, stay or extension law may be deemed unenforceable.
(6) The execution, delivery and performance of the Registration Rights Agreement by the Company have been duly authorized by all necessary corporate action on the part of the Company. The Registration Rights Agreement has been duly and validly executed and delivered by the Company. Assuming the due authorization, execution and delivery thereof by the Guarantors, and assuming the due authorization, execution and delivery thereof by the Purchasers, the Registration Rights Agreement constitutes the legal, valid and binding obligation of the Company and each such Guarantor, enforceable against the Company and each such Guarantor in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity) and except that rights to indemnification and contribution thereunder may be limited by federal or state securities laws or public policy relating thereto.
(7) The Exchange Securities, when duly executed by the Company, authenticated by the Trustee, and issued and delivered in accordance with and in the manner provided in the Registration Rights Agreement and the Indenture, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity), and will be entitled to the benefits of the Indenture.
(8) The statements contained in the Offering Document under the captions “Offering Circular Summary - The Offering”, “Description of the Notes” and “Information Concerning Certain Indebtedness, Other Obligations and Preferred Securities”, insofar as such statements constitute summaries of (a) the Indenture, (b) the Offered Securities, (c) the Guarantees, (d) the Registration Rights Agreement, (e) the Credit Agreement, (f) the Amendment, (g) the Indenture, dated as of May 22, 1998, among the Company, its United States subsidiaries party thereto, and State Street Bank and Trust Company (“State
2 Street”) relating to the Company’s 9½% senior subordinated notes due 2008 (the “9½% Indenture”), (h) the Indenture, dated as of August 12, 1998, among the Company, its United States subsidiaries party thereto, and State Street relating to the Company’s 8.80% senior subordinated notes due 2008 (the “8.80% Indenture”), (i) the Indenture, dated as of December 15, 1998, among the Company, its United States subsidiaries party thereto, and State Street relating to the Company’s 9¼% senior subordinated notes due 2009 (the “9¼% Indenture”), (j) the Indenture, dated as of March 23, 1999, among the Company, its United States subsidiaries party thereto, and The Bank of New York, as trustee, relating to the Company’s 9% senior subordinated notes due 2009 (the “9% Indenture”), (k) the Indenture, dated as of April 20, 2001, among Holdings, the Company, its United States subsidiaries party thereto, and The Bank of New York, as trustee, relating to the Company’s 10¾% senior notes due 2008 (the “2001 10¾% Indenture”) or (l) matters of federal or New York or Delaware corporate law, fairly represent the information called for with respect to such legal matters, documents and proceedings and fairly summarize the matters referred to therein in all material respects. We draw your attention to the fact that (i) the interpretations of the Commission described in the first sentence of the third paragraph under the caption “Description of the Notes - Exchange Offer; Registration Rights” in the Offering Document are contained solely in no-action letters issued by the Commission to various third parties, (ii) the Company has not requested a no-action letter from the Commission relating to the transactions contemplated by the Offering Document and (iii) the Commission is not precluded from changing the interpretations set forth in such no-action letters or from not following such interpretations with respect to the transactions contemplated by the Offering Document.
(9) No consent, approval, waiver, license or authorization or other action by or filing with any New York, Delaware corporate or federal governmental authority is required in connection with the execution and delivery by the Company of the Purchase Agreement or the consummation by the Company or any Guarantor of the transactions contemplated thereby, except for filings and other actions required under or pursuant to the Securities Act, the Exchange Act, the Trust Indenture Act and other federal or state securities or “blue sky” laws and the rules of the New York Stock Exchange, as to which we express no opinion.
(10) Assuming (a) the representations and warranties of the Purchasers contained in Section 4 of the Purchase Agreement are true, correct and complete and (b) compliance by the Purchasers with their covenants and agreements set forth in the Purchase Agreement, it is not necessary in connection with the offer, sale and delivery of the Offered Securities to the Purchasers pursuant to the Purchase Agreement or the initial resales of the Offered Securities by the Purchasers in the manner contemplated by and in accordance with the Purchase Agreement and described in the Offering Document to register the Offered Securities under the Securities Act or to qualify the Indenture under
3 the Trust Indenture Act, it being understood that we express no opinion as to any subsequent resale of the Offered Securities.
(11) The Company is not an “investment company” nor an entity “controlled” by an “investment company,” as such terms are defined in the Investment Company Act.
(12) The execution and delivery of the Purchase Agreement, the Indenture, the Registration Rights Agreement, the Offered Securities, the Exchange Securities and the Guarantees, the consummation of the transactions contemplated thereby and compliance by the Company and the Guarantors with the provisions thereof, do not and will not, whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of, or a default or prepayment event under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any subsidiary thereof pursuant to the Financing Documents (as defined below) or any agreement or instrument of which we are aware which was entered into or executed by the Company or any such subsidiary as required under or contemplated by any of the Financing Documents, except for such conflicts, breaches, defaults, prepayment events, liens, charges or encumbrances that would not reasonably be expected to have a Material Adverse Effect. As used above, the term “Financing Documents” means, collectively: (a) the Credit Agreement and the Amendment, (b) the 9½% Indenture, (c) the 8.80% Indenture, (d) the 9¼% Indenture, (e) the 9% Indenture, (f) the Master Lease Agreement, dated as of December 17, 1999, between United Rentals (North America), Inc. and UR (NA) 1999 Trust, as amended by the amendments thereto dated as of December 27, 2000, (g) the Master Lease Agreement dated as of June 30, 2000, between United Rentals (North America), Inc. and UR (NA) 2000 Trust, as amended by the amendment thereto dated as of December 27, 2000, and (h) the 2001 10¾% Indenture.
We have participated in conferences with directors, officers and other representatives of the Company, representatives of the independent public accountants for the Company, representatives of the Purchasers and representatives of counsel for the Purchasers in connection with the preparation of the Offering Document and at conferences at which the contents of the Offering Document and related matters were discussed, and although we have not independently verified and are not passing upon and assume no responsibility for the accuracy, completeness or fairness of the statements contained in the Offering Document (except to the extent specified in paragraph 8 above), no facts have come to our attention which lead us believe that the Offering Document, on the date hereof or the date thereof, contained or contains any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading (it being understood that we express no view with respect to the financial statements and related notes and the other financial and accounting data included in the Offering Document).
4 The opinions expressed herein are limited to the laws of the State of New York, the corporate laws of the State of Delaware and the federal laws of the United States, and we express no opinion as to the effect on the matters covered by this letter of the laws of any other jurisdiction.
5 EXHIBIT A
THIRD AMENDMENT AND AGREEMENT dated as of December 17, 2002 (this “ Amendment”), among UNITED RENTALS, INC. (“Holdings”), UNITED RENTALS (NORTH AMERICA), INC. (the “U.S. Borrower”), UNITED RENTALS OF CANADA, INC. (“UR Canada”), UNITED RENTALS OF NOVA SCOTIA (NO. 1), ULC, a Nova Scotia unlimited liability company (“UR Nova Scotia (No. 1)” and, together with the U.S. Borrower and UR Canada, the “ Borrowers”), the lenders party hereto, JPMORGAN CHASE BANK (formerly known as THE CHASE MANHATTAN BANK), as U.S. administrative agent (in such capacity, the “ U.S. Administrative Agent ”), and J.P. MORGAN BANK CANADA (formerly known as THE CHASE MANHATTAN BANK OF CANADA), as Canadian administrative agent (in such capacity, the “ Canadian Administrative Agent” and, together with the U.S. Administrative Agent, the “Administrative Agents”).
A. Reference is made to the Amended and Restated Credit Agreement dated as of April 20, 2001 (as amended by the First Amendment dated as of October 2, 2001, and the Second Amendment dated as of September 30, 2002, among Holdings, UR Nova Scotia (No. 1), the U.S. Borrower, UR Canada, the lenders party thereto, the U.S. Administrative Agent and the Canadian Administrative Agent and as further amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), among Holdings, the U.S. Borrower, UR Canada, the lenders party thereto, the U.S. Administrative Agent and the Canadian Administrative Agent. Capitalized terms used but not otherwise defined herein have the meanings assigned to them in the Credit Agreement.
B. Holdings and the Borrowers have requested that the Required Lenders and the Issuing Bank amend certain provisions of the Credit Agreement. The Required Lenders and the Issuing Bank are willing to agree to such amendments on the terms and subject to the conditions of this Amendment.
Accordingly, in consideration of the mutual agreements herein contained and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Amendments to Section 1.01 of the Credit Agreement . (a) The definition of the term “Consolidated Net Income” in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
“Consolidated Net Income” means, with respect to Holdings and its Subsidiaries for any period, the net income (or loss) of Holdings and its Subsidiaries for such period, excluding (a) any extraordinary gains during such period, (b) if such period includes the Fiscal Quarter ending June 30, 2001, (i) up to $27,000,000 of financing fees incurred and written-off in such Fiscal Quarter as a result of the Transactions and (ii) up to $40,000,000 of charges taken in such Fiscal Quarter related to store closings and work force reductions, (c) any non-cash charges during such period attributable to the impairment of goodwill, (d) any non-cash charges during such period attributable to the amortization of
1 deferred stock compensation, (e) any non-cash expenses during such period attributable to stock options and warrants with respect to Equity Interests in Holdings, (f) up to $40,000,000 of charges related to store closings and work force reductions initiated during any Fiscal Quarter ending on or after September 30, 2002, through March 31, 2003, (g) non-cash charges during any Fiscal Quarter ending after September 30, 2002, through December 31, 2003, in an aggregate amount not to exceed $15,000,000 for all Fiscal Quarters combined, attributable to the write- off of certain notes payable owed to Holdings or any of its Subsidiaries and (h) up to $7,500,000 of financing fees that may be written-off in the Fiscal Quarter ending December 31, 2002 (including in connection with the transactions contemplated by the Third Amendment and Agreement dated as of December 17, 2002, to this Agreement).
(b) The definition of the term “Net Worth” in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
“Net Worth” means, at any time, the sum of (a) Holdings’s consolidated stockholders’ equity (including preferred stock accounts but determined by excluding the effects of (i) the write-offs and charges referred to in clauses (b) and (h) of the definition of Consolidated Net Income, (ii) the non-cash charges attributable to the impairment of goodwill (net of any tax benefits relating to such charges) referred to in clause (c) of the definition of Consolidated Net Income and (iii) the non-cash charges attributable to the write-off of certain notes payable owed to Holdings or any of its Subsidiaries (net of any tax benefits relating to such charges) referred to in clause (g) of the definition of Consolidated Net Income) at such time plus (b) to the extent, if any, not included in such stockholders’ equity, the outstanding amount of the QuIPS Preferred Securities at such time.
SECTION 2. Amendments to Article VI of the Credit Agreement . (a) Section 6.01 of the Credit Agreement is hereby amended by deleting paragraph (a) thereof in its entirety and replacing it with the following:
(a) Minimum Interest Coverage Ratio. Holdings will not permit the Interest Coverage Ratio for any Computation Period ending during any period set forth below to be less than the ratio set forth opposite such period:
Period Ratio
On or before June 30, 2002 1.75 to 1.0 July 1, 2002 through September 30, 2002 1.50 to 1.0 October 1, 2002 through December 31, 2003 1.25 to 1.0 January 1, 2004 through June 30, 2004 1.35 to 1.0 July 1, 2004 through December 31, 2004 1.40 to 1.0 January 1, 2005 and thereafter 1.75 to 1.0
2 (b) Section 6.02(b) of the Credit Agreement is hereby amended by inserting in clause (i) of the proviso to such Section immediately before the text “would exceed 25% of Net Worth” the text “(other than up to $200,000,000 in principal amount of such Debt contemplated by Section 5(c) of the Third Amendment and Agreement dated as of December 17, 2002, to this Agreement to the extent, and only to the extent, that (x) the proceeds of such Debt are applied to prepay Term Loans and/or (y) the US $ Revolving Commitments are permanently reduced substantially simultaneously with the issuance of such Debt in an amount equal to $100,000,000)”.
(c) Section 6.02(b) of the Credit Agreement is hereby further amended by inserting in clause (iii) of the proviso to such Section immediately after the text “the aggregate principal amount of Debt permitted solely by this clause (b)” the text “(other than up to $200,000,000 in principal amount of such Debt contemplated by Section 5(c) of the Third Amendment and Agreement dated as of December 17, 2002, to this Agreement to the extent, and only to the extent, that (x) the proceeds of such Debt are applied to prepay Term Loans and/or (y) the US $ Revolving Commitments are permanently reduced substantially simultaneously with the issuance of such Debt in an amount equal to $100,000,000)”.
SECTION 3. Representations and Warranties. Each of Holdings and the Borrowers hereby represents and warrants to and agrees with each Lender and the Administrative Agents that:
(a) The representations and warranties set forth in Article III of the Credit Agreement are true and correct in all material respects with the same effect as if made on the Third Amendment Effective Date (as defined below), except to the extent such representations and warranties expressly relate to an earlier date, in which case such representations and warranties are true and correct as of such earlier date.
(b) Each of Holdings and the Borrowers has the requisite power and authority to execute, deliver and perform its obligations under this Amendment and to perform its obligations under the Credit Agreement as amended by this Amendment.
(c) The execution, delivery and performance by each of Holdings and the Borrowers of this Amendment and the performance by each of Holdings and the Borrowers of the Credit Agreement, as amended by this Amendment, (i) does not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect and except filings necessary to perfect Liens created under the Loan Documents, (ii) will not violate any applicable law or regulation or
3 the charter, by-laws or other organizational documents of Holdings or any Subsidiary or any order of any Governmental Authority, (iii) will not violate or result in a default under any indenture, agreement or other instrument binding upon Holdings or any Subsidiary or its assets that is material to Holdings and its Subsidiaries, taken as a whole, or give rise to a right thereunder to require any payment to be made by Holdings or any Subsidiary and (iv) will not result in the creation or imposition of any Lien on any asset of Holdings or any Subsidiary, except Liens created under the Loan Documents.
(d) This Amendment has been duly executed and delivered by each of Holdings and the Borrowers. Each of this Amendment and the Credit Agreement, as amended by this Amendment, constitutes a legal, valid and binding obligation of each of Holdings and the Borrowers, enforceable against each of Holdings and the Borrowers in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
(e) As of the Third Amendment Effective Date, no Default has occurred and is continuing.
SECTION 4. Agreements. (a) The parties hereto agree that, notwithstanding anything in the Credit Agreement to the contrary, any notice of (i) a prepayment required by Section 5(d) hereof or (ii) a reduction of Commitments required by Section 5(e) hereof shall be revocable if and to the extent that the U.S. Borrower does not consummate the issuance of senior unsecured notes contemplated by Section 5(c) hereof by the contemplated date of such prepayment or reduction of Commitments.
(b) The U.S. Borrower hereby elects, pursuant to Section 2.10(c) of the Credit Agreement, for the prepayments of Term Loans made pursuant to Section 5(d)(ii) hereof to be applied to reduce subsequent scheduled amortization payments of the Term Loans in order of maturity.
SECTION 5. Conditions to Effectiveness. This Amendment shall become effective as of the date of the satisfaction in full of the following conditions precedent (the “Third Amendment Effective Date”):
(a) The Administrative Agents shall have received (i) duly executed counterparts hereof that, when taken together, bear the authorized signatures of Holdings, the Borrowers, the Administrative Agents, the Required Lenders and the Issuing Bank and (ii) the amendment fees required to be paid by Holdings and the Borrowers pursuant to Section 8 hereof, provided that the representations and warranties set forth in Article III of the Credit Agreement are true and correct in all material respects as of the date that the last of such counterparts is received, except to the extent such representations and warranties expressly relate to an earlier date.
(b) The Administrative Agents shall have received all other amounts due and payable under this Amendment and the Credit Agreement on or prior to the Third Amendment Effective Date, including, to the extent invoiced, all reasonable out-of-pocket costs and expenses of
4 the Administrative Agents (including, without limitation, the reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the Administrative Agents).
(c) The U.S. Borrower shall have issued pursuant to Section 6.02(b) of the Credit Agreement, at any date after December 9, 2002, but prior to January 31, 2003, senior unsecured notes in an aggregate principal amount of at least $200,000,000 for gross cash proceeds in an amount that, when added to the amount of underwriters’ discounts and commissions relating to such issuance, equals at least $200,000,000.
(d) The U.S. Borrower shall have prepaid pursuant to Section 2.11(a) of the Credit Agreement an aggregate principal amount of the outstanding (i) U.S. $ Revolving Loans equal to the lesser of (x) $100,000,000 and (y) 50% of the Net Proceeds of the issuance of senior unsecured notes pursuant to paragraph (c) of this Section 5, after excluding from such amount any fees, losses, costs and expenses incurred pursuant to Section 8 hereof that are paid on or prior to the date of such prepayment, and (ii) Term Loans equal to the lesser of (x) $100,000,000 and (y) 50% of the Net Proceeds of the issuance of senior unsecured notes pursuant to paragraph (c) of this Section 5, after excluding from such amount any fees, losses, costs and expenses incurred pursuant to Section 8 hereof that are paid on or prior to the date of such prepayment; provided that (subject to the terms and conditions of the Credit Agreement as amended by this Amendment and after giving effect to the reduction of Commitments required under clause (e) of this Section 5) the U.S. Borrower may reborrow any amounts prepaid under clause (i) of this Section 5(d).
(e) The U.S. Borrower shall have reduced the U.S.$ Revolving Commitments by $100,000,000 pursuant to Section 2.08(b) of the Credit Agreement.
SECTION 6. Credit Agreement. Except as specifically stated herein, the Credit Agreement shall continue in full force and effect in accordance with the provisions thereof.
SECTION 7. Applicable Law. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
SECTION 8. Amendment Fee. In consideration of the agreements of the Lenders contained in this Amendment, Holdings and the Borrowers agree to pay promptly to the Administrative Agents, for the account of each Lender that delivers an executed counterpart of this Amendment at or prior to 5:00 p.m., New York time, on December 17, 2002, an amendment fee in an amount equal to 0.125% of the sum of such Lender’s Revolving Commitment and outstanding Term Loans, in each case immediately after giving effect to the prepayments of Loans and reductions of Commitments required under clauses (d) and (e), respectively, of Section 5 of this Amendment; provided that such fee shall not be payable unless and until all conditions to the effectiveness of this Amendment as provided in Section 5 hereof (other than payment of such amendment fee) shall have been satisfied. The U.S. Borrower hereby acknowledges its obligation, pursuant to Section 2.16 of the Credit Agreement, to pay losses, costs and expenses in connection with (a) the prepayments of Loans required by Section 5(d) hereof and (b) any failure to make any such prepayments of which the U.S. Borrower has given notice of prepayment (regardless of
5 whether such notice has been revoked as permitted by Section (a) hereof), in each case to the extent required to be paid by such Section.
SECTION 9. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be an original but all of which, when taken together, shall constitute but one instrument. Delivery of an executed counterpart of a signature page of this Amendment by telecopy shall be effective as delivery of a manually executed counterpart of this Amendment.
SECTION 10. Expenses. Holdings and the Borrowers agree to reimburse the Administrative Agents for their out-of-pocket expenses in connection with this Amendment, including the reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the Administrative Agents.
6 Exhibit 21
UNITED RENTALS, INC. & SUBSIDIARIES
Those corporations, which are indented, represent subsidiaries of the corporation under which they are indented. Except as otherwise indicated, 100% of the voting stock of each of the subsidiaries listed below is owned by its parent.
Name of Company State of Incorporation
UNITED RENTALS, INC. Delaware A. United Rentals Finance, LLC (United Rentals, Inc. is the sole member and manager) Delaware B. United Rentals Trust I Delaware C. United Rentals (North America), Inc. Delaware 1. URNA Leasing, LLC (United Rentals (North America), Inc. is the sole member and United Rentals, Inc. is the manager) Delaware 2. United Rentals Gulf, Inc. Delaware a. United Rentals (Delaware), Inc. Delaware 1. Provisto, S. de R.L. de C.V. (United Rentals (Delaware), Inc. owns 99.999997%, United Rentals Northwest, Inc. owns .000003%) Mexico 2. United Rentals, S. de R.L. de C.V. (United Rentals (Delaware), Inc. owns 99.99%, United Rentals Northwest, Inc. owns .01%) Mexico 3. United Rentals of Nova Scotia (No.1), ULC Nova Scotia 4. United Rentals of Nova Scotia (No.2), ULC Nova Scotia a. UR Canadian Financing Partnership (United Rentals Nova Scotia (No.1), ULC is 99% Managing Partner, United Rentals Nova Scotia (No.2), ULC is 1% Non-Managing Partner) Nova Scotia b. United Equipment Rentals Gulf, L.P. (United Rentals Gulf, Inc. is 99% L.P., United Rentals (North America), Inc. is 1% G.P.) Texas 1. UR Gulf Leasing LLC (United Equipment Rentals Gulf, L.P. is the sole member and United Rentals, Inc. is the manager) Delaware a. UR Gulf Leasing L.P. (UR Gulf Leasing, LLC is the .1% G.P. and United Equipment Rentals Gulf, L.P. is the 99.9% L.P.) Texas 2. United Rentals of Canada, Inc. Canada a. Hickman Rent-Alls (1999) Ltd. Newfoundland 3. 794815 Alberta Inc. Alberta 3. United Rentals Highway Technologies, Inc. (f/k/a Liddell Bros Inc.) Massachusetts 4. United Rentals Highway Technologies of Florida, Inc. Florida 5. United Rentals Highway Technologies Gulf, Inc. Delaware a. United Rentals Highway Technologies, L.P. (United Rentals Highway Technologies Gulf, Inc. is 6.75% L.P., United Rentals Gulf, Inc. is 92.25% L.P. and United Rentals (North America), Inc. is 1% G.P.) Texas 6. United Rentals Northwest, Inc. (f/k/a High Reach, Inc.) Oregon a. URNW Leasing, LLC (United Rentals Northwest, Inc. is the sole member and United Rentals, Inc. is the manager) Delaware 7. United Rentals Receivables LLC I (“SPV I”) Delaware a. United Rentals Receivables LLC II (“SPV II”) Delaware 8. United Rentals Southeast, Inc. Delaware a. United Rentals Southeast Holding LLC (United Rentals Southeast, Inc. is 99% Non-Managing Member, United Rentals (North America), Inc. is 1% Managing Member) Georgia State of Name of Company Incorporation
1. United Rentals Southeast, L.P. (United Rentals Southeast Holding LLC is 99% L.P., United Rentals (North America), Inc. is 1% G.P.) Georgia a. URSE Leasing, LLC (United Rentals Southeast, L.P. is the sole member and United Rentals, Inc. is the manager) Georgia 9. Wynne Systems, Inc. California
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Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements of United Rentals, Inc. (Form S-3 No.’s 333-41419-99, 333-70151, 333- 70255, 333-64463, 333-86197 and 333-57916, and Form S-4 No. 333-87644), the Registration Statement of United Rentals, Inc. (Form S-8 No. 333-70345) pertaining to the 1997 Stock Option Plan, 1998 Stock Option Plan, and 1998 Supplemental Stock Option Plan, the Registration Statement of United Rentals, Inc. (Form S-8 No. 333-60458) pertaining to the 2001 Stock Plan, the Registration Statements of United Rentals, Inc. (Form S-8 No.’s 333-74091 and 333-87903) pertaining to the options outstanding in connection with the 1997 Performance Award Plan of U.S. Rentals assumed pursuant to the merger with U.S. Rentals and the Registration Statements of United Rentals, Inc. (Form S-8 No.’s 333-39770 and 333-98567) pertaining to the United Rentals, Inc. 401(k) Investment Plan and United Rentals, Inc. Acquisition Plan, of our report dated February 20, 2003 with respect to the consolidated financial statements and schedules of United Rentals, Inc. included in the Annual Report (Form 10-K) for the year end December 31, 2002, filed with the Securities and Exchange Commission.
/S/ ERNST & YOUNG LLP
MetroPark, New Jersey March 26, 2003
EXHIBIT 99(a)
CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of United Rentals, Inc. and United Rentals (North America), Inc. (the “Companies”) on Form 10-K for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bradley S. Jacobs, Chief Executive Officer of the Companies, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. the Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Companies.
/s/ BRADLEY S. JACOBS Bradley S. Jacobs Chief Executive Officer
March 27, 2003 EXHIBIT 99(b)
CERTIFICATION PURSUANT TO 18 U.S.C SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of United Rentals, Inc. and United Rentals (North America), Inc. (the “Companies”) on Form 10-K for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John N. Milne, President and Chief Financial Officer of the Companies, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1. the Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Companies.
/s/ JOHN N. MILNE John N. Milne President and Chief Financial Officer
March 27, 2003