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| URI > SEC Filings for URI > Form 10-K on 23-Jan-2013 | All Recent SEC Filings |
23-Jan-2013
Annual Report
Executive Overview
United Rentals is the largest equipment rental company in the world. Our
customer service network consists of 836 rental locations in the United States
and Canada as well as centralized call centers and online capabilities. Although
the equipment rental industry is highly fragmented and diverse, we believe that
we are well positioned to take advantage of this environment because, as a
larger company, we have more extensive resources and certain compelling
competitive advantages. These include a fleet of rental equipment with a total
original equipment cost ("OEC"), based on the initial consideration paid, of
$7.2 billion, and a national branch network that operates in 49 U.S. states and
every Canadian province, and serves 99 of the 100 largest metropolitan areas in
the United States. In addition, our size gives us greater purchasing power, the
ability to provide customers with a broader range of equipment and services, the
ability to provide customers with equipment that is more consistently
well-maintained and therefore more productive and reliable, and the ability to
enhance the earning potential of our assets by transferring equipment among
branches to satisfy customer needs.
We offer approximately 3,300 classes of equipment for rent to a diverse customer
base that includes construction and industrial companies, manufacturers,
utilities, municipalities, homeowners and government entities. Our revenues are
derived from the following sources: equipment rentals, sales of rental
equipment, sales of new equipment, contractor supplies sales and service and
other revenues. In 2012, equipment rental revenues represented 84 percent of our
total revenues.
For the past several years, we have focused on optimizing the profitability of
our core rental business through revenue growth and margin expansion. To achieve
this objective, we have developed a strategy focused on customer service
differentiation, customer segmentation, rate management, fleet management and
disciplined cost control. This strategy calls for a superior standard of service
to customers, often provided through a single point of contact; an increasing
proportion of revenues derived from larger accounts; a targeted presence in
industrial and specialty markets; and the profitable deployment of our rental
assets for optimal return on investment.
On April 30, 2012, we acquired 100 percent of the outstanding common shares and
voting interest ("the acquisition") of RSC Holdings Inc. ("RSC"). The results of
RSC's operations have been included in our consolidated financial statements
since that date. RSC, which had total revenues of $1.5 billion in 2011, was one
of the largest equipment rental providers in North America, and as of
December 31, 2011 had a network of 440 rental locations in 43 U.S. states and
three Canadian provinces. The acquisition has created a leading North American
equipment rental company with a more attractive business mix, greater scale and
enhanced growth prospects, and we believe that the acquisition will provide us
with financial benefits including reduced operating expenses and additional
revenue opportunities going forward. Since the acquisition date, significant
amounts of fleet have been moved between United Rentals locations and the
acquired RSC locations, and it is not practicable to reasonably estimate the
amounts of revenue and earnings of RSC since the acquisition date. The impact of
the RSC acquisition on our equipment rentals revenue is primarily reflected in
the 63.2 percent increase in the volume of OEC on rent in 2012. For additional
information concerning the RSC acquisition, see note 3 to our consolidated
financial statements.
In 2012, we adopted the American Rental Association criteria for rental rates,
time utilization and OEC; comparisons to prior years are based on a recast of
these metrics on the same basis.
Although uncertainty in the economic environment continued to present challenges
for both our Company and the North American equipment rental industry in 2012,
we succeeded in realizing a number of achievements related to our strategy. For
the full year 2012, compared with 2011, these achievements included:
• A 6.9 percent increase in rental rates on a pro forma basis (that is,
assuming United Rentals and RSC were combined for full year 2012 and
2011). Rental rate changes for 2012 are only available on a pro forma
basis;
• A 63.2 percent increase in the volume of OEC on rent, which significantly benefited from the impact of the RSC acquisition;
• Achieved strong time utilization on a significantly larger fleet. Time utilization was 67.5 percent and 67.2 percent for the years ended December 31, 2012 and 2011, respectively;
• A significant increase in the proportion of equipment rental revenues derived from National Account customers, from 35 percent in 2011 to 42 percent in 2012. 2012 is only available on a pro forma basis. National Accounts are generally defined as customers with potential annual equipment rental spend of at least $500,000 or customers doing business in multiple locations;
• Continued improvement in customer service management, including a significant increase in the proportion of equipment rental revenues derived from accounts that are managed by a single point of contact ("key accounts") from 55 percent in 2011 to 60 percent in 2012. 2012 is only available on a pro forma basis. Establishing a single
point of contact for our key accounts helps us to provide customer service
management that is more consistent and satisfactory;
• The continued optimization of our network of rental locations, including
an increase in 2012 of 15, or 16 percent, in the number of rental
locations in our trench safety, power and HVAC segment; and
• A 1.3 percentage point improvement in selling, general and administrative expenses as a percentage of revenue.
In 2013, we will continue to focus on optimizing our core business through
diligent management of the rental process, enhanced customer service
capabilities, and sustained cost efficiencies. In particular, we will focus on:
• Enhancing our value proposition by improving customer service levels;
• Further increasing the proportion of our revenues derived from National Accounts and other large customers. To the extent that we are successful, we believe that we can improve our equipment rental gross margin and overall profitability over time, as large accounts tend to rent more equipment for longer periods and can be serviced more cost effectively than short-term transactional customers;
• Accelerating our pursuit of opportunities in the industrial marketplace, where we believe that our depth of resources, industrial expertise and branch footprint give us a competitive advantage. Additionally, industrial equipment demand is subject to different cyclical pressures than construction demand, making our aggregate end markets less volatile;
• Further capitalizing on the demand for the higher-margin power and climate control equipment offered by our trench safety, power and HVAC segment;
• Leveraging technology and training to optimize the transportation of our rental equipment to and from customer jobsites; and
• Maximizing equipment utilization by reducing the average number of equipment units unavailable for rent and the average time a unit is unavailable for rent.
In 2013, based on our analysis of leading industry forecasts and broader
economic indicators, we expect most of our end markets to continue to recover.
Specifically, in 2013, we expect that the U.S. equipment rental industry will
achieve year-over-year revenue growth in the mid to high single digits.
Financial Overview
Despite the challenges posed by recent economic and credit market conditions,
and as discussed elsewhere in this report, we succeeded in taking a number of
positive actions in 2012 and 2011 related to our capital structure, and have
significantly improved our financial flexibility and liquidity. These actions,
which are discussed in note 12 to our consolidated financial statements,
include:
• In March 2012, in connection with the RSC acquisition, we issued $750
aggregate principal amount of 5 3/4 percent Senior Secured Notes due
2018, $750 aggregate principal amount of 7 3/8 percent Senior Notes due
2020 and $1,325 aggregate principal amount of 7 5/8 percent Senior Notes
due 2022.
• In March 2012, we increased the size of the ABL facility from $1.8 billion to $1.9 billion.
• In September 2012, we amended our accounts receivable securitization facility. The amended facility expires on September 23, 2013, includes an increase in the facility size from $300 to $475, and may be extended on a 364-day basis by mutual agreement of the Company and the purchasers under the facility.
• In October 2012, we issued $400 aggregate principal amount of 6 1/8 percent Senior Notes due 2023.
• In October 2012, we redeemed our 10 7/8 percent Senior Notes.
• In December 2012, all of our outstanding 1 7/8 percent Convertible Senior Subordinated Notes were converted.
These actions have improved our financial flexibility and liquidity and
positioned us to invest the necessary capital in our business to take advantage
of opportunities in the economic recovery. As of December 31, 2012, we had
available liquidity of $782, including cash of $106.
Income (loss) from continuing operations. Income (loss) from continuing
operations and diluted earnings (loss) per share from continuing operations for
each of the three years in the period ended December 31, 2012 were as follows:
Year Ended December 31,
2012 2011 2010
Income (loss) from continuing operations $ 75 $ 101 $ (22 )
Diluted earnings (loss) per share from
continuing operations $ 0.79 $ 1.38 $ (0.38 )
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Income (loss) from continuing operations and diluted earnings (loss) per share from continuing operations for each of the three years in the period ended December 31, 2012 include the impacts of the following special items (amounts presented on an after-tax basis):
Year Ended December 31,
2012 2011 2010
Impact on Impact on
Contribution to income diluted earnings Contribution to income diluted earnings
from per share from from per share from Contribution to loss Impact on diluted loss per
continuing continuing continuing continuing from continuing share from continuing
operations (after-tax) operations operations (after-tax) operations operations (after-tax) operations
RSC merger related costs (1) $ (68 ) $ (0.72 ) $ (18 ) $ (0.25 ) $ - $ -
RSC merger related intangible
asset amortization (2) (70 ) (0.74 ) - - - -
Impact on depreciation
related to acquired RSC fleet
and property and equipment
(3) 3 0.03 - - - -
Impact of the fair value
mark-up of acquired RSC fleet
and inventory (4) (22 ) (0.24 ) - - - -
Pre-close RSC merger related
interest expense (5) (18 ) (0.19 ) - - - -
Impact on interest expense
related to fair value
adjustment of acquired RSC
indebtedness (6) 3 0.03 - - - -
Restructuring charge (7) (61 ) (0.64 ) (12 ) (0.16 ) (21 ) (0.34 )
Asset impairment charge (8) (9 ) (0.10 ) (3 ) (0.04 ) (6 ) (0.09 )
Loss on extinguishment of
debt securities, including
subordinated convertible
debentures, and ABL amendment
(9) (44 ) (0.45 ) (3 ) (0.04 ) (17 ) (0.28 )
Gain on sale of software
subsidiary (10) 5 0.05 - - - -
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(1) This reflects transaction costs associated with the RSC acquisition discussed in note 3 to our consolidated financial statements.
(2) This reflects the amortization of the intangible assets acquired in the RSC acquisition.
(3) This reflects the impact of extending the useful lives of equipment acquired in the RSC acquisition, net of the impact of additional depreciation associated with the fair value mark-up of such equipment.
(4) This reflects additional costs recorded in cost of rental equipment sales, cost of equipment rentals, excluding depreciation, and cost of contractor supplies sales associated with the fair value mark-up of rental equipment and inventory acquired in the RSC acquisition. The costs relate to equipment and inventory acquired in the RSC acquisition and subsequently sold.
(5) As discussed in note 12 to our consolidated financial statements, in March 2012, we issued $2,825 of debt in connection with the RSC acquisition. The pre-close RSC merger related interest expense reflects the interest expense recorded on this debt prior to the acquisition date.
(6) This reflects a reduction of interest expense associated with the fair value mark-up of debt acquired in the RSC acquisition. See note 12 to our consolidated financial statements for additional detail on the acquired debt.
(7) As discussed in note 5 to our consolidated financial statements, this reflects severance costs and branch closure charges associated with the RSC acquisition and our closed restructuring program.
(8) As discussed in note 5 to our consolidated financial statements, this charge primarily reflects write-offs of leasehold improvements and other fixed assets in connection with the RSC acquisition and our closed restructuring program.
(9) This reflects losses on the extinguishment of certain debt securities, including subordinated convertible debentures, and write-offs of debt issuance costs associated with the October 2011 amendment of our ABL facility.
(10) This reflects a gain recognized upon the sale of a former subsidiary that developed and marketed software.
In addition to the matters discussed above, our 2012 performance reflects
increased gross profit from equipment rentals and sales of rental equipment. As
discussed below (see "Results of Operations- Income taxes"), our results for
2012 reflect a tax provision of $13, which equates to an effective tax rate of
14.8 percent, and our results for 2010 include a tax benefit of $41, which
equates to an effective tax rate of 65.1 percent.
EBITDA GAAP Reconciliations. EBITDA represents the sum of net income (loss),
loss from discontinued operation, net of taxes, provision (benefit) for income
taxes, interest expense, net, interest expense-subordinated convertible
debentures, net, depreciation of rental equipment and non-rental depreciation
and amortization. Adjusted EBITDA represents EBITDA plus the sum of the RSC
merger related costs, restructuring charge, stock compensation expense, net, the
impact of the fair value mark-up of the acquired RSC fleet and inventory, and
the gain on sale of software subsidiary. These items are excluded from adjusted
EBITDA internally when evaluating our operating performance and allow investors
to make a more meaningful comparison between our core business operating results
over different periods of time, as well as with those of other similar
companies. Management believes that EBITDA and adjusted EBITDA, when viewed with
the Company's results under U.S. generally accepted accounting principles
("GAAP") and the accompanying reconciliation, provide useful information about
operating performance and period-over-period growth, and provide additional
information that is useful for evaluating the operating performance of our core
business without regard to potential distortions. Additionally, management
believes that EBITDA and adjusted EBITDA permit investors to gain an
understanding of the factors and trends affecting our ongoing cash earnings,
from which capital investments are made and debt is serviced. However, EBITDA
and adjusted EBITDA are not measures of financial performance or liquidity under
GAAP and, accordingly, should not be considered as alternatives to net income
(loss) or cash flow from operating activities as indicators of operating
performance or liquidity.
The table below provides a reconciliation between net income (loss) and EBITDA
and adjusted EBITDA:
Year Ended December 31,
2012 2011 2010
Net income (loss) $ 75 $ 101 $ (26 )
Loss from discontinued operation, net of taxes - - 4
Provision (benefit) for income taxes 13 63 (41 )
Interest expense, net 512 228 255
Interest expense-subordinated convertible
debentures, net 4 7 8
Depreciation of rental equipment 699 423 389
Non-rental depreciation and amortization 198 57 60
EBITDA 1,501 879 649
RSC merger related costs (1) 111 19 -
Restructuring charge (2) 99 19 34
Stock compensation expense, net (3) 32 12 8
Impact of the fair value mark-up of acquired
RSC fleet and inventory (4) 37 - -
Gain on sale of software subsidiary (5) (8 ) - -
Adjusted EBITDA $ 1,772 $ 929 $ 691
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The table below provides a reconciliation between net cash provided by operating activities and EBITDA and adjusted EBITDA:
Year Ended December 31,
2012 2011 2010
Net cash provided by operating activities $ 721 $ 612 $ 452
Adjustments for items included in net cash
provided by operating activities but excluded
from the calculation of EBITDA:
Loss from discontinued operation, net of taxes - - 4
Amortization of deferred financing costs and
original issue discounts (23 ) (22 ) (23 )
Gain on sales of rental equipment 125 66 41
Gain (loss) on sales of non-rental equipment 2 2 -
Gain on sale of software subsidiary (5) 8 - -
RSC merger related costs (1) (111 ) (19 ) -
Restructuring charge (2) (99 ) (19 ) (34 )
Stock compensation expense, net (3) (32 ) (12 ) (8 )
Loss on extinguishment of debt securities and
ABL amendment (6) (72 ) (3 ) (28 )
Loss on retirement of subordinated convertible
debentures - (2 ) -
Changes in assets and liabilities 571 49 65
Cash paid for interest, including subordinated
convertible debentures 371 203 229
Cash paid (received) for income taxes, net 40 24 (49 )
EBITDA 1,501 879 649
Add back:
RSC merger related costs (1) 111 19 -
Restructuring charge (2) 99 19 34
Stock compensation expense, net (3) 32 12 8
Impact of the fair value mark-up of acquired
RSC fleet and inventory (4) 37 - -
Gain on sale of software subsidiary (5) (8 ) - -
Adjusted EBITDA $ 1,772 $ 929 $ 691
_________________
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(1) This reflects transaction costs associated with the RSC acquisition discussed above.
(2) As discussed below (see "Restructuring charge"), this reflects severance costs and branch closure charges associated with the RSC acquisition and our closed restructuring program.
(3) Represents non-cash, share-based payments associated with the granting of equity instruments.
(4) This reflects additional costs recorded in cost of rental equipment sales, cost of equipment rentals, excluding depreciation, and cost of contractor supplies sales associated with the fair value mark-up of rental equipment and inventory acquired in the RSC acquisition. The costs relate to equipment and inventory acquired in the RSC acquisition and subsequently sold.
(5) This reflects a gain recognized upon the sale of a former subsidiary that developed and marketed software.
(6) This reflects losses on the extinguishment of certain debt securities and write-offs of debt issuance costs associated with the October 2011 amendment of our ABL facility.
For the year ended December 31, 2012, EBITDA increased $622, or 70.8 percent, and adjusted EBITDA increased $843, or 90.7 percent. The EBITDA increase primarily reflects increased profit from equipment rentals and sales of rental equipment, partially offset by the impact of the RSC merger related costs and restructuring charge and increased selling, general and administrative expense, and the adjusted EBITDA increase primarily reflects increased profit from equipment rentals and sales of rental equipment, partially offset by increased selling, general and administrative expense. For the year ended December 31, 2012, EBITDA margin increased 2.8 percentage points to 36.5 percent, and adjusted EBITDA margin increased 7.4 percentage points to 43.0 percent. The increase in EBITDA margin primarily reflects increased margins from equipment rentals and improved selling, general and administrative leverage, partially offset by the impact of the RSC merger related costs and restructuring charge. The increase in adjusted EBITDA margin primarily reflects increased margins from equipment rentals and improved selling, general and administrative leverage. EBITDA and adjusted EBITDA for 2012 also include the impact of $104 of cost savings from operating efficiencies and synergies achieved subsequent to the RSC acquisition. We expect to achieve approximately $200 of additional cost savings related to the acquisition in 2013.
For the year ended December 31, 2011, EBITDA increased $230, or 35.4 percent,
and adjusted EBITDA increased $238, or 34.4 percent, primarily reflecting
increased profit from equipment rentals. For the year ended December 31, 2011,
EBITDA margin increased 4.7 percentage points to 33.7 percent, and adjusted
EBITDA margin increased 4.7 percentage points to 35.6 percent, primarily
reflecting increased margins from equipment rentals and improved selling,
general and administrative leverage.
Revenues. Revenues for each of the three years in the period ended December 31,
2012 were as follows:
Year Ended December 31, Percent Change
2012 2011 2010 2012 2011
Equipment rentals $ 3,455 $ 2,151 $ 1,834 60.6 17.3
Sales of rental equipment 399 208 144 91.8 44.4
Sales of new equipment 93 84 78 10.7 7.7
Contractor supplies sales 87 85 95 2.4 (10.5 )
Service and other revenues 83 83 86 - (3.5 )
Total revenues $ 4,117 $ 2,611 $ 2,237 57.7 16.7
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Equipment rentals include our revenues from renting equipment, as well as related revenues such as the fees we charge for equipment delivery, fuel, repair or maintenance of rental equipment and damage waivers. Sales of rental equipment represent our revenues from the sale of used rental equipment. Sales of new equipment represent our revenues from the sale of new equipment. Contractor supplies sales represent our sales of supplies utilized by contractors, which include construction consumables, tools, small equipment and safety supplies. Services and other revenues primarily represent our revenues earned from providing repair and maintenance services (including parts sales). 2012 total revenues of $4.1 billion increased 57.7 percent compared with total revenues of $2.6 billion in 2011. The increase reflects a 60.6 percent increase in equipment rentals, which was primarily due to a 63.2 percent increase in the volume of OEC on rent, and a 6.9 percent rental rate increase on a pro forma basis, partially offset by changes in rental mix. There are two components of rental mix that impact equipment rentals: 1) the type of equipment rented and 2) the duration of the rental contract (daily, weekly and monthly). In 2012, we increased the proportion of equipment rentals generated from monthly rental contracts, which results in equipment rentals increasing at a lesser rate than the volume of OEC on rent, but produces higher margins as there are less transaction costs. We believe that the rate and volume improvements for 2012 reflect, in addition to the impact of the RSC acquisition, a modest improvement . . .
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