Back to GetFilings.com



Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
(Mark One)
 
x
 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934
 
For the quarterly period ended June 30, 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 No. 1-14387
 
United Rentals, Inc.
 
Commission File No. 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 incorporation or organization)
  
(I.R.S. Employer
Identification Nos.)
 
Five Greenwich Office Park,
Greenwich, Connecticut
  
06830
(Address of principal executive offices)
  
(Zip Code)
 
(203) 622-3131
(Registrants’ telephone number, including area code)
 
 
Indicate by check mark whether the registrants (1) have 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days.
 
x  Yes     ¨  No
 
As of August 5, 2002, there were 76,563,012 shares of the United Rentals, Inc. common stock, $.01 par value, 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.
 
This combined Form 10-Q 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 H(1) (a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format permitted by such instruction.
 

Table of Contents
UNITED RENTALS, INC.
UNITED RENTALS (NORTH AMERICA), INC.
 
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
 
INDEX
 
        
Page
PART I
  
FINANCIAL INFORMATION
     
Item 1
  
Unaudited Consolidated Financial Statements
     
      
4
      
5
      
6
      
7
      
8
      
9
      
10
      
11
      
12
Item 2
     
26
Item 3
     
38
PART II
  
OTHER INFORMATION
     
Item 1
     
39
Item 4
     
39
Item 6
     
39
      
41

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,” “forecast,” “may,” “will,” “should,” “seek,” “on-track,” “plan,” “intend,” “project” 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 these factors are discussed in Item 2 of Part I of this Report under the caption “—Factors that May Influence Future Results and Results Anticipated by 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.
 
UNITED RENTALS
 
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 2001, we served more than 1.4 million customers and generated revenues of $2.9 billion.
 
Our fleet of rental equipment, the largest in the world, includes over 500,000 units having an original purchase price of approximately $3.6 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;
 
 
•
 
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.
 
Industry Background
 
We estimate that the U.S. equipment rental industry has grown from approximately $6.5 billion in annual rental revenues in 1990 to about $25 billion in 2001, representing a compound annual growth rate of approximately 12.9%. 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

1

Table of Contents
and other functions requiring the periodic use of equipment. The market for rental equipment is also benefiting from increased government funding for infrastructure projects.
 
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 the second quarter of 2002, the sharing of equipment among branches accounted for approximately 11.9%, or $66 million, of our total rental revenue.
 
Ability to Transfer Equipment to Other 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.
 
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 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 approximately 100 information technology specialists that supports our systems.
 
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. Our National Account team serves approximately 1,700 National Account customers.
 
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 2001, we served more than 1.4 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 for used equipment by giving us access to resale markets across North America and by allowing us to market used equipment directly to end-user customers, (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.

2

Table of Contents
 
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 41 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.
 
Strong and Motivated Branch Management.    Each of our branches has a full-time branch manager who is supervised by one of our 61 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.

3

Table of Contents
UNITED RENTALS, INC.
 
CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
    
June 30
2002
     
December 31 2001
  
    
(In thousands,
except share data)
  
ASSETS
                  
Cash and cash equivalents
   
$
23,952
 
   
$
27,326
 
Accounts receivable, net of allowance for doubtful accounts of $47,937 in 2002
and $47,744 in 2001
   
 
499,482
 
   
 
450,273
 
Inventory
   
 
107,071
 
   
 
85,764
 
Prepaid expenses and other assets
   
 
160,621
 
   
 
133,217
 
Rental equipment, net
   
 
1,868,775
 
   
 
1,747,182
 
Property and equipment, net
   
 
415,302
 
   
 
410,053
 
Goodwill
   
 
1,964,815
 
   
 
2,199,774
 
Other intangible assets, net
   
 
7,816
 
   
 
7,927
 
    
  
    
$
5,047,834
 
   
$
5,061,516
 
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                  
Liabilities:
                  
Accounts payable
   
$
252,655
 
   
$
204,773
 
Debt
   
 
2,653,075
 
   
 
2,459,522
 
Deferred taxes
   
 
255,662
 
   
 
297,024
 
Accrued expenses and other liabilities
   
 
134,274
 
   
 
174,687
 
    
  
Total liabilities
   
 
3,295,666
 
   
 
3,136,006
 
Commitments and contingencies
                  
Company-obligated mandatorily redeemable convertible preferred securities of
a subsidiary trust
   
 
283,250
 
   
 
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, 76,531,071 shares issued and outstanding in 2002 and 73,361,407 in 2001
   
 
765
 
   
 
734
 
Additional paid-in capital
   
 
1,309,804
 
   
 
1,243,586
 
Deferred compensation
   
 
(58,906
)
   
 
(55,794
)
Retained earnings
   
 
237,465
 
   
 
467,106
 
Accumulated other comprehensive loss
   
 
(20,215
)
   
 
(30,127
)
    
  
Total stockholders’ equity
   
 
1,468,918
 
   
 
1,625,510
 
    
  
    
$
5,047,834
 
   
$
5,061,516
 
    
  
 
The accompanying notes are an integral part of these consolidated financial statements.

4

Table of Contents
UNITED RENTALS, INC.
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
    
Six Months Ended
June 30
   
Three Months Ended
June 30
    
2002
     
2001
   
2002
     
2001
    
(In thousands, except per share data)
Revenues:
                                
Equipment rentals
   
$
997,881
 
   
$
1,043,750
   
$
551,593
 
   
$
582,368
Sales of rental equipment
   
 
93,773
 
   
 
72,239
   
 
54,643
 
   
 
33,117
Sales of equipment and merchandise and other revenues
   
 
252,070
 
   
 
271,128
   
 
138,523
 
   
 
152,528
    
  
  
  
Total revenues
   
 
1,343,724
 
   
 
1,387,117
   
 
744,759
 
   
 
768,013
Cost of revenues:
                                
Cost of equipment rentals, excluding depreciation
   
 
510,388
 
   
 
500,136
   
 
274,826
 
   
 
270,103
Depreciation of rental equipment
   
 
158,610
 
   
 
158,354
   
 
80,560
 
   
 
81,553
Cost of rental equipment sales
   
 
60,984
 
   
 
42,381
   
 
35,852
 
   
 
19,305
Cost of equipment and merchandise sales and other operating costs
   
 
181,272
 
   
 
197,616
   
 
100,259
 
   
 
110,989
    
  
  
  
Total cost of revenues
   
 
911,254
 
   
 
898,487
   
 
491,497
 
   
 
481,950
    
  
  
  
Gross profit
   
 
432,470
 
   
 
488,630
   
 
253,262
 
   
 
286,063
Selling, general and administrative expenses
   
 
205,020
 
   
 
221,715
   
 
106,525
 
   
 
112,822
Restructuring charge
            
 
28,922
            
 
28,922
Non-rental depreciation and amortization
   
 
27,738
 
   
 
53,238
   
 
13,854
 
   
 
27,131
    
  
  
  
Operating income
   
 
199,712
 
   
 
184,755
   
 
132,883
 
   
 
117,188
Interest expense
   
 
97,515
 
   
 
114,589
   
 
47,532
 
   
 
57,059
Preferred dividends of a subsidiary trust
   
 
9,299
 
   
 
9,750
   
 
4,605
 
   
 
4,875
Other (income) expense, net
   
 
(3,328
)
   
 
6,935
   
 
(3,048
)
   
 
7,605
    
  
  
  
Income before provision for income taxes, extraordinary item and cumulative effect of change in accounting principle
   
 
96,226
 
   
 
53,481
   
 
83,794
 
   
 
47,649
Provision for income taxes
   
 
37,528
 
   
 
25,134
   
 
32,680
 
   
 
22,714
    
  
  
  
Income before extraordinary item and cumulative effect of change in accounting principle
   
 
58,698
 
   
 
28,347
   
 
51,114
 
   
 
24,935
Extraordinary item, net of tax benefit of $6,759
            
 
11,317
            
 
11,317
Cumulative effect of change in accounting principle, net of tax benefit of $60,529
   
 
(288,339
)
                       
    
  
  
  
Net income
   
$
(229,641
)
   
$
17,030
   
$
51,114
 
   
$
13,618
    
  
  
  
Earnings per share—basic:
                                
Income before extraordinary item and cumulative effect of change in accounting principle
   
$
0.78
 
   
$
0.40
   
$
0.67
 
   
$
0.35
Extraordinary item, net
            
 
0.16