e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2009
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 001-33485
RSC Holdings Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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22-1669012 |
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(State or other jurisdiction of
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(I.R.S. Employer Identification Number) |
incorporation or organization) |
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6929 E. Greenway Pkwy. |
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Scottsdale, Arizona
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85254 |
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(Address of principal executive offices)
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(Zip code) |
(480) 905-3300
(Registrants telephone number,
including area code)
N/A
(Former name, former address and former fiscal year, if changed since
last report)
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.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
As of July 29, 2009 there were 103,412,561 shares of no par value Common Stock outstanding.
Introductory Note
Unless the context otherwise requires, in this Quarterly Report on Form 10-Q, (i) we, us
our and RSC Holdings means RSC Holdings Inc., (ii) RSC means RSC Equipment Rental, Inc. and
RSC Equipment Rental of Canada, Ltd, which are our operating entities and indirect wholly-owned
subsidiaries of RSC Holdings, and, when used in connection with disclosure relating to indebtedness
incurred under the Senior Credit Facilities and in connection with the Senior Notes or the Senior
Secured Notes, RSC Holdings III, LLC, (iii) Ripplewood means RSC Acquisition LLC and RSC
Acquisition II LLC, (iv) Oak Hill means OHCP II RSC, LLC, OHCMP II RSC, LLC and OHCP II RSC COI,
LLC, (v) the Sponsors means Ripplewood and Oak Hill, (vi) ACAB means Atlas Copco AB, (vii)
ACA means Atlas Copco Airpower n.v., a wholly owned subsidiary of ACAB, (viii) ACF means Atlas
Copco Finance S.à.r.l., a wholly owned subsidiary of ACAB, and (ix) Atlas means ACAB, ACA and
ACF, except as otherwise set forth in this Quarterly Report on Form 10-Q.
Cautionary Note for Forward-Looking Information
All statements other than statements of historical facts included in this Quarterly Report,
including, without limitation, statements regarding our future financial position, business
strategy, budgets, projected costs and plans and objectives of management for future operations,
are forward-looking statements. In addition, forward-looking statements generally can be identified
by the use of forward-looking terminology such as may, plan, seek, will, expect,
intend, estimate, anticipate, believe or continue or the negative thereof or variations
thereon or similar terminology.
Forward-looking statements include the statements in this Quarterly Report regarding, among
other things: management forecasts; efficiencies; cost savings and opportunities to increase
productivity and profitability; income and margins; liquidity; anticipated growth; economies of
scale; the economy; future economic performance; our ability to maintain profitability during
adverse economic cycles and unfavorable external events; our business strategy; future acquisitions
and dispositions; litigation; potential and contingent liabilities; managements plans; taxes;
amendments to our credit agreement governing the senior ABL
facilities; and refinancing of
existing debt.
Although we believe that the expectations reflected in such forward-looking statements are
reasonable, we can give no assurance that such expectations will prove to have been correct.
Important factors that could cause actual results to differ materially from our expectations are
set forth below and disclosed in Risk Factors in Part II, Item 1A and elsewhere in this Quarterly
Report, including, without limitation, in conjunction with the forward-looking statements included
in this Quarterly Report. All subsequent written and oral forward-looking statements attributable
to us, or persons acting on our behalf, are expressly qualified in their entirety by the following
cautionary statements:
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the effect of an economic downturn or other factors resulting in a decline in
non-residential construction, non-construction maintenance, capital improvements and
capital investment; |
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intense rental rate price pressure from competitors, some of whom are heavily
indebted and may significantly reduce their prices to generate cash to meet covenants;
from contractor customers some of whom are bidding work at cost or below to secure work
for their remaining best employees; from industrial customers who generally are
experiencing profitability shortfalls in the current economic climate and in return are
asking all of their most significant suppliers for price reductions and cost reduction
ideas; |
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the rental industrys ability to continue to sell used equipment through both the
retail and auction markets at prices sufficient to enable us to maintain orderly
liquidation values that support our borrowing base to meet our minimum availability and
to avoid testing springing covenants of leverage and fixed charge coverage contained in
our senior ABL facilities credit agreement; |
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our ability to comply with our debt covenants; |
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risks related to the credit markets willingness to continue to lend to borrowers
rated B- and C;
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our ability to generate cash and/or incur additional indebtedness to finance
equipment purchases; |
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exposure to claims for personal injury, death and property damage resulting from the
use of equipment rented or sold by us; |
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the effect of changes in laws and regulations, including those relating to employment
legislation, the environment and customer privacy, among others; |
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fluctuations in fuel or supply costs; |
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heavy reliance on centralized information technology systems; and |
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claims that the software products and information systems on which we rely infringe
on the intellectual property rights of others. |
In light of these risks, uncertainties and assumptions, the forward-looking statements contained in
this Quarterly Report might not prove to be accurate and you should not place undue reliance upon
them. All forward-looking statements speak only as of the filing date of this Quarterly Report on
Form 10-Q, and we undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
2
PART I. Financial Information
Item 1. Financial Statements
RSC
HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
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June 30, |
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December 31, |
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2009 |
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2008 |
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Assets |
Cash and cash equivalents |
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$ |
8,727 |
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$ |
13,670 |
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Accounts receivable, net of allowance for
doubtful accounts of $12,925 and $9,197 at
June 30, 2009 and December 31, 2008,
respectively |
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209,298 |
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285,000 |
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Inventory |
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16,526 |
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19,859 |
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Rental equipment, net of accumulated
depreciation of $989,561 and $984,115 at
June 30, 2009 and December 31, 2008,
respectively |
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1,553,346 |
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1,766,978 |
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Property and equipment, net of accumulated
depreciation of $171,492 and $169,710 at
June 30, 2009 and December 31, 2008,
respectively |
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143,866 |
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171,156 |
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Goodwill and other intangibles, net |
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940,443 |
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938,682 |
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Deferred financing costs |
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47,748 |
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46,877 |
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Other assets |
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23,235 |
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28,306 |
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Total assets |
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$ |
2,943,189 |
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$ |
3,270,528 |
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Liabilities and Stockholders Equity |
Accounts payable |
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$ |
49,047 |
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$ |
109,542 |
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Accrued expenses and other liabilities |
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174,069 |
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203,288 |
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Debt |
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2,357,247 |
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2,569,067 |
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Deferred income taxes |
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332,273 |
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345,511 |
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Total liabilities |
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2,912,636 |
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3,227,408 |
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Commitments and contingencies |
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Preferred stock, no par value, (500,000
shares authorized, no shares issued and
outstanding at June 30, 2009 and December
31, 2008) |
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Common stock, no par value, (300,000,000
shares authorized, 103,412,561 shares issued
and outstanding at June 30, 2009 and
103,373,326 shares issued and outstanding at
December 31, 2008) |
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827,357 |
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824,930 |
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Accumulated deficit |
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(772,006 |
) |
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(747,012 |
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Accumulated other comprehensive loss |
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(24,798 |
) |
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(34,798 |
) |
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Total stockholders equity |
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30,553 |
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43,120 |
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Total liabilities and stockholders equity |
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$ |
2,943,189 |
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$ |
3,270,528 |
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See accompanying notes to unaudited condensed consolidated financial statements.
3
RSC
HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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Revenues: |
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Equipment rental revenue |
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$ |
270,500 |
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$ |
404,843 |
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$ |
557,970 |
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$ |
777,178 |
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Sale of merchandise |
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13,588 |
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18,894 |
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27,488 |
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37,246 |
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Sale of used rental equipment |
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42,470 |
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25,280 |
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92,373 |
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56,686 |
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Total revenues |
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326,558 |
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449,017 |
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677,831 |
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871,110 |
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Cost of revenues: |
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Cost of equipment rentals, excluding
depreciation |
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135,365 |
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172,253 |
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284,844 |
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339,090 |
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Depreciation rental equipment |
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72,060 |
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79,252 |
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147,323 |
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157,462 |
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Cost of merchandise sales |
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9,418 |
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12,501 |
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19,418 |
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24,834 |
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Cost of used rental equipment sales |
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39,505 |
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17,217 |
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85,297 |
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39,674 |
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Total cost of revenues |
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256,348 |
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281,223 |
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536,882 |
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561,060 |
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Gross profit |
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70,210 |
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167,794 |
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140,949 |
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310,050 |
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Operating expenses: |
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Selling, general and administrative |
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35,613 |
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41,388 |
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75,126 |
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80,712 |
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Depreciation and amortization
non-rental equipment and intangibles |
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11,194 |
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12,413 |
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22,976 |
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24,611 |
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Other operating gains, net |
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(222 |
) |
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(445 |
) |
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(114 |
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(1,065 |
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Total operating expenses, net |
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46,585 |
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53,356 |
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97,988 |
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104,258 |
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Operating income |
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23,625 |
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114,438 |
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42,961 |
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205,792 |
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Interest expense, net |
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40,035 |
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48,742 |
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80,245 |
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104,103 |
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Other expense (income), net |
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107 |
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(16 |
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410 |
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(643 |
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(Loss) income before (benefit) provision for
income taxes |
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(16,517 |
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65,712 |
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(37,694 |
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102,332 |
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(Benefit) provision for income taxes |
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(5,027 |
) |
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25,635 |
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(12,700 |
) |
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39,910 |
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Net (loss) income |
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$ |
(11,490 |
) |
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$ |
40,077 |
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$ |
(24,994 |
) |
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$ |
62,422 |
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Weighted average shares outstanding used in
computing net (loss) income per common share: |
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Basic |
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103,435 |
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103,232 |
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103,432 |
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103,192 |
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Diluted |
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103,435 |
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103,935 |
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103,432 |
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103,908 |
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Net (loss) income per common share: |
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Basic and diluted |
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$ |
(0.11 |
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$ |
0.39 |
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$ |
(0.24 |
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$ |
0.60 |
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See accompanying notes to unaudited condensed consolidated financial statements.
4
RSC
HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Six months ended June 30, |
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2009 |
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2008 |
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Cash flows from operating activities: |
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Net (loss) income |
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$ |
(24,994 |
) |
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$ |
62,422 |
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Adjustments to reconcile net (loss) income to net cash provided by
operating activities: |
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Depreciation and amortization |
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170,299 |
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182,073 |
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Amortization of deferred financing costs |
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5,215 |
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4,787 |
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Share-based compensation expense |
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2,294 |
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1,840 |
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Gain on sales of rental and non-rental property and
equipment, net of non-cash writeoffs |
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(5,616 |
) |
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(16,284 |
) |
Deferred income taxes |
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(16,759 |
) |
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18,754 |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
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73,167 |
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|
4,773 |
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Inventory |
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3,367 |
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(955 |
) |
Other assets |
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3,680 |
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(1,543 |
) |
Accounts payable |
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(67,293 |
) |
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(81,588 |
) |
Accrued expenses and other liabilities |
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(20,176 |
) |
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(10,174 |
) |
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Net cash provided by operating activities |
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123,184 |
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164,105 |
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Cash flows from investing activities: |
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Purchases of rental equipment |
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(18,337 |
) |
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(164,958 |
) |
Purchases of property and equipment |
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(1,889 |
) |
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(10,023 |
) |
Proceeds from sales of rental equipment |
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92,373 |
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56,686 |
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Proceeds from sales of property and equipment |
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8,130 |
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3,025 |
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Insurance proceeds from rental equipment and property claims |
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3,086 |
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Net cash provided by (used in) investing activities |
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83,363 |
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(115,270 |
) |
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Cash flows from financing activities: |
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Proceeds from senior ABL revolving facility |
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60,816 |
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125,992 |
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Payments on senior ABL revolving facility |
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(250,038 |
) |
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(159,982 |
) |
Payments on senior ABL term loan |
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(1,250 |
) |
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(1,250 |
) |
Payments on capital leases and other debt |
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(22,197 |
) |
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(19,252 |
) |
Deferred financing costs |
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(4,087 |
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(250 |
) |
Proceeds from stock option exercises |
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256 |
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950 |
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Excess tax benefits from share-based payment arrangements |
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97 |
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Increase in outstanding checks in excess of cash balances |
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4,772 |
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3 |
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Net cash used in financing activities |
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(211,728 |
) |
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(53,692 |
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Effect of foreign exchange rates on cash |
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238 |
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(116 |
) |
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Net decrease in cash and cash equivalents |
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(4,943 |
) |
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(4,973 |
) |
Cash and cash equivalents at beginning of period |
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13,670 |
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10,039 |
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Cash and cash equivalents at end of period |
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$ |
8,727 |
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$ |
5,066 |
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Supplemental disclosure of cash flow information: |
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Cash paid for interest |
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$ |
84,088 |
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$ |
107,818 |
|
Cash paid for taxes, net |
|
|
5,635 |
|
|
|
15,095 |
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Purchase of assets under capital lease obligations |
|
$ |
895 |
|
|
$ |
14,403 |
|
Accrued deferred financing costs |
|
$ |
1,999 |
|
|
$ |
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
5
RSC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Organization
Business and Basis of Presentation
Description of Business
RSC Holdings Inc. (RSC Holdings) and its wholly owned subsidiaries (collectively, the
Company) are engaged primarily in the rental of a diversified line of construction and industrial
equipment, geographically dispersed throughout the United States and Canada. For the six months
ended June 30, 2009, the Company generated approximately 82% of its revenues from equipment
rentals, and it derived the remaining 18% of its revenues from sales of used equipment, merchandise
and other related items.
Basis of Presentation
The accompanying unaudited condensed consolidated interim financial statements have been
prepared in accordance with the accounting policies described in our Annual Report on Form 10-K for
the year ended December 31, 2008 (the 2008 Form 10-K). In the opinion of management, the
accompanying unaudited condensed consolidated financial statements reflect all material
adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of
financial results for the interim periods presented. Interim results of operations are not
necessarily indicative of full year results. Certain information and note disclosures have been
condensed or omitted as permitted under Securities and Exchange Commission rules and regulations
governing the preparation of interim financial reporting on Form 10-Q; as such, this Quarterly
Report should be read in conjunction with the 2008 Form 10-K.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America requires management of the
Company to make a number of estimates and assumptions relating to the reported amount of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of the condensed
consolidated financial statements and the reported amounts of revenues and expenses during the
period. Significant items subject to such estimates and assumptions include the carrying amounts of
long-lived assets, goodwill, and inventories; the allowance for doubtful accounts; deferred income
taxes; reserves for claims; assets and obligations related to employee benefits; the fair value of
derivative instruments and determination of share-based compensation amounts. Management believes
that its estimates and assumptions are reasonable in the circumstances; however, actual results may
differ from these estimates.
Recent Accounting Pronouncements
In May 2009, the Financial Accounting Standards Board (the FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 165, Subsequent Events (SFAS No. 165). SFAS No. 165
establishes accounting principles and requirements for subsequent events. Specifically, SFAS No.
165 sets forth the following: (a) the period after the balance sheet date during which management
of an entity shall evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, (b) the circumstances under which an entity shall recognize
events or transactions occurring after the balance sheet date in its financial statements and (c)
the disclosures that an entity shall make about events or transactions that occurred after the
balance sheet date. SFAS No. 165 requires entities to recognize in the financial statements, the
effects of all subsequent events that provide additional evidence about conditions that existed at
the date of the balance sheet, including estimates inherent in the process of preparing financial
statements. Conversely, entities shall not recognize subsequent events that provide evidence about
conditions that did not exist at the date of the balance sheet but arose after the balance sheet
date but before financial statements are issued or are available to be issued. Entities shall
disclose the date through which subsequent events have been evaluated, as well as whether that date
is the date the financial statements were issued or the date the financial statements were
available to be issued. Entities shall
also disclose the nature and financial effect of nonrecognized subsequent events if such disclosure
keeps the financial statements from being misleading. The Company adopted SFAS No. 165, effective
June 30, 2009. In doing so, the Company evaluated subsequent events through July 30, 2009, which
is the date of this
6
RSC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Quarterly Report on Form 10-Q. Nonrecognized subsequent events have been disclosed to the extent
their omission would have resulted in misleading financial statements. See Note 11 to the
unaudited condensed consolidated financial statements for the Companys disclosures on subsequent
events.
In April 2009, the FASB issued Staff Position (FSP) No. 107-1, Interim Disclosures
about Fair Value of Financial Instruments (FSP 107-1), which amends both SFAS No. 107,
Disclosures about Fair Value of Financial Instruments and Accounting Principles Board Opinion No.
28, Interim Financial Reporting. FSP 107-1 requires disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well as in annual
financial statements. The Company adopted FSP 107-1, effective June 30, 2009. See Note 2 for
interim disclosures on the fair value of the Companys financial instruments.
(2) Fair Value of Financial Instruments
The fair value of a financial instrument as defined by SFAS No. 157, Fair Value Measurements,
is the exit price, representing the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants. The carrying values of
cash, accounts receivable and accounts payable approximate fair values due to the short maturity of
these financial instruments.
The fair values of the Companys senior notes are based on quoted market prices. The fair
values of the Companys senior ABL facilities and second lien term facility are estimated based on borrowing rates currently
available to the Company for debt with similar terms and maturities. The fair value of capital
leases approximate the carrying value due to the fact that the underlying instruments include
provision to adjust interest rates to approximate fair market value.
See Note 6 for additional fair value information related to debt instruments and Note 8 for
additional fair value information about other financial instruments.
(3) Earnings per Share
Basic and diluted net (loss) income per common share are presented in conformity with SFAS
No.128, Earnings Per Share (SFAS No. 128). In accordance with SFAS No.128, basic net (loss)
income per common share has been computed using the weighted average number of shares of common
stock outstanding during the period. Diluted net (loss) income per common share has been computed
using the weighted average number of shares of common stock outstanding during the period,
increased to give effect to any potentially dilutive securities.
The following table presents the calculation of basic and diluted net (loss) income per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in 000s except per share data) |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(11,490 |
) |
|
$ |
40,077 |
|
|
$ |
(24,994 |
) |
|
$ |
62,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic |
|
|
103,435 |
|
|
|
103,232 |
|
|
|
103,432 |
|
|
|
103,192 |
|
Employee stock options |
|
|
|
|
|
|
703 |
|
|
|
|
|
|
|
716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted |
|
|
103,435 |
|
|
|
103,935 |
|
|
|
103,432 |
|
|
|
103,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per common share
basic and diluted |
|
$ |
(0.11 |
) |
|
$ |
0.39 |
|
|
$ |
(0.24 |
) |
|
$ |
0.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive
securities excluded |
|
|
5,385 |
|
|
|
889 |
|
|
|
5,339 |
|
|
|
850 |
|
For the three and six months ended June 30, 2009, no shares of common stock underlying stock
options and restricted stock units were included in the computation of diluted earnings per share because the inclusion of
such shares would be anti-dilutive based on the net loss reported.
7
RSC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(4) Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss components as of June 30, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair |
|
|
|
|
|
|
|
|
|
|
Market |
|
|
Accumulated |
|
|
|
Foreign |
|
|
Value of |
|
|
Other |
|
|
|
Currency |
|
|
Cash Flow |
|
|
Comprehensive |
|
|
|
Translation |
|
|
Hedge |
|
|
Loss |
|
|
|
|
|
|
|
(in 000s) |
|
|
|
|
|
Balance at December 31, 2008 |
|
$ |
1,902 |
|
|
$ |
(36,700 |
) |
|
$ |
(34,798 |
) |
Foreign currency translation |
|
|
5,277 |
|
|
|
|
|
|
|
5,277 |
|
Change in fair value of cash flow hedges, net of tax |
|
|
|
|
|
|
4,723 |
|
|
|
4,723 |
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
$ |
7,179 |
|
|
$ |
(31,977 |
) |
|
$ |
(24,798 |
) |
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in 000s) |
|
Net (loss) income |
|
$ |
(11,490 |
) |
|
$ |
40,077 |
|
|
$ |
(24,994 |
) |
|
$ |
62,422 |
|
Currency translation adjustments |
|
|
7,320 |
|
|
|
786 |
|
|
|
5,277 |
|
|
|
(2,941 |
) |
Change in fair value of cash flow hedges, net of tax |
|
|
5,955 |
|
|
|
17,048 |
|
|
|
4,723 |
|
|
|
(78 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income |
|
$ |
1,785 |
|
|
$ |
57,911 |
|
|
$ |
(14,994 |
) |
|
$ |
59,403 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5) Closed Location Charges
The Company regularly reviews the financial performance of its locations to identify those
with operating margins that consistently fall below the Companys performance standards. Once
identified, the Company continues to monitor these locations to determine if operating performance
can be improved or if the performance is attributable to economic factors unique to the particular
market with long-term prospects that are not favorable. If necessary, locations with unfavorable
long-term prospects are closed and the rental fleet is deployed to more profitable locations with
higher demand.
During the six months ended June 30, 2009, the Company closed or consolidated 15 locations and
closed an administrative office. In accordance with SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, the Company recorded charges for location closures of
approximately $8.6 million for the six months ended June 30, 2009. These charges consist primarily
of employee termination costs, costs to terminate operating leases prior to the end of their
contractual lease term, estimated costs that will continue to be incurred under operating leases
that have no future economic benefit to the Company and the write-off of leasehold improvements.
Except in instances where a lease settlement agreement has been negotiated with a landlord, costs
recognized to terminate operating leases before the end of their contractual term represent the
estimated fair value of the liability at the cease-use date. The fair value of the liability is
determined based on the present value of remaining lease rentals, reduced by estimated sublease
rentals that could be reasonably obtained for the property even if the Company does not intend to
enter into a sublease. Although the Company does not expect to incur additional material charges
for location closures occurring prior to June 30, 2009, additional charges are possible to the
extent that actual future settlements differ from our estimates. The Company cannot predict the
extent of future location closures or the financial impact of such closings, if any.
8
RSC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Closed location charges (to be cash settled) by type and a reconciliation of the associated
accrued liability were as follows (in 000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Exit |
|
|
|
|
|
|
|
|
|
|
|
|
and Other |
|
|
Employee |
|
|
|
|
|
|
|
|
|
Related Costs |
|
|
Termination |
|
|
Other Exit Costs |
|
|
|
|
|
|
(1) |
|
|
Costs (2) |
|
|
(3) |
|
|
Total |
|
Closed location reserves at December 31, 2008 |
|
$ |
(4,604 |
) |
|
$ |
(397 |
) |
|
$ |
|
|
|
$ |
(5,001 |
) |
Charges incurred to close locations |
|
|
(7,209 |
) |
|
|
(661 |
) |
|
|
(54 |
) |
|
|
(7,924 |
) |
Cash payments |
|
|
4,543 |
|
|
|
864 |
|
|
|
54 |
|
|
|
5,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closed location reserves at June 30, 2009 |
|
$ |
(7,270 |
) |
|
$ |
(194 |
) |
|
$ |
|
|
|
$ |
(7,464 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Lease exit and other related costs are included within cost of equipment rentals in the
condensed consolidated statements of operations. |
|
(2) |
|
Employee termination costs primarily consist of severance payments and related
benefits. These costs are included within cost of equipment rentals in the condensed
consolidated statements of operations. |
|
(3) |
|
Other exit costs include costs incurred primarily to transport fleet from closed
locations to other locations. These costs are included within cost of equipment rentals in
the condensed consolidated statements of operations. |
In addition to the costs included in the above table, the Company recognized $0.7 million
of non-cash charges during the six months ended June 30, 2009 for the write-off of leasehold
improvements associated with the closed locations. Charges associated with the write-off of
leasehold improvements are included within other operating gains, net in the unaudited condensed
consolidated statements of operations. During the six months ended June 30, 2009, the Company also
recognized $1.6 million of other severance costs not directly associated with location closures as
the result of a company-wide reduction in workforce. Of the additional severance expense
recognized, $1.4 million is included within cost of equipment rentals and $0.2 million is included
within selling, general and administrative expenses in the unaudited condensed consolidated
statements of operations.
(6) Debt
Debt consists of the following at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
Deferred |
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
Financing |
|
|
|
|
|
|
|
|
|
Rate (a) |
|
Maturity Date |
|
Costs (d) |
|
|
Debt |
|
|
Debt |
|
|
|
|
|
|
|
|
|
|
|
(in 000s) |
|
|
|
|
|
Senior ABL revolving facility |
|
4.08% |
|
Nov. 2011 (b) |
|
$ |
10,778 |
|
|
$ |
492,000 |
|
|
$ |
681,268 |
|
Senior ABL term loan |
|
4.00% |
|
Nov. 2012 (c) |
|
|
2,294 |
|
|
|
243,125 |
|
|
|
244,375 |
|
Second lien term facility |
|
7.18% |
|
Nov. 2013 |
|
|
13,608 |
|
|
|
899,300 |
|
|
|
899,300 |
|
Senior notes |
|
9.50% |
|
Dec. 2014 |
|
|
15,532 |
|
|
|
620,000 |
|
|
|
620,000 |
|
Capitalized lease obligations |
|
0.50% |
|
Various |
|
|
|
|
|
|
102,822 |
|
|
|
124,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
42,212 |
|
|
$ |
2,357,247 |
|
|
$ |
2,569,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Estimated interest presented is the effective interest rate as of June 30, 2009. |
|
(b) |
|
The maturity date for a portion of the senior ABL revolving facility was extended to
August 2013 in connection with the July 2009 amendment to the senior ABL facilities credit
agreement. See Note 11 for additional information. |
|
(c) |
|
The senior ABL term loan was repaid in July 2009. See Note 11 for additional
information. |
|
(d) |
|
Deferred financing costs exclude $5.5 million of fees incurred in connection with the
July 2009 senior secured notes offering and the amendment to the senior ABL facilities
credit agreement. See Note 11 for additional information. |
As of June 30, 2009, the Company had $373.2 million available for borrowing under the
senior ABL revolving facility. A portion of the senior ABL revolving facility is available for
swingline loans and for the issuance of letters of credit.
9
RSC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
As of June 30, 2009 the fair value of the Companys debt was as follows (in 000s):
|
|
|
|
|
|
|
Fair Value |
|
Senior ABL revolving facility |
|
$ |
492,000 |
|
Senior ABL term loan |
|
|
216,381 |
|
Second lien term facility |
|
|
687,965 |
|
Senior notes |
|
|
496,000 |
|
Capitalized lease obligations |
|
|
102,822 |
|
|
|
|
|
Total |
|
$ |
1,995,168 |
|
|
|
|
|
In September 2007, the Company entered into four forward-starting interest rate swap
agreements covering a combined notional amount of debt totaling of $700.0 million. In January 2008,
the Company entered into an additional interest rate swap agreement for a notional amount of $250.0
million. The objective of the swaps is to effectively hedge the cash flow risk associated with
portions of the second lien term facility and senior ABL revolving facility, which have variable
interest rates. See Note 7 for additional information.
The Company is in compliance with all applicable debt covenants as of June 30, 2009.
(7) Derivative Instruments
The Company is exposed to market risk associated with changes in interest rates under existing
floating-rate debt. At the Companys election, the interest rate per annum applicable to the debt
under the senior ABL facilities and the second lien term facility is based on a fluctuating rate of
interest measured by reference to an adjusted London interbank offered rate, or LIBOR, plus a
borrowing margin; or an alternate base rate plus a borrowing margin. In order to hedge exposure
to market conditions, reduce the volatility of financing costs and achieve a desired balance
between fixed-rate and floating-rate debt, the Company utilizes interest rate swaps under which it
exchanges floating-rate interest payments for fixed-rate interest payments. The Company does not
use derivative financial instruments for trading or speculative purposes.
In September 2007, the Company entered into four forward-starting interest rate swap
agreements under which it exchanged benchmark floating-rate interest payments for fixed-rate
interest payments. The agreements are intended to hedge only the benchmark portion of interest
associated with a portion of the second lien term facility. Interest on this debt is based on a
fluctuating rate of interest measured by reference to a benchmark interest rate, plus a borrowing
margin, which was 3.50% for the LIBOR option at June 30, 2009. The agreements cover a combined
notional amount of debt totaling $700.0 million, of which $500.0 million is for a five-year period
with a weighted average fixed interest rate of 4.66%, and $200.0 million is for a three-year period
with a weighted average fixed interest of 4.57%. The swaps were effective on October 5, 2007 and
are settled on a quarterly basis.
The Company entered into an additional interest rate swap agreement in January 2008, under
which it exchanged benchmark floating-rate interest payments for fixed-rate interest payments.
Similarly to the agreements entered into in September 2007, this swap is intended to hedge the
benchmark portion of interest associated with a portion of the senior ABL revolving facility.
Interest on this debt is based on a fluctuating rate of interest measured by reference to a
benchmark interest rate, plus a borrowing margin, which was 1.75% for the LIBOR option at June 30,
2009. This agreement covers a notional amount of debt totaling $250.0 million, for a two-year term
at a fixed interest rate of 2.66%. The swap was effective on April 5, 2008 and is settled on a
quarterly basis.
The Companys interest rate swaps are derivative instruments and are accounted for in
accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS
No. 133). Under SFAS No. 133, the Company is required to present derivatives in the consolidated
balance sheet as either assets or liabilities depending on the rights or obligations under the
contract. Derivatives are measured and reported in the consolidated balance sheets at fair value.
At June 30, 2009 and December 31, 2008, the Companys interest rate swaps were in a
10
RSC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
liability position and reported at fair value within accrued expenses and other liabilities in
the condensed consolidated balance sheets.
The Company formally documents its risk management objectives and strategy for undertaking
each swap at the contracts inception and assesses whether the hedging relationship is expected to
be highly effective in achieving cash flows that offset changes in interest payments resulting from
fluctuations in the benchmark rate. For each of the Companys five interest rate swaps, the
Company determined at inception that the hedging relationships were expected to be highly effective
in mitigating the exposure to variability in expected cash flows arising from the Companys
floating-rate debt. As a result, the Company concluded that its interest rate swaps are hedges of
specified cash flows. Under SFAS No. 133, an assessment of the effectiveness of derivative
instruments designated as cash flows hedges is required at inception and on an ongoing basis. The
Company evaluates the effectiveness of its interest rate swaps on a quarterly basis using the
perfectly effective hypothetical derivative method. Gains or losses resulting from changes in the
fair value of derivatives designated as cash flow hedges are reported as a component of accumulated
other comprehensive income (loss) for the portion of the derivative instrument determined to be
effective. Gains and losses reported in accumulated other comprehensive income (loss) are
reclassified into earnings as interest income or expense in the periods during which the hedged
transaction affects earnings. Gains or losses resulting from changes in the fair value of
derivatives designated as cash flow hedges are reported as interest expense for the portion of the
derivative instrument determined to be ineffective. The ineffective portion of the derivatives
totaled $58,000 and $298,000 at June 30, 2009 and December 31, 2008, respectively.
When the Companys derivative instruments are in a net liability position, the Company is
exposed to its own credit risk. When the Companys derivative instruments are in a net asset
position, the Company is exposed to credit losses in the event of non-performance by counterparties
to its hedging derivatives. To manage credit risks, the Company carefully selects counterparties,
conducts transactions with multiple counterparties which limits its exposure to any single
counterparty and monitors the market position of the program and its relative market position with
each counterparty.
The fair value of the liabilities associated with the Companys interest rate swaps and
cumulative losses resulting from changes in the fair value of the effective portion of derivative
instruments and recognized within accumulated other comprehensive loss (OCL) were as follows (in
000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
December 31, 2008 |
|
June 30, 2009 |
|
December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
Loss in |
|
Loss in |
|
|
Fair Value of |
|
Fair Value of |
|
accumulated OCL |
|
accumulated OCL |
Derivative Type |
|
Swap Liabilities |
|
Swap Liabilities |
|
(net of tax) |
|
(net of tax) |
Interest rate swaps (a) |
|
$ |
52,108 |
|
|
$ |
60,028 |
|
|
$ |
31,977 |
|
|
$ |
36,700 |
|
|
|
|
(a) |
|
See Note 8 for further discussion on measuring fair value of the interest rate swaps. |
The effect of derivative instruments on comprehensive loss for the six months ended June
30, 2009 was as follows (in 000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain |
|
|
Loss recognized in |
|
Loss reclassified from |
|
recognized on |
|
|
accumulated OCL |
|
accumulated OCL into |
|
ineffective portion |
Derivative Type |
|
(net of tax) |
|
expense (net of tax) |
|
of derivative |
Interest rate swaps |
|
$ |
3,232 |
|
|
$ |
7,955 |
|
|
$ |
240 |
|
11
RSC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(8) Fair Value
Measurements
The Company adopted SFAS No. 157 on January 1, 2008. SFAS No. 157, among other things, defines
fair value, establishes a consistent framework for measuring fair value and expands disclosure for
each major asset and liability category measured at fair value on either a recurring or
nonrecurring basis. SFAS No. 157 clarifies that fair value is an exit price, representing the
amount that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants. As such, fair value is a market-based measurement that
should be determined based on assumptions that market participants would use in pricing an asset or
liability. As a basis for considering such assumptions, SFAS No. 157 establishes a three-tier fair
value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
|
|
Level 1 Observable inputs such as quoted prices in active markets; |
|
|
|
Level 2 Inputs, other than the quoted prices in active markets, that are
observable either directly or indirectly; and |
|
|
|
Level 3 Unobservable inputs in which there is little or no market data, which
require the reporting entity to develop its own assumptions. |
Liabilities measured at fair value on a recurring basis as of June 30, 2009 are as follows (in
000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant |
|
|
|
|
|
|
|
|
Quoted Prices in |
|
Other |
|
|
|
|
Fair Value |
|
Active Markets |
|
Observable |
|
Significant |
|
|
June 30, |
|
for Identical |
|
Inputs |
|
Unobservable |
|
|
2009 |
|
Assets (Level 1) |
|
(Level 2) |
|
Inputs (Level 3) |
Interest rate derivatives (a) |
|
$ |
52,108 |
|
|
$ |
|
|
|
$ |
52,108 |
|
|
$ |
|
|
|
|
|
(a) |
|
Since the Companys interest rate derivative instruments are not traded on a market
exchange, the fair values are determined using valuation models which include assumptions about
the Companys credit risk and interest rates based on those observed in the underlying markets
(LIBOR swap rate). |
As of June 30, 2009, no assets were measured at fair value on a recurring basis and no
assets or liabilities were measured at fair value on a nonrecurring basis.
(9) Income Tax
During 2009, the Canada Revenue Agency completed its examination of the Companys Canadian
operating subsidiary, RSC Equipment Rental of Canada, Ltd, for the tax years of 2003 through 2004.
The examination resulted in no changes to the Companys tax liabilities for those years. As a
result, the Company released $1.3 million and $0.5 million unrecognized tax benefits and accrued
interest and penalties, respectively. Since the unrecognized tax benefits and interest released
were indemnified by Atlas, the release resulted in a decrease to the indemnification receivable
from Atlas instead of a decrease in tax expense.
The Company recognized a tax benefit of $12.7 million and a tax provision of $39.9 million in
the six months ended June 30, 2009 and June 30, 2008, respectively. The effective tax rate was
33.7% and 39.0% during the six months ended June 30, 2009 and June 30, 2008, respectively. These
rates differ from the statutory rate of 35% primarily as a result of certain non-deductible
permanent items and state income taxes. The decrease in the effective tax rate for the six months
ended June 30, 2009 is due primarily to the write-off of deferred tax assets resulting from the
expiration of share appreciation rights granted by ACAB to certain employees of the Company as well
as the imposition of certain state minimum and gross receipts taxes, which are incurred regardless
of whether the Company earns income.
12
RSC HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(10) Acquisition
On July 11, 2008, the Company acquired certain rights and assets of FST Equipment Rentals, LLC
and AER Holding Company, LLC (AER). The aggregate purchase price was allocated to the assets
acquired and the liabilities assumed based on fair value information that was then currently
available. During the six months ended June 30, 2009, the Company revised estimates of fair value
for certain acquired assets resulting in a net increase to goodwill of $2.1 million. The asset
valuations and other post-close adjustments were finalized during the second quarter of 2009.
(11) Subsequent Event
On July 1, 2009, the Company completed a private placement offering of $400.0 million
aggregate principal amount of 10% senior secured notes due July 2017 (the Offering). The
Offering resulted in net proceeds to the Company of $389.3 million after an original issue discount
of $10.7 million. Interest on the senior secured notes is payable on January 15 and July 15,
commencing January 15, 2010. To permit the issuance of the senior secured notes, the Company
amended its senior ABL facilities credit agreement (the Notes Credit Agreement Amendment) after
obtaining the consent of a majority of the lenders holding a majority of the outstanding senior ABL
term loans and senior ABL revolving commitments. Pursuant to the requirements of the Notes Credit
Agreement Amendment, the Company used the proceeds from the Offering (net of an $8.0 million
underwriting fee) to repay the outstanding balance on the senior ABL term loan of $243.1 million
and pay down $138.2 million of the outstanding balance on the senior ABL revolving facility. Also
pursuant to the Notes Credit Agreement, the total commitment under the Companys senior ABL
revolving facility decreased from $1,450 million to $1,293 million. In addition to the $8.0
million underwriting fee, the Company incurred approximately $5.5 million of transaction costs,
which have been capitalized as deferred financing costs at June 30,
2009.
In connection with the sale of the senior secured notes, RSC granted security interests in,
and pledged, substantially all of its tangible and intangible personal property as security for
their obligations under the senior secured notes. Such security interests and pledges are
substantially similar to assets that secure RSCs obligations under the senior ABL facilities.
In July 2009, upon the completion of the Offering, the Company executed a second amendment to
the senior ABL facilities credit agreement to extend the maturity date of a portion of the senior
ABL revolving facility and reduce the total commitment (the Extension Credit Agreement
Amendment). Pursuant to the Extension Credit Agreement Amendment, the total commitment under the
Companys senior ABL revolving facility decreased from $1,293 million to $1,100 million, of which
$280.8 million is due November 2011 with the remaining
$819.2 million due August 2013.
13
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Statements in this managements discussion and analysis regarding industry outlook, our
expectations regarding the performance of our business and other non-historical statements are
forward-looking statements. These forward-looking statements are subject to numerous risks and
uncertainties. See Cautionary Note for Forward-Looking Information on page 1 of this Quarterly
Report. Our actual results may differ materially from those contained in, or implied by, any
forward-looking statements.
The following discussion is intended to enhance the readers understanding of our business
operations and present business environment. It should be read in conjunction with our Annual
Report on Form 10-K for the year ended December 31, 2008 (the 2008 Form 10-K), the section
entitled Risk Factors in Part II, Item 1A herein and our unaudited condensed consolidated
financial statements for the three and six months ended June 30, 2009 included in this Quarterly
Report.
Overview
We are one of the largest equipment rental providers in North America. We operate through a
network of 463 rental locations across 11 regions in 40 U.S. states and 3 Canadian provinces. We
believe we are the largest or second largest equipment rental provider in the majority of the
regions in which we operate. We rent a broad selection of equipment ranging from large equipment
such as backhoes, forklifts, air compressors, scissor lifts, aerial work platform booms and
skid-steer loaders to smaller items such as pumps, generators, welders and electric hand tools. We
also sell used equipment, parts, merchandise and supplies for customers maintenance, repair and
operations.
For the three months ended June 30, 2009 and June 30, 2008, we generated approximately 83% and
90% of our revenues from equipment rentals, respectively, and we derived the remaining 17% and 10%
of our revenues from sales of used equipment, merchandise and other related items, respectively.
For the six months ended June 30, 2009 and June 30, 2008, we generated approximately 82% and 89% of
our revenues from equipment rentals, respectively, and we derived the remaining 18% and 11% of our
revenues from sales of used equipment, merchandise and other related items, respectively.
The following table summarizes our total revenues, (loss) income before (benefit) provision
for income taxes and net (loss) income for the three and six months ended June 30, 2009 and 2008
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Total revenues |
|
$ |
326.6 |
|
|
$ |
449.0 |
|
|
$ |
677.8 |
|
|
$ |
871.1 |
|
(Loss) income
before (benefit)
provision for
income taxes |
|
|
(16.5 |
) |
|
|
65.7 |
|
|
|
(37.7 |
) |
|
|
102.3 |
|
Net (loss) income |
|
|
(11.5 |
) |
|
|
40.1 |
|
|
|
(25.0 |
) |
|
|
62.4 |
|
We manage our operations through the application of a disciplined, yet highly flexible
business model, in which we utilize various financial and operating metrics to measure our
operating performance and make decisions on the acquisition and disposal of rental fleet and the
allocation of resources to and among our locations. Key metrics that we regularly review on a
consolidated basis include Adjusted EBITDA, fleet utilization, average fleet age and rental
equipment at original cost. The following is a summary of these key operating metrics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended (or at) |
|
Six Months Ended (or at) |
|
|
June 30, |
|
June 30, |
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
Adjusted EBITDA (in millions) (a) |
|
$ |
108.0 |
|
|
$ |
207.1 |
|
|
$ |
215.6 |
|
|
$ |
389.7 |
|
Utilization (b) |
|
|
57.5 |
% |
|
|
71.6 |
% |
|
|
57.6 |
% |
|
|
70.1 |
% |
Average fleet age (months) |
|
|
36 |
|
|
|
29 |
|
|
|
36 |
|
|
|
29 |
|
Original equipment fleet cost (in millions) (c) |
|
$ |
2,455 |
|
|
$ |
2,731 |
|
|
$ |
2,455 |
|
|
$ |
2,731 |
|
14
|
|
|
(a) |
|
Defined as consolidated net (loss) income before net interest expense, income taxes and
depreciation and amortization and before certain other items, including share-based
compensation and other expense (income), net. Adjusted EBITDA is not a recognized measure
under U.S. Generally Accepted Accounting Principles (GAAP). See reconciliation between
net (loss) income and Adjusted EBITDA under Liquidity and Capital Resources Adjusted
EBITDA. |
|
(b) |
|
Defined as average dollar value of equipment rented by customers (based on original
equipment fleet cost) for the relevant period divided by the aggregate dollar value of all
equipment (based on original cost). |
|
(c) |
|
Defined as the original dollar value of equipment purchased from the original equipment
manufacturer (OEM). Fleet purchased from non-OEM sources are assigned a comparable
original equipment cost (OEC) dollar value at the time of purchase. |
During the three and six months ended June 30, 2009, our Adjusted EBITDA decreased $99.1
million and $174.1 million, respectively, as compared to the same prior year periods, or 47.9% and
44.7%, from $207.1 million and $389.7 million in the three and six months ended June 30, 2008. The
decrease was driven by a decline in equipment rental revenue and a decrease in used equipment sales
margins. The decrease in equipment rental revenue was due primarily to a decline in rental volume
and to a lesser extent a decline in price and the decrease in margins on used equipment sales was
due to an increase in the supply of used equipment relative to demand combined with an increase in
the use of low margin auction channels.
For the three and six months ended June 30, 2009, our utilization decreased 1,410 basis points
and 1,250 basis points, respectively, as compared to the same prior year periods. These decreases were primarily
attributable to lower demand for our rental equipment brought on by a weakening of demand in the
non-residential construction market and to a lesser extent, a weakening of demand in the
industrial, or non-construction markets.
Average fleet age at June 30, 2009 was 36 months, up 24.1%, from 29 months at June 30, 2008.
The increase in 2009 resulted from reductions in capital expenditures. During times of weakening
demand, we deliberately allow our equipment to age and reduce capital expenditures in order to
maximize cash flow.
Original equipment fleet cost at June 30, 2009 was $2,455 million, down 10.1%, from $2,731
million at June 30, 2008. The decrease in 2009 was due primarily to an increase in the sale of used
rental equipment and a reduction in capital expenditures.
Business Environment and Outlook
Our revenues and operating results are driven in large part by activities in the
non-residential construction and industrial or non-construction, markets. On a combined basis we
currently derive approximately 97% of our rental revenues from these two markets.
Non-residential construction markets generated approximately 42% of our rental revenues during
the six months ended June 30, 2009. In the beginning of 2008, we began to see a weakening of
demand in the non-residential construction market which resulted in a deceleration of growth in the
demand for our rental equipment and downward pressure on our rental rates. These trends
accelerated in the fourth quarter of 2008 and continued to worsen in the first six months of 2009
with demand and pricing falling below prior year levels. We expect demand to worsen in the second
half of 2009 as compared to the second half of 2008.
Our business with industrial or non-construction customers, which accounted for approximately
55% of our rental revenues during the six months ended June 30, 2009, is less exposed to
cyclicality than the non-residential market as we tap into those customers maintenance, repairs
and capital improvement budgets. We do not expect the industrial market to be affected as
significantly as the non-residential market, although we also expect this market to weaken in the
second half of 2009 as compared to the second half of 2008.
15
We continue to respond to the economic slowdown by employing a number of financial and
operational measures, which include the following:
|
|
|
Closing under-performing locations and redeploying rental fleet to more
profitable locations with higher demand; |
|
|
|
|
Expanding and diversifying our presence in industrial or non-construction,
markets, which historically tend to place a heightened emphasis on maintenance
during times of economic slowdowns; |
|
|
|
|
Minimizing capital expenditures; |
|
|
|
|
Reducing headcount; |
|
|
|
|
Divesting excess rental fleet, which generates cash and improves utilization; |
|
|
|
|
Utilizing excess cash flow resulting from our planned reduction in capital
expenditures and the proceeds from the sale of used rental equipment to repay
outstanding amounts on our senior ABL revolving facility; |
|
|
|
|
Restructuring our debt to extend existing maturities and replace shorter term
obligations with longer term obligations; and |
|
|
|
|
Implementing cost reduction measures throughout our business. |
Location Closures and Headcount Reduction
As part of our disciplined approach to managing our operations, we actively identify locations
with operating margins that consistently fall below our performance standards. Once identified, we
regularly review these locations to determine if operating performance can be improved or if the
performance is attributable to economic factors unique to the particular market with long-term
prospects that are not favorable. If necessary, locations with unfavorable long-term prospects are
closed and the rental fleet is redeployed to more profitable locations with higher demand. During
the three and six months ended June 30, 2009, we closed or consolidated one and fifteen locations,
respectively. We also closed an administrative office during the second quarter of 2009. In
connection with these closures we recorded charges of approximately $0.6 million and $8.6 million
in the three and six months ended June 30, 2009, respectively. These costs consisted of lease
termination fees, employee severance costs, freight costs to transport fleet from closed locations
to other locations and the write-off of leasehold improvements. The $0.6 million recognized in the
three months ended June 30, 2009 was included within cost of equipment rentals in the unaudited
condensed consolidated statements of operations. Of the $8.6 million recognized in the six months
ended June 30, 2009, $7.9 million was included within cost of equipment rentals and $0.7 million
associated with the write-off of leasehold improvements was included within other operating gains,
net in the unaudited condensed consolidated statements of operations.
During the three and six months ended June 30, 2009, we also recognized $0.3 million and $1.6
million, respectively, of other severance costs not directly associated with location closures as
the result of a company-wide reduction in workforce. The $0.3 million of additional severance
recognized in the three months ended June 30, 2009 was included within cost of equipment rentals.
Of the $1.6 million of additional severance recognized in the six months ended June 30, 2009, $1.4
million was included within cost of equipment rentals and $0.2 million was included within selling,
general and administrative expenses in the unaudited condensed consolidated statements of
operations.
$400.0 million Senior Secured Notes Offering
On July 1, 2009, we completed a private placement offering of $400.0 million aggregate
principal amount of 10% senior secured notes due July 2017 (the Offering). The Offering resulted
in net proceeds to us of $389.3 million after an original issue discount of $10.7 million.
Interest on the senior secured notes is payable on January 15 and July 15, commencing January 15,
2010. To permit the issuance of the senior secured notes, we amended our senior ABL facilities
credit agreement (the Notes Credit Agreement Amendment) after obtaining the consent of a majority
of the lenders holding a majority of the outstanding senior ABL term loans and senior ABL revolving
commitments. Pursuant to the requirements of the Notes Credit Agreement Amendment, we used the
proceeds
16
from the Offering (net of an $8.0 million underwriting fee) to repay the outstanding balance
on the senior ABL term loan of $243.1 million and pay down $138.2 million of the outstanding
balance on the senior ABL revolving facility. Also pursuant to the Notes Credit Agreement, the
total commitment under our senior ABL revolving facility decreased from $1,450 million to $1,293
million. In addition to the $8.0 million underwriting fee, we incurred approximately $5.5 million
of transaction costs, which have been capitalized as deferred financing costs at June 30, 2009.
In July 2009, upon the completion of the Offering, we executed a second amendment to the
senior ABL facilities credit agreement to extend the maturity date of a portion of the senior ABL
revolving facility and reduce the total commitment (the Extension Credit Agreement Amendment).
Pursuant to the Extension Credit Agreement Amendment, the total commitment under our senior ABL
revolving facility decreased from $1,293 million to
$1,100 million, of which $280.8 million is
due November 2011 with the remaining $819.2 million due August 2013.
Factors Affecting Our Results of Operations
Our revenues and operating results are driven in large part by activities in the
non-residential construction and industrial markets. These markets are cyclical with activity
levels that tend to increase in line with growth in gross domestic product and decline during times
of economic weakness; however, industrial markets are historically less exposed to cyclicality than
non-residential construction markets. In addition, activity in the construction market tends to be
susceptible to seasonal fluctuations in certain parts of the country. This results in changes in
demand for our rental equipment. The cyclicality and seasonality of the equipment rental industry
result in variable demand and, therefore, our revenues and operating results may fluctuate from
period to period.
Results of Operations
Revenues:
|
|
|
Equipment rental revenue consists of fees charged to customers for use of equipment
owned by us over the term of the rental as well as other fees charged to customers for
items such as delivery and pickup, fuel and damage waivers. |
|
|
|
|
Sale of merchandise revenues represent sales of contractor supplies, consumables and
ancillary products and, to a lesser extent, new equipment. |
|
|
|
|
Sale of used rental equipment represents revenues derived from the sale of rental
equipment that has previously been included in our rental fleet. |
Cost of revenues:
|
|
|
Cost of equipment rentals, excluding depreciation, consists primarily of wages and
benefits for employees involved in the delivery and maintenance of rental equipment, rental
location facility costs and rental equipment repair and maintenance expenses. |
|
|
|
|
Depreciation rental equipment consists of straight-line depreciation of equipment
included in our rental fleet. |
|
|
|
|
Cost of merchandise sales represents the costs of acquiring those items. |
|
|
|
|
Cost of used rental equipment sales represents the net book value of rental equipment at
the date of sale. |
Selling, general and administrative costs primarily include sales force compensation,
information technology costs, advertising and marketing, professional fees and administrative
overhead.
17
Other operating losses (gains), net are losses and gains resulting from the disposition of
non-rental assets. Other operating losses and gains represent the difference between proceeds
received upon disposition of non-rental assets (if any) and the net book value of the asset at the
time of disposition.
18
Three months ended June 30, 2009, Compared to Three months ended June 30, 2008
The following table sets forth for each of the periods indicated our statements of operations
data and expresses revenue and expense data as a percentage of total revenues for the periods
presented (in 000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Revenue |
|
|
|
|
|
|
Three Months Ended |
|
|
Three Months Ended |
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
Increase (decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 versus 2008 |
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rental revenue |
|
$ |
270,500 |
|
|
$ |
404,843 |
|
|
|
82.8 |
% |
|
|
90.2 |
% |
|
$ |
(134,343 |
) |
|
|
(33.2 |
)% |
Sale of merchandise |
|
|
13,588 |
|
|
|
18,894 |
|
|
|
4.2 |
|
|
|
4.2 |
|
|
|
(5,306 |
) |
|
|
(28.1 |
) |
Sale of used rental equipment |
|
|
42,470 |
|
|
|
25,280 |
|
|
|
13.0 |
|
|
|
5.6 |
|
|
|
17,190 |
|
|
|
68.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
326,558 |
|
|
|
449,017 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
(122,459 |
) |
|
|
(27.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of equipment rentals,
excluding depreciation |
|
|
135,365 |
|
|
|
172,253 |
|
|
|
41.5 |
|
|
|
38.4 |
|
|
|
(36,888 |
) |
|
|
(21.4 |
) |
Depreciation rental equipment |
|
|
72,060 |
|
|
|
79,252 |
|
|
|
22.1 |
|
|
|
17.7 |
|
|
|
(7,192 |
) |
|
|
(9.1 |
) |
Cost of merchandise sales |
|
|
9,418 |
|
|
|
12,501 |
|
|
|
2.9 |
|
|
|
2.8 |
|
|
|
(3,083 |
) |
|
|
(24.7 |
) |
Cost of used rental equipment
sales |
|
|
39,505 |
|
|
|
17,217 |
|
|
|
12.1 |
|
|
|
3.8 |
|
|
|
22,288 |
|
|
|
129.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
256,348 |
|
|
|
281,223 |
|
|
|
78.5 |
|
|
|
62.6 |
|
|
|
(24,875 |
) |
|
|
(8.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
70,210 |
|
|
|
167,794 |
|
|
|
21.5 |
|
|
|
37.4 |
|
|
|
(97,584 |
) |
|
|
(58.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative |
|
|
35,613 |
|
|
|
41,388 |
|
|
|
10.9 |
|
|
|
9.2 |
|
|
|
(5,775 |
) |
|
|
(14.0 |
) |
Depreciation and amortization
non-rental equipment and
intangibles |
|
|
11,194 |
|
|
|
12,413 |
|
|
|
3.4 |
|
|
|
2.8 |
|
|
|
(1,219 |
) |
|
|
(9.8 |
) |
Other operating gains, net |
|
|
(222 |
) |
|
|
(445 |
) |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
223 |
|
|
|
(50.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses, net |
|
|
46,585 |
|
|
|
53,356 |
|
|
|
14.3 |
|
|
|
11.9 |
|
|
|
(6,771 |
) |
|
|
(12.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
23,625 |
|
|
|
114,438 |
|
|
|
7.2 |
|
|
|
25.5 |
|
|
|
(90,813 |
) |
|
|
(79.4 |
) |
Interest expense, net |
|
|
40,035 |
|
|
|
48,742 |
|
|
|
12.3 |
|
|
|
10.9 |
|
|
|
(8,707 |
) |
|
|
(17.9 |
) |
Other expense (income), net |
|
|
107 |
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
123 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before
(benefit) provision for
income taxes |
|
|
(16,517 |
) |
|
|
65,712 |
|
|
|
(5.1 |
) |
|
|
14.6 |
|
|
|
(82,229 |
) |
|
|
n/a |
|
(Benefit) provision for income
taxes |
|
|
(5,027 |
) |
|
|
25,635 |
|
|
|
(1.5 |
) |
|
|
5.7 |
|
|
|
(30,662 |
) |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(11,490 |
) |
|
$ |
40,077 |
|
|
|
(3.5 |
)% |
|
|
8.9 |
% |
|
$ |
(51,567 |
) |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues decreased $122.5 million, or 27.3%, from $449.0 million for the three months
ended June 30, 2008 to $326.6 million for the three months ended June 30, 2009. Equipment rental
revenue decreased $134.3 million, or 33.2%, from $404.8 million for the three months ended June 30,
2008 to $270.5 million for the three months ended June 30, 2009. The decrease in equipment rental
revenue is primarily the result of a $103.1 million, or 25.5%, decrease in rental volume and a
$31.2 million, or 7.7%, decrease in rental rates. The decrease in rental volume includes a $1.9
million decrease due to currency rate changes and a $2.7 million increase due to the July 2008
acquisition of AER.
Sale of merchandise revenues decreased $5.3 million, or 28.1%, from $18.9 million for the
three months ended June 30, 2008 to $13.6 million for the three months ended June 30, 2009. The
decrease is due primarily to a decline in rental volume.
Revenues from the sale of used rental equipment increased $17.2 million, or 68.0%, from $25.3
million for the three months ended June 30, 2008 to $42.5 million for the three months ended June
30, 2009. During the second quarter of 2009 we continued to accelerate sales of used rental
equipment, which began in the fourth quarter of 2008, in response to a drop in rental demand that
was greater than the normal seasonal decline.
19
Cost of equipment rentals, excluding depreciation, decreased $36.9 million, or 21.4%, from
$172.3 million for the three months ended June 30, 2008 to $135.4 million for the three months
ended June 30, 2009, due to a 25.5% decrease in rental volume offset by approximately $0.6 million
of costs associated with closed locations and $0.3 million of severance costs unrelated to closed
locations due to an overall reduction in workforce. Cost of equipment rentals excluding
depreciation, as a percentage of equipment rental revenues increased from 42.5% for the three
months ended June 30, 2008 to 50.0% for the three months ended June 30, 2009. The increase is due
primarily to a 7.7% decrease in equipment rental rates and $0.9 million of costs incurred to close
underperforming locations and reduce headcount during the three months ended June 30, 2009.
Location closure costs consist primarily of lease termination fees and severance costs.
Depreciation of rental equipment decreased $7.2 million, or 9.1%, from $79.3 million for the
three months ended June 30, 2008 to $72.1 million for the three months ended June 30, 2009. The
decrease is due to a decline in the net book value of our rental fleet during the second quarter of
2009 as compared with the second quarter of 2008. The decline in the net book value of our rental
fleet is attributable to an increase in used equipment sales and a decrease in capital
expenditures. As a percent of equipment rental revenues, depreciation of rental equipment
increased from 19.6% in the three months ended June 30, 2008 to 26.6% in the three months ended
June 30, 2009. This increase is due to a 33.2% drop in rental equipment revenue in the three
months ended June 30, 2009 as compared to the three months ended
June 30, 2008.
Cost of merchandise sales decreased $3.1 million, or 24.7%, from $12.5 million for the three
months ended June 30, 2008 to $9.4 million for the three months ended June 30, 2009, which
corresponds with the decrease in merchandise sales revenue. Gross margin for merchandise sales
decreased from 33.8% for the three months ended June 30, 2008 to 30.7% for the three months ended
June 30, 2009, due to a modest increase in the provision for inventory shrinkage offset by a
reduction in freight costs.
Cost of used rental equipment sales increased $22.3 million, or 129.5%, from $17.2 million for
the three months ended June 30, 2008 to $39.5 million for the three months ended June 30, 2009. The
increase is due primarily to the 68.0% increase in sales of used rental equipment for the three
months ended June 30, 2009. Gross margin for the sale of used rental equipment decreased from
31.9% for the three months ended June 30, 2008 to 7.0% for the three months ended June 30, 2009.
An increase in the market supply of used equipment available for sale combined with an increase in
the use of low margin auction channels contributed to the lower margin.
Selling, general and administrative expenses decreased $5.8 million, or 14.0%, from $41.4
million for the three months ended June 30, 2008 to $35.6 million for the three months ended June
30, 2009. The decrease is due primarily to a decrease in sales commissions. Selling, general and administrative expenses increased as a percentage of total revenues
from 9.2% for the three months ended June 30, 2008 to 10.9% for the three months ended June 30,
2009. The increase as a percentage of revenues is primarily due to certain fixed costs which
remained constant despite a decrease in total revenues as well as increases in the provision for
doubtful accounts and legal expenses.
Depreciation and amortization of non-rental equipment and intangibles decreased $1.2 million,
or 9.8%, from $12.4 million for the three months ended June 30, 2008 to $11.2 million for the three
months ended June 30, 2009. The decrease is primarily due to non-rental asset dispositions
resulting from location closures occurring during the six months ended December 31, 2008 and the
six months ended
June 30, 2009.
Other operating gains, net were $0.4 million for the three months ended June 30, 2008 as
compared to $0.2 million for the three months ended June 30, 2009. The $0.2 million change in the
2009 versus 2008 second quarter was primarily attributable to a decrease in gains on the sale of
sales vehicles and delivery vehicles.
Interest expense, net decreased $8.7 million, or 17.9%, from $48.7 million for the three
months ended June 30, 2008 to $40.0 million for the three months ended June 30, 2009, primarily due
to lower debt levels and interest rates.
The benefit for income taxes was $5.0 million for the three months ended June 30, 2009 as
compared to a provision for income taxes of $25.6 million for the three months ended June 30, 2008.
The benefit for income taxes was due to a pre-tax net loss for the three months ended June 30,
2009 while the provision for income taxes was due to pre-tax net income for the three months ended
June 30, 2008. The effective tax rate was 30.4% and 39.0% during
20
the three months ended June 30, 2009 and June 30, 2008, respectively. The decrease in the
effective tax rate for the three months ended June 30, 2009 is due primarily to the write-off of
deferred tax assets resulting from the expiration of share appreciation rights granted by ACAB to
certain employees of the Company as well as the imposition of certain state minimum and gross
receipts taxes, which are incurred regardless of whether we earn income.
21
Six Months Ended June 30, 2009, Compared to Six Months Ended June 30, 2008
The following table sets forth for each of the periods indicated our statements of operations data
and expresses revenue and expense data as a percentage of total revenues for the periods presented
(in 000s):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of Revenue |
|
|
|
|
|
|
Six Months Ended |
|
|
Six Months Ended |
|
|
|
|
|
|
June 30, |
|
|
June 30, |
|
|
Increase (decrease) |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 versus 2008 |
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment rental revenue |
|
$ |
557,970 |
|
|
$ |
777,178 |
|
|
|
82.3 |
% |
|
|
89.2 |
% |
|
$ |
(219,208 |
) |
|
|
(28.2 |
)% |
Sale of merchandise |
|
|
27,488 |
|
|
|
37,246 |
|
|
|
4.1 |
|
|
|
4.3 |
|
|
|
(9,758 |
) |
|
|
(26.2 |
) |
Sale of used rental equipment |
|
|
92,373 |
|
|
|
56,686 |
|
|
|
13.6 |
|
|
|
6.5 |
|
|
|
35,687 |
|
|
|
63.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
677,831 |
|
|
|
871,110 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
(193,279 |
) |
|
|
(22.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of equipment rentals,
excluding depreciation |
|
|
284,844 |
|
|
|
339,090 |
|
|
|
42.0 |
|
|
|
38.9 |
|
|
|
(54,246 |
) |
|
|
(16.0 |
) |
Depreciation rental equipment |
|
|
147,323 |
|
|
|
157,462 |
|
|
|
21.7 |
|
|
|
18.1 |
|
|
|
(10,139 |
) |
|
|
(6.4 |
) |
Cost of merchandise sales |
|
|
19,418 |
|
|
|
24,834 |
|
|
|
2.9 |
|
|
|
2.9 |
|
|
|
(5,416 |
) |
|
|
(21.8 |
) |
Cost of used rental equipment
sales |
|
|
85,297 |
|
|
|
39,674 |
|
|
|
12.6 |
|
|
|
4.6 |
|
|
|
45,623 |
|
|
|
115.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
536,882 |
|
|
|
561,060 |
|
|
|
79.2 |
|
|
|
64.4 |
|
|
|
(24,178 |
) |
|
|
(4.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
140,949 |
|
|
|
310,050 |
|
|
|
20.8 |
|
|
|
35.6 |
|
|
|
(169,101 |
) |
|
|
(54.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative |
|
|
75,126 |
|
|
|
80,712 |
|
|
|
11.1 |
|
|
|
9.3 |
|
|
|
(5,586 |
) |
|
|
(6.9 |
) |
Depreciation and amortization
non-rental equipment and
intangibles |
|
|
22,976 |
|
|
|
24,611 |
|
|
|
3.4 |
|
|
|
2.8 |
|
|
|
(1,635 |
) |
|
|
(6.6 |
) |
Other operating gains, net |
|
|
(114 |
) |
|
|
(1,065 |
) |
|
|
|
|
|
|
(0.1 |
) |
|
|
951 |
|
|
|
(89.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses, net |
|
|
97,988 |
|
|
|
104,258 |
|
|
|
14.5 |
|
|
|
12.0 |
|
|
|
(6,270 |
) |
|
|
(6.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
42,961 |
|
|
|
205,792 |
|
|
|
6.3 |
|
|
|
23.6 |
|
|
|
(162,831 |
) |
|
|
(79.1 |
) |
Interest expense, net |
|
|
80,245 |
|
|
|
104,103 |
|
|
|
11.8 |
|
|
|
12.0 |
|
|
|
(23,858 |
) |
|
|
(22.9 |
) |
Other expense (income), net |
|
|
410 |
|
|
|
(643 |
) |
|
|
0.1 |
|
|
|
(0.1 |
) |
|
|
1,053 |
|
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before
(benefit) provision for
income taxes |
|
|
(37,694 |
) |
|
|
102,332 |
|
|
|
(5.6 |
) |
|
|
11.7 |
|
|
|
(140,026 |
) |
|
|
n/a |
|
(Benefit) provision for income
taxes |
|
|
(12,700 |
) |
|
|
39,910 |
|
|
|
(1.9 |
) |
|
|
4.6 |
|
|
|
(52,610 |
) |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(24,994 |
) |
|
$ |
62,422 |
|
|
|
(3.7 |
)% |
|
|
7.2 |
% |
|
$ |
(87,416 |
) |
|
|
n/a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues decreased $193.3 million, or 22.2%, from $871.1 million for the six months
ended June 30, 2008 to $677.8 million for the six months ended June 30, 2009. Equipment rental
revenue decreased $219.2 million, or 28.2%, from $777.2 million for the six months ended June 30,
2008 to $558.0 million for the six months ended June 30, 2009. The decrease in equipment rental
revenue is primarily the result of a $174.1 million, or 22.4%, decrease in rental volume and a
$45.1 million, or 5.8%, decrease in rental rates.
Sale of merchandise revenues decreased $9.7 million, or 26.2%, from $37.2 million for the six
months ended June 30, 2008 to $27.5 million for the six months ended June 30, 2009. The decrease
is due primarily to a decline in rental volume and an increase in location closures.
Revenues from the sale of used rental equipment increased $35.7 million, or 63.0%, from $56.7
million for the six months ended June 30, 2008 to $92.4 million for the six months ended June 30,
2009. During the first six months of 2009 we continued to accelerate sales of used rental
equipment, which began in the fourth quarter of 2008, in response to a drop in rental demand that
was greater than the normal seasonal decline.
Cost of equipment rentals, excluding depreciation, decreased $54.3 million, or 16.0%, from
$339.1 million for the six months ended June 30, 2008 to $284.8 million for the six months ended
June 30, 2009, due to a 22.4%
22
decrease in rental volume offset by approximately $7.9 million of costs associated with closed
locations and $1.4 million of severance costs unrelated to closed locations due to an overall
reduction in workforce. Cost of equipment rentals excluding depreciation, as a percentage of
equipment rental revenues increased from 43.6% for the six months ended June 30, 2008 to 51.1% for
the six months ended June 30, 2009. The increase is due primarily to a 5.8% decrease in equipment
rental rates and $9.3 million of costs incurred to close underperforming locations and reduce
headcount during the six months ended June 30, 2009. Location closure costs consist primarily of
lease termination fees and severance costs.
Depreciation of rental equipment decreased $10.2 million, or 6.4%, from $157.5 million for the
six months ended June 30, 2008 to $147.3 million for the six months ended June 30, 2009. The
decrease is due to a decline in the net book value of our rental fleet during the first six months
of 2009 as compared with the first six months of 2008. The decline in the net book value of our
rental fleet is attributable to an increase in used equipment sales and a decrease in capital
expenditures. As a percent of equipment rental revenues, depreciation of rental equipment
increased from 20.3% in the six months ended June 30, 2008 to 26.4% in the six months ended June
30, 2009. This increase is due a 28.2% drop in rental equipment revenue in the six months ended
June 30, 2009 as compared to the six months ended June 30, 2008.
Cost of merchandise sales decreased $5.4 million, or 21.8%, from $24.8 million for the six
months ended June 30, 2008 to $19.4 million for the six months ended June 30, 2009, which
corresponds with the decrease in merchandise sales revenue. Gross margin for merchandise sales
decreased from 33.3% for the six months ended June 30, 2008 to 29.4% for the six months ended June
30, 2009, due to a modest increase in the provision for inventory shrinkage as well as freight
costs.
Cost of used rental equipment sales increased $45.6 million, or 115.0%, from $39.7 million for
the six months ended June 30, 2008 to $85.3 million for the six months ended June 30, 2009. The
increase is due primarily to the 63.0% increase in sales of used rental equipment for the six
months ended June 30, 2009. Gross margin for the sale of used rental equipment decreased from
30.0% for the six months ended June 30, 2008 to 7.7% for the six months ended June 30, 2009. An
increase in the market supply of used equipment available for sale combined with an increase in the
use of low margin auction channels contributed to the lower margin.
Selling, general and administrative expenses decreased $5.6 million, or 6.9%, from $80.7
million for the six months ended June 30, 2008 to $75.1 million for the six months ended June 30,
2009. The decrease is due primarily to a decrease in sales commissions and to a lesser extent a decrease in direct marketing costs. Selling, general and administrative expenses increased as a percentage of total revenues
from 9.3% for the six months ended June 30, 2008 to 11.1% for the six months ended June 30, 2009.
The increase as a percentage of revenues is primarily due to an increase in the provision for
doubtful accounts of $4.2 million as well as certain fixed costs which remained constant despite a
decrease in total revenues.
Depreciation and amortization of non-rental equipment and intangibles decreased $1.6 million,
or 6.6%, from $24.6 million for the six months ended June 30, 2008 to $23.0 million for the six
months ended June 30, 2009. The decrease is primarily due to non-rental asset dispositions
resulting from location closures occurring during the six months ended December 31, 2008 and the
six months ended
June 30, 2009.
Other operating gains, net were $1.1 million for the six months ended June 30, 2008 as
compared to $0.1 million for the six months ended June 30, 2009. The $1.0 million change in the
2009 versus 2008 six-month period was primarily attributable to leasehold improvement write-offs
associated with location closures.
Interest expense, net decreased $23.9 million, or 22.9%, from $104.1 million for the six
months ended June 30, 2008 to $80.2 million for the six months ended June 30, 2009, primarily due
to lower debt levels and interest rates.
The benefit for income taxes was $12.7 million for the six months ended June 30, 2009 as
compared to a provision for income taxes of $39.9 million for the six months ended June 30, 2008.
The benefit for income taxes was due to a pre-tax net loss for the six months ended June 30, 2009
while the provision for income taxes was due to pre-tax net income for the six months ended June
30, 2008. The effective tax rate was 33.7% and 39.0% during the six months ended June 30, 2009 and
June 30, 2008, respectively. The decrease in the effective tax rate for the six months ended June
30, 2009 is due primarily to the write-off of deferred tax assets resulting from the expiration of
23
share appreciation rights granted by ACAB to certain employees of the Company as well as the
imposition of certain state minimum and gross receipts taxes, which are incurred regardless of
whether we earn income.
Liquidity and Capital Resources
Cash Flows and Liquidity
Our primary source of capital is from cash generated by our rental operations, which includes
cash received from the sale of used rental equipment, and secondarily from borrowings available
under the revolving portion of our senior ABL facilities. Our business is highly capital
intensive, requiring significant investments in order to expand our rental fleet during periods of
growth and smaller investments required to maintain and replace our rental fleet during times of
weakening rental demand.
Cash flows from operating activities as well as the sale of used rental equipment enable us to
fund our operations and service our debt obligations including the continued repayment of our
senior ABL revolving facility. We continuously monitor utilization of our rental fleet and if
warranted we divest excess fleet, which generates additional cash flow. In addition, due to the
condition and age of our fleet we have the ability to significantly reduce capital expenditures
during difficult economic times, therefore allowing us to redirect this cash towards further debt
reduction during these periods. The following table summarizes our sources and uses of cash for the
six months ended June 30, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Six months ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(in 000s) |
|
Net cash provided by operating activities |
|
$ |
123,184 |
|
|
$ |
164,105 |
|
Net cash provided by (used in) investing activities |
|
|
83,363 |
|
|
|
(115,270 |
) |
Net cash used in financing activities |
|
|
(211,728 |
) |
|
|
(53,692 |
) |
Effect of foreign exchange rates on cash |
|
|
238 |
|
|
|
(116 |
) |
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
$ |
(4,943 |
) |
|
$ |
(4,973 |
) |
|
|
|
|
|
|
|
As of June 30, 2009, we had cash and cash equivalents of $8.7 million, a decrease of $4.9
million from December 31, 2008. Generally, we manage our cash flow by using any excess cash, after
considering our working capital and capital expenditure needs, to pay down the outstanding balance
of our senior ABL revolving facility.
Operating activities Net cash provided by operating activities during the six months ended
June 30, 2009 consisted of the add-back of non-cash items of $155.4 million offset by a net loss of
$25.0 million and a decrease in operating liabilities (net of operating assets) of $7.2 million.
The most significant change in operating assets and liabilities was the settlement of accounts
payable and accrued expenses resulting in a cash outflow of $87.5 million offset by reduction in
accounts receivable resulting in a cash inflow of $73.2 million.
Investing activities Net cash provided by investing activities during the six months ended
June 30, 2009 consisted primarily of proceeds received from the sale of rental and non-rental
equipment of $100.5 million. We also received $3.1 million of insurance proceeds from rental
equipment and property claims. Capital expenditures of $20.2 million include purchases of rental
and non-rental equipment.
The increase in net cash provided by investing activities during the six months ended June 30,
2009 as compared to the same prior year period is primarily attributable to an increase in proceeds
from the sale of used rental equipment and a decrease in capital expenditures for rental equipment.
The increase in proceeds in the first six months of 2009 was due to our continued efforts to
accelerate sales of used rental equipment in response to a drop in rental demand that was greater
than the normal seasonal decline. The quality, age and condition of our fleet reduced our need to
replace existing rental equipment during the period. The deceleration in the growth of rental
revenue also reduced our need to purchase growth rental equipment. We intend to continue a
reduction in our capital expenditures during the second half of 2009 as compared to the second half
of 2008.
24
Financing activities Net cash used in financing activities during the six months ended June
30, 2009 consisted primarily of payments on our senior ABL revolving facility of $250.0 million
offset by proceeds from borrowings on our senior ABL revolving facility of $60.8 million. In
addition, we also repaid $23.4 million on our other debt obligations during the six months ended
June 30, 2009. Cash used in financing activities also includes $4.1 million of deferred financing
costs of which $3.5 million pertains to costs associated with the $400.0 million senior secured
notes offering that was finalized in July 2009. Cash used in financing activities for the six
months ended June 30, 2009 excludes $2.0 million of deferred financing costs associated with the
July 2009 senior secured notes offering that were accrued within accounts payable in the unaudited
condensed consolidated balance sheet at June 30, 2009.
Indebtedness
We are highly leveraged and a substantial portion of our liquidity needs arise from debt
service requirements and from funding our costs of operations and capital expenditures. As of June
30, 2009, we had $2.4 billion of indebtedness outstanding, consisting primarily of $735.1 million
under the senior ABL facilities, $899.3 million under the second lien term facility and $620.0
million of senior notes.
As of June 30, 2009, we had an outstanding balance of $492.0 million on the revolving portion
of our senior ABL facilities leaving $373.2 million available for future borrowings. The available
borrowings of $373.2 million are net of outstanding letters of credit and the net fair value
liability for our interest rate swap agreements before the adjustment for credit-risk. During the
six months ended June 30, 2009, we borrowed $60.8 million under the revolving portion of the senior
ABL facilities and repaid $250.0 million. In addition, we repaid $1.3 million of the outstanding
balance on the term loan portion of the senior ABL facility. The outstanding balance of the term
loan portion of the senior ABL facility was $243.1 million at June 30, 2009.
The senior ABL facilities contain a number of covenants that, among other things, limit or
restrict our ability to incur additional indebtedness; provide guarantees; engage in mergers,
acquisitions or dispositions; enter into sale-leaseback transactions; make dividends and other
restricted payments; prepay other indebtedness; engage in certain transactions with affiliates;
make other investments; change the nature of its business; incur liens; and, with respect to RSC
Holdings III, LLC, take actions other than those enumerated; and amend specified debt agreements. In
addition, under the senior ABL facilities, upon excess availability falling below certain levels,
the borrowers will be required to comply with specified financial ratios and tests, including a
minimum fixed charge coverage ratio of 1.00 to 1.00 and a maximum leverage ratio as of the last day
of any test period during any period set forth in the following table:
|
|
|
|
|
|
|
Consolidated |
Fiscal Quarter Ending |
|
Leverage Ratio |
June 30, 2009 |
|
|
4.50:1.00 |
|
September 30, 2009 |
|
|
4.50:1.00 |
|
December 31, 2009 |
|
|
4.50:1.00 |
|
March 31, 2010 and at all times thereafter |
|
|
4.25:1.00 |
|
Excess availability did not fall below the specified levels and we were not required to comply
with the specified financial ratios and tests as of June 30, 2009. However, if the coverage ratio
and leveraged ratio tests had been triggered by a reduction in excess availability under the senior
ABL facilities as of June 30, 2009, we would have been in compliance with such financial ratios and
tests. As of June 30, 2009, our fixed charge coverage ratio was 2.69 to 1.00 and the leverage
ratio was 3.81 to 1.00, as calculated in accordance with the credit agreement.
Substantially all of our rental equipment and all our other assets are subject to liens under
our senior ABL facilities, our second lien term facility and our senior secured notes and none of
such assets are available to satisfy the general claims of our creditors.
Outlook
We believe that cash generated from operations, together with amounts available under the
senior ABL facilities, as amended in July 2009, will be adequate to permit us to meet our debt
service obligations, ongoing costs of operations, working capital needs and capital expenditure
requirements for at least the next twelve months and the foreseeable future. Our future financial
and operating performance, ability to service or refinance our debt and
25
ability to comply with covenants and restrictions contained in our debt agreements will be
subject to future economic conditions and to financial, business and other factors, many of which
are beyond our control. See Risk Factors in Part II, Item 1A of this Quarterly Report.
In connection with the reduction of capital expenditures noted previously, we expect to
generate positive cash flow from operations, net of capital expenditures, for the year ending
December 31, 2009. From time to time, we evaluate various alternatives for the use of excess cash
generated from our operations including paying down debt, funding acquisitions and repurchasing
common stock or debt securities. Our debt agreements limit our capacity to repurchase common stock
or debt securities to $50.0 million in 2009.
Adjusted EBITDA
As a supplement to the financial statements in this Quarterly Report, which are prepared in
accordance with U.S. Generally Accepted Accounting Principles (GAAP), we also present Adjusted
EBITDA. Adjusted EBITDA is generally consolidated net (loss) income before net interest expense,
income taxes and depreciation and amortization and before certain other items, including
share-based compensation and other expense (income), net. We present Adjusted EBITDA because we
believe the calculation is useful to investors in evaluating our ability to service debt and our
financial performance. However, Adjusted EBITDA is not a recognized measure under GAAP, and when
analyzing our performance, investors should use Adjusted EBITDA in addition to, and not as an
alternative to, net (loss) income or net cash provided by operating activities as defined under
GAAP. In addition, all companies do not calculate Adjusted EBITDA in the same manner and therefore
our presentation may not be comparable to those presented by other companies. The table below
provides a reconciliation between net (loss) income, as determined in accordance with GAAP, and
Adjusted EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
(in 000s) |
|
Net (loss) income |
|
$ |
(11,490 |
) |
|
$ |
40,077 |
|
|
$ |
(24,994 |
) |
|
$ |
62,422 |
|
Depreciation of rental equipment
and depreciation and amortization
of non-rental equipment and
intangibles |
|
|
83,254 |
|
|
|
91,665 |
|
|
|
170,299 |
|
|
|
182,073 |
|
Interest expense, net |
|
|
40,035 |
|
|
|
48,742 |
|
|
|
80,245 |
|
|
|
104,103 |
|
(Benefit) provision for income taxes |
|
|
(5,027 |
) |
|
|
25,635 |
|
|
|
(12,700 |
) |
|
|
39,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
106,772 |
|
|
$ |
206,119 |
|
|
$ |
212,850 |
|
|
$ |
388,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
1,162 |
|
|
|
952 |
|
|
|
2,294 |
|
|
|
1,840 |
|
Other expense (income), net |
|
|
107 |
|
|
|
(16 |
) |
|
|
410 |
|
|
|
(643 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
$ |
108,041 |
|
|
$ |
207,055 |
|
|
$ |
215,554 |
|
|
$ |
389,705 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations are based upon
our unaudited condensed consolidated financial statements, which have been prepared in accordance
with GAAP. The preparation of these financial statements requires management to make estimates and
judgments that affect the reported amounts in the unaudited condensed consolidated financial
statements and accompanying notes. Actual results, however, may materially differ from our
calculated estimates and this difference would be reported in our current operations. We have made
no significant changes to our critical accounting policies and estimates since December 31, 2008.
Recent Accounting Pronouncements
In May 2009, the Financial Accounting Standards Board (the FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 165, Subsequent Events (SFAS No. 165). SFAS No. 165
establishes accounting principles and requirements for subsequent events. Specifically, SFAS No.
165 sets forth the following: (a) the period after the balance sheet date during which management
of an entity shall evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, (b) the circumstances
26
under which an entity shall recognize events or transactions occurring after the balance sheet
date in its financial statements and (c) the disclosures that an entity shall make about events or
transactions that occurred after the balance sheet date. SFAS No. 165 requires entities to
recognize in the financial statements, the effects of all subsequent events that provide additional
evidence about conditions that existed at the date of the balance sheet, including estimates
inherent in the process of preparing financial statements. Conversely, entities shall not
recognize subsequent events that provide evidence about conditions that did not exist at the date
of the balance sheet but arose after the balance sheet date but before financial statements are
issued or are available to be issued. Entities shall disclose the date through which subsequent
events have been evaluated, as well as whether that date is the date the financial statements were
issued or the date the financial statements were available to be issued. Entities shall also
disclose the nature and financial effect of nonrecognized subsequent events if such disclosure
keeps the financial statements from being misleading. We adopted SFAS No. 165, effective June 30,
2009. In doing so, we evaluated subsequent events through July 30, 2009, which is the date of this
Quarterly Report on Form 10-Q. Nonrecognized subsequent events have been disclosed to the extent
their omission would have resulted in misleading financial statements. See Note 11 to the
unaudited condensed consolidated financial statements for our disclosures on subsequent events.
In April 2009, the FASB issued Staff Position (FSP) No. 107-1, Interim Disclosures about
Fair Value of Financial Instruments (FSP 107-1), which amends both SFAS No. 107, Disclosures
about Fair Value of Financial Instruments and Accounting Principles Board Opinion No. 28, Interim
Financial Reporting. FSP 107-1 requires disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in annual financial
statements. We adopted FSP 107-1, effective June 30, 2009. See Note 2 for the interim disclosures
on the fair value of our financial instruments.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk associated with changes in interest rates and foreign currency
exchange rates.
Interest Rate Risk
We have a significant amount of debt under the senior ABL facilities and the second lien term
facility with variable rates of interest based generally on adjusted LIBOR, or an alternate
interest rate, in each case, plus an applicable margin (or, in the case of Canadian dollar
borrowings under the senior ABL facilities, variable borrowing costs based generally on bankers
acceptance discount rates, plus a stamping fee equal to an applicable margin, or on the Canadian
prime rate, plus an applicable margin). Increases in interest rates could therefore significantly
increase the associated interest payments that we are required to make on this debt. We have
assessed our exposure to changes in interest rates by analyzing the sensitivity to our earnings
assuming various changes in market interest rates. Assuming a hypothetical increase of 1% in
interest rates on our debt portfolio, as of June 30, 2009, our net interest expense for the six
months ended June 30, 2009 would have increased by an estimated $4.5 million. Excluding the
effect of our hedge agreements, for the same period interest expense would have increased $9.2
million assuming a hypothetical increase of 1%.
We entered into four forward-starting interest rate swap agreements in September 2007 under
which we exchanged our benchmark floating-rate interest payments for fixed-rate interest payments.
The agreements are intended to hedge the benchmark portion of interest associated with a portion of
the second lien term facility. Interest on this debt is based on a fluctuating rate of interest
measured by reference to a benchmark interest rate, plus a borrowing margin, which was 3.5% for the
LIBOR option at June 30, 2009. The agreements cover a combined notional amount of debt totaling
$700.0 million, of which $500.0 million is for a five-year period with a weighted average fixed
interest rate of 4.66% and $200.0 million is for a three-year period with a weighted average fixed
interest rate of 4.57%. The swaps became effective on October 5, 2007 and are settled on a
quarterly basis.
We entered into an additional interest rate swap agreement in January 2008, under which we
exchanged our benchmark floating-rate interest payment for a fixed-rate interest payment. This
agreement is intended to hedge the benchmark portion of interest associated with a portion of the
senior ABL revolving facility. Interest on this debt is based on a fluctuating rate of interest
measured by reference to a benchmark interest rate, plus a borrowing margin, which was 1.75% for
the LIBOR option at June 30, 2009. This agreement covers a notional amount of debt totaling $250.0
million, for a two-year term at a fixed interest rate of 2.66%. The swap was effective on April 5,
2008 and is
27
settled on a quarterly basis. Including the $700.0 million of the second lien term facility
and the $250.0 million of the senior ABL revolving facility that were hedged as of June 30, 2009,
67% of our $2.4 billion of debt at June 30, 2009 had fixed rate interest.
Currency Exchange Risk
The functional currency for our Canadian operations is the Canadian dollar. In the six months
ended June 30, 2009 and June 30, 2008, 4.7% and 5.8%, respectively, of our revenues were generated
by our Canadian operations. 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 the six months ended June 30, 2009, relative to our operations as a whole, a 10%
increase in this exchange rate would have increased net loss by less than $0.1 million for the six
months period ended June 30, 2009.
Item 4. Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in company reports filed or submitted under the
Securities Exchange Act of 1934, as amended (the Exchange Act) is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the Securities and
Exchange Commission (the SEC), and that such information is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of our disclosure controls and procedures was performed
under the supervision of, and with the participation of, management, including our Chief Executive
Officer and Chief Financial Officer, as of the end of the period covered by this Quarterly Report.
Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that
our disclosure controls and procedures are effective.
Changes in Internal Control Over Financial Reporting
An evaluation of our internal controls over financial reporting was performed under the
supervision of, and with the participation of, management, including our Chief Executive Officer
and Chief Financial Officer, to determine whether any changes have occurred during the period
covered by this Quarterly Report that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting. Based upon this evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that no changes in our internal
control over financial reporting have occurred during the quarter ended June 30, 2009 that have
materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
PART II. Other Information
Item 1. Legal Proceedings
We are party to legal proceedings and potential claims arising in the ordinary course of our
business, including claims related to employment matters, contractual disputes, personal injuries
and property damage. In addition, various legal actions, claims and governmental inquiries and
proceedings are pending or may be instituted or asserted in the future against us and our
subsidiaries.
Litigation is subject to many uncertainties, and the outcome of the individual litigated
matters is not predictable with assurance. It is possible that certain of the actions, claims,
inquiries or proceedings, including those discussed above, could be decided unfavorably to us or
any of our subsidiaries involved. Although we cannot predict with certainty the ultimate resolution
of lawsuits, investigations and claims asserted against us, we do not believe that any currently
pending legal proceedings to which we are a party will have a material adverse effect on our
business, results of operations, cash flows or financial condition.
28
In addition to the other information set forth in this Quarterly Report, you should carefully
consider the risk factors set forth below, which could materially affect our business, financial
condition or future results. The risks set forth below, are not the only risks we face. Additional
risks and uncertainties not currently known to us or that we currently deem to be immaterial also
may materially adversely affect our business, financial condition or future results. The risk
factors set forth below update and replace those set forth in the 2008 Form 10-K for the year ended
December 31, 2008, in their entirety.
Risks Relating to Our Business
Our business has been and may continue to be hurt by an economic downturn, a decline in
non-residential construction or industrial or non-construction, activities or a decline in the
amount of equipment that is rented.
For the three and six months ended June 30, 2009, our non-residential construction and industrial or
non-construction, customers together accounted for approximately 97% of our rental revenues.
Weakness in non-residential construction or industrial or non-construction, activity, or a decline
in the desirability of renting equipment, may decrease the demand for our equipment or depress the
prices we charge for our products and services. In addition, an economic downturn in those regions
where we have significant operations could disproportionately harm our financial condition, results
of operations and cash flows. We have identified below certain factors which may cause weakness,
either temporary or long-term, in the non-residential construction and industrial or
non-construction, sectors:
|
|
|
weakness or a downturn in the overall economy, including the onset of, or prolonged
exposure to, a recession; |
|
|
|
reduced access to capital markets for our customers funding of projects due to a
weakness or downturn in the overall economy or otherwise; |
|
|
|
an increase in the cost of construction materials; |
|
|
|
an increase in interest rates; |
|
|
|
adverse weather conditions or natural disasters, including an active hurricane season in
the Gulf of Mexico region, where we have a large concentration of customers; or |
|
|
|
terrorism or hostilities involving the United States or Canada. |
A weakness in the non-residential construction and industrial or non-construction, sectors
caused by these or other factors would harm our revenues, financial condition, profitability and
cash flows as well as our ability to service debt, and may reduce residual values realized on the
disposition of our rental equipment, negatively impacting our borrowing availability.
We face intense competition that may lead to our inability to increase or maintain our prices,
which could have a material adverse impact on our results of operations.
The equipment rental industry is highly competitive and highly fragmented. Many of the markets
in which we operate are served by numerous competitors, ranging from national equipment rental
companies like ourselves, to smaller multi-regional companies and small, independent businesses
with a limited number of locations. Some of our principal competitors are less leveraged than we
are, have greater financial resources, may be more geographically diversified, may have greater
name recognition than we do and may be better able to withstand adverse market conditions within
the industry. We generally compete on the basis of, among other things, quality and breadth of
service, expertise, reliability, price and the size, mix and relative attractiveness of our rental
equipment fleet, which is significantly affected by the level of our capital expenditures. If we
are required to reduce or delay capital expenditures for any reason, including due to restrictions
contained in the Senior Credit Facilities, or the indentures governing our Senior Notes or Senior
Secured Notes (collectively the Notes), the resulting aging of our rental fleet may cause us to
lose our competitive advantage and adversely impact our pricing. In addition, our
29
competitors are
competing aggressively on the basis of pricing and may continue to drive prices further down. To
the extent that we choose to match our competitors downward pricing, it could harm our
results of operations. To the extent that we choose not to match or remain within a reasonable
competitive distance from our competitors pricing, it could also harm our results of operations,
as we may lose rental volume.
We may also encounter increased competition from existing competitors or new market entrants
in the future, which could harm our revenues, financial condition, profitability and cash flows as
well as our ability to service debt.
Our revenues and operating results may fluctuate and unexpected or sustained periods of decline
have had and may continue to have a material adverse effect on our business, financial condition,
results of operations and cash flows.
Our revenues and operating results have varied historically from period to period and may
continue to do so. We have identified below certain of the factors which may cause our revenues and
operating results to vary:
|
|
|
downturn in the North American economy, including the reduced access to capital markets
for our customers funding of projects, any sustained periods of inflation or deflation, and
the resulting negative impact it has on the financial strength of our customers; |
|
|
|
changes in demand for our equipment or the prices we charge due to changes in economic
conditions, competition or other factors; |
|
|
|
the timing of expenditures for new equipment and the disposal of used equipment,
including the ability to effectively and efficiently reduce our fleet size by selling in the
open market for used equipment; |
|
|
|
changes in the interest rates applicable to our variable rate debt; |
|
|
|
general economic conditions in the markets where we operate; |
|
|
|
the cyclical nature of our customers businesses, particularly those operating in the
non-residential construction and industrial or non-construction, sectors; |
|
|
|
rental rate changes in response to competitive factors; |
|
|
|
our inability to maintain our price levels during long-term periods of economic decline; |
|
|
|
bankruptcy or insolvency of our competitors leading to a larger than expected amount of
used equipment in the open market; |
|
|
|
bankruptcy or insolvency of our customers, thereby reducing demand for used rental
equipment; |
|
|
|
reduction in the demand for used equipment may result in lower sales prices and volume
for used equipment sales; |
|
|
|
aging of our fleet, ultimately resulting in lower sales prices and volume for used
equipment sales; |
|
|
|
seasonal rental patterns, with rental activity tending to be lowest in the winter; |
|
|
|
downturn in oil and petrochemical-related sectors from which we derive a large share of
our industrial revenue; |
|
|
|
timing of acquisitions of companies and new location openings and related costs; |
|
|
|
labor shortages, work stoppages or other labor difficulties; |
|
|
|
disruptions of fuel supplies or increases in fuel prices; |
30
|
|
|
possible unrecorded liabilities of acquired companies; |
|
|
|
our effectiveness in integrating acquired businesses and new locations into our existing
operations; and |
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possible write-offs or exceptional charges due to changes in applicable accounting
standards, goodwill impairment, impairment of obsolete or damaged equipment or other assets,
or the refinancing of our existing debt. |
One or a number of these factors could harm our revenues, financial condition, profitability
and cash flows, as well as our ability to service debt, and may reduce residual values realized on
the disposition of our rental equipment, negatively impacting our borrowing availability.
The non-residential construction market is currently experiencing a downturn which, if sustained,
could harm our business, liquidity and results of operations.
Our business derives a material portion of its revenues from customers in the non-residential
construction market and the general slowdown and volatility of the United States economy is having
an adverse effect on this business. The non-residential construction industry is expected to
continue to decline in 2009 and 2010, as office vacancy rates continue to increase, rental costs
decrease, the availability of financing continues to be limited and clarity on the strength of the
economy remains uncertain. From time to time, our business that serves the non-residential
construction industry has also been adversely affected in various parts of the country by declines
in non-residential construction starts due to, among other things, changes in tax laws affecting
the real estate industry, high interest rates and reduced level of residential construction
activity. Continued weakness in the U.S. economy and general uncertainty about current economic
conditions will continue to pose a risk to our business as participants in this industry may
postpone spending in response to tighter credit, negative financial news and/or declines in income
or asset values, which would have a continued material negative effect on the demand for our
products.
Our reliance on available borrowings under the Senior ABL Facilities and cash from operating
activities is necessary to operate our business and subjects us to a number of risks, many of which
are beyond our control.
We rely significantly on available borrowings under the Senior ABL Facilities to operate our
business. As of June 30, 2009, we had $373.2 million of available borrowings under the Senior ABL
Revolving Facility. The amount of available borrowings under the Senior ABL Facilities is
determined by a formula, subject to maximum borrowings, that includes several factors, most
significant of which is the orderly liquidation value (OLV), of our rental fleet. The OLV of our
fleet is calculated by a third party and reflects the average of prices paid for used rental
equipment at retail and auction. If our OLV were to decrease significantly, or if our access to
such financing were unavailable, reduced, or were to become significantly more expensive for any
reason, including, without limitation, due to our inability to meet the coverage ratio or leverage
ratio tests in the Senior ABL Facilities or to satisfy any other condition in the facilities or due
to an increase in interest rates generally, we may not be able to fund daily operations which may
cause material harm to our business, which could affect our ability to operate our business as a
going concern.
In addition, if we are unable to generate excess cash from operating activities after
servicing our debt due to negative economic or industry trends including, among others, those set
forth above under Our business has been and may continue to be hurt by an economic downturn, a
decline in non-residential construction or industrial or non-construction, activities or a decline
in the amount of equipment that is rented and We face intense competition that may lead to our
inability to increase or maintain our prices, which could have a material adverse impact on our
results of operations, and we are not able to finance new equipment acquisitions, we may not be
able to make necessary equipment rental acquisitions at all.
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The effects of the recent global economic crisis have had and may continue to have a negative
impact on our revenue, operating results, or financial condition.
The recent global economic crisis has caused disruptions and extreme volatility in global
financial markets and increased rates of default and bankruptcy, and has reduced demand for
equipment rental. These macroeconomic developments have had and could continue to have a negative
impact on our revenue, profitability, financial condition and liquidity in a number of ways, such
as reduced global used equipment demands which in turn could have a negative impact on the OLV for
our rental fleet. Additionally, current or potential customers may delay or decrease equipment
rentals or may delay paying us or be unable to pay us for prior equipment rentals and services.
Also, if the banking system or the financial markets continue to deteriorate or remain volatile,
the funding for and realization of capital projects may continue to decrease, which may continue to
impact the demand for our rental equipment and services.
Our expenses could increase and our relationships with our customers could be hurt if there is
an adverse change in our relationships with our equipment suppliers or if our suppliers are unable
to provide us with products we rely on to generate revenues.
All of our rental equipment consists of products that we purchase from various suppliers and
manufacturers, and over the last several years, we have reduced the number of suppliers from which
we purchase rental equipment to two suppliers for almost all major equipment categories that we
offer for rent. We rely on these suppliers and manufacturers to provide us with equipment which we
then rent to our customers. We have not entered into any long-term equipment supply arrangements
with manufacturers. To the extent we are unable to rely on these suppliers and manufacturers, due
to an adverse change in our relationships with them, if they fail to continue operating as a going
concern, if they significantly raised their costs, or such suppliers or manufacturers simply are
unable to supply us with equipment in a timely manner, our business could be adversely affected
through higher costs or the resulting potential inability to service our customers. We may
experience delays in receiving equipment from some manufacturers due to factors beyond our control,
including raw material shortages, and, to the extent that we experience any such delays, our
business could be hurt by the resulting inability to service our customers. In addition, the
payment terms we have negotiated with the suppliers that provide us with the majority of our
equipment may not be available to us at a later time.
If we are unable to collect on contracts with customers, our operating results would be adversely
affected.
One of the reasons some of our customers find it more attractive to rent equipment than own
equipment is the need to deploy their capital elsewhere. This has been particularly true in
industries with high growth rates such as the non-residential construction industry. Some of our
customers may have liquidity issues and ultimately may not be able to fulfill the terms of their
rental agreements with us. If we are unable to manage credit risk issues adequately, or if a large
number of customers should have financial difficulties at the same time, our credit losses could
increase above historical levels and our operating results would be adversely affected. Further,
delinquencies and credit losses generally can be expected to increase during economic slowdowns or
recessions.
If our operating costs increase as our rental fleet ages and we are unable to pass along such
costs, our earnings will decrease.
As our fleet of rental equipment ages, the cost of maintaining such equipment, if not replaced
within a certain period of time, will likely increase. As of June 30, 2009, the average age of our
rental equipment fleet was approximately 36 months, up 24.1%, from 29 months at June 30, 2008. The
increase in 2009 resulted from reductions in capital expenditures. The costs of maintenance may
materially increase in the future. Any material increase in such costs could have a material
adverse affect on our revenues, profitability and financial condition.
Our operational and cost reduction measures may not generate the improvements and efficiencies we
expect.
We have responded to the economic slowdown by employing a number of operational measures. The
extent to which these strategies will achieve the desired efficiencies and goals in 2009 and beyond
is uncertain, as their success depends on a number of factors, some of which are beyond our
control. Even if we carry out these measures in the manner we currently expect, we may not achieve
the efficiencies or savings we anticipate, or on the timetable
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we anticipate. There may be unforeseen productivity, revenue or other consequences resulting
from our strategies that will adversely affect us. Therefore, there can be no guarantee that our
strategies will prove effective in achieving desired profitability or margins.
The cost of new equipment we use in our rental fleet could increase and therefore we may spend more
for replacement equipment, and in some cases we may not be able to procure equipment on a timely
basis due to supplier constraints.
The cost of new equipment used in our rental fleet could increase, primarily due to increased
material costs, including increases in the cost of steel, which is a primary material used in most
of the equipment we use, and increases in the cost of fuel, which is used in the manufacturing
process and in delivering equipment to us. Such increases could materially adversely impact our
financial condition and results of operations in future periods. In addition, based on changing
demands of customers, the types of equipment we rent to our customers may become
obsolete resulting in a negative impact to our financial condition based on the increased capital
expenditures required to replace the obsolete equipment, and our potential inability to sell the
obsolete equipment in the used equipment market.
An impairment of our goodwill could have a material non-cash adverse impact on our results of
operations.
We account for our goodwill under SFAS No. 142 and review these assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of these assets may not be
recoverable and at least annually. We have performed our annual impairment tests for goodwill
during the fourth quarter of 2008 and based on our analyses, there was no goodwill impairment
recognized during the year ended December 31, 2008. If during 2009 market conditions continue to
deteriorate and our outlook deteriorates from the projections we used in the 2008 goodwill
impairment test, we may have goodwill impairment during 2009. If such further economic
deterioration occurs, we may be required to record charges for goodwill impairments in the future,
which could have a material adverse impact on our results of operations and financial condition.
Our rental fleet is subject to residual value risk upon disposition.
The market value of any given piece of rental equipment could be less than its depreciated
value at the time it is sold. The market value of used rental equipment depends on several factors,
including:
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the market price for new equipment of a like kind; |
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wear and tear on the equipment relative to its age and the performance of preventive
maintenance; |
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the time of year that it is sold; |
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worldwide and domestic demand for used equipment, including the amount of used equipment
we, along with our competitors, supply to the used equipment market; and |
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general economic conditions. |
We include in income from operations the difference between the sales price and the
depreciated value of an item of equipment sold. Changes in our assumptions regarding depreciation
could change both our depreciation expense as well as the gain or loss realized upon disposal of
equipment. Sales of our used rental equipment at prices that fall significantly below our
projections, or our inability to sell such equipment at all, could have a negative impact on our
results of operations.
Any failure of Atlas to indemnify us against and defend us from certain claims in accordance with
the terms of the recapitalization agreement could have a material adverse effect on us.
Pursuant to the recapitalization agreement and subject to certain limitations set forth
therein, Atlas has agreed to indemnify RSC Holdings and its subsidiaries against and defend us from
all losses, including costs and reasonable expenses, resulting from certain claims related to the
recapitalization, our business and our former businesses
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including, without limitation: claims alleging exposure to silica and asbestos; the transfer
of certain businesses owned by RSC Holdings but not acquired by the Sponsors in connection with the
recapitalization; certain employee-related matters; any activities, operations or business
conducted by RSC Holdings or any of its affiliates other than our business; and certain tax
matters. Atlas indemnity for claims related to alleged exposure to silica entitles us to coverage
for one-half of all silica related losses until the aggregate amount of such losses equals
$10 million and to coverage for such losses in excess of $10 million until the aggregate amount of
such losses equals $35 million. Atlas general indemnity for breach of representations and
warranties related to our business covers aggregate losses in excess of $33 million, excluding any
individual loss of less than $75,000, and the maximum we can recover is 20% of the recapitalization
purchase price set forth in the recapitalization agreement, as adjusted in accordance with the
recapitalization agreement. Furthermore, Atlas may not have sufficient assets, income and access to
financing to enable them to satisfy their indemnification obligations under the recapitalization
agreement or to continue to honor those obligations. If Atlas does not satisfy or otherwise honor
their obligations, we may be forced to bear the losses described above. Any failure by Atlas to
perform these obligations could harm our business. Please see Item 1. Business Organizational
Overview in our 2008 Form 10-K for a description of the Recapitalization Agreement and the
Recapitalization.
Disruptions in our information technology systems could limit our ability to effectively monitor
and control our operations and adversely affect our operating results.
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,
materially adversely affect our financial condition or operating results by limiting our capacity
to effectively monitor and control our operations and adjust to changing market conditions in a
timely manner. In addition, because our systems contain information about individuals and
businesses, our failure to maintain the security of the data we hold, whether the result of our own
error or the malfeasance or errors of others, could harm our reputation or give rise to legal
liabilities leading to lower revenues, increased costs and other potential material adverse effects
on our results of operations.
The Sponsors or their affiliates may compete directly against us.
Corporate opportunities may arise in the area of potential competitive business activities
that may be attractive to us as well as to one or more of the Sponsors or their affiliates,
including through potential acquisitions by one or more Sponsors or their affiliates of competing
businesses. Any competition could intensify if an affiliate or subsidiary of one or more of the
Sponsors were to enter into or acquire a business similar to our equipment rental operations. Given
that we are not controlled by any one of the Sponsors, the Sponsors and their affiliates may be
inclined to direct relevant corporate opportunities to entities which they control individually
rather than to us. In addition, our amended and restated certificate of incorporation provides that
the Sponsors are under no obligation to communicate or offer any corporate opportunity to us, even
if such opportunity might reasonably have been expected to be of interest to us or our
subsidiaries.
If we acquire any businesses in the future, they could prove difficult to integrate, disrupt our
business, or have an adverse effect on our results of operations.
We intend to pursue growth primarily through internal growth, but from time to time we may
consider opportunistic acquisitions, which may be significant. Any future acquisition would involve
numerous risks including, without limitation:
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potential disruption of our ongoing business and distraction of management; |
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difficulty integrating the acquired business; and |
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exposure to unknown liabilities. |
If we make acquisitions in the future, acquisition-related accounting charges may affect our
balance sheet and results of operations. In addition, the financing of any significant acquisition
may result in changes in our capital structure, including the incurrence of additional
indebtedness. We may not be successful in addressing these risks or any other problems encountered
in connection with any acquisitions.
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If we fail to retain key management and personnel, we may be unable to implement our business plan.
One of the most important factors in our ability to profitably execute our business plan is
our ability to attract, develop and retain qualified personnel, including our Chief Executive
Officer and operational management. Our success in attracting and retaining qualified people is
dependent on the resources available in individual geographic areas and the impact on the labor
supply due to general economic conditions as well as our ability to provide a competitive
compensation package, including the implementation of adequate drivers of retention and rewards
based on performance, and work environment. The departure of any key personnel and our inability to
enforce non-competition agreements could have a negative impact on our business.
The impairment of financial institutions may adversely affect us.
We have exposure to counterparties with which we execute transactions, including U.S. and
foreign commercial banks, insurance companies, investment banks, investment funds and other
financial institutions, some of which may be exposed to bankruptcy, liquidity, default or similar
risks, especially in connection with recent financial market turmoil. Many of these transactions
could expose us to risk in the event of the bankruptcy, receivership, default or similar event
involving a counterparty. For example, as of June 30, 2009, we had $373.2 million of available
borrowings under the Senior ABL Revolving Facility. If any of the lenders that are parties to the
Senior ABL Facilities experience difficulties that render them unable to fund future draws on the
facility, we may not be able to access all or a portion of these funds. The inability to make
future draws on the Senior ABL Facilities could have a material adverse effect on our liquidity
which could negatively affect our business, results of operations or ability to maintain the
overall quality of our rental fleet.
We are exposed to various possible claims relating to our business and our insurance may not fully
protect us against those claims.
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 vehicles and our employees, (3) employment-related
claims, (4) property damage and pollution related claims and (5) commercial claims. Our insurance
policies have deductibles or self-insured retentions of $1 million for general liability and
$1.5 million for automobile liability, on a per occurrence basis; $500,000 per occurrence for
workers compensation claims; and $250,000 per occurrence for pollution coverage. Currently, we
believe that we have adequate insurance coverage for the protection of our assets and operations.
However, our insurance may not fully protect us for 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. In addition, we may be exposed to uninsured liability at levels in excess of
our policy limits.
If we are found liable for any significant claims that are not covered by insurance, our
liquidity and operating results could be materially adversely affected. It is possible that our
insurance carrier may disclaim coverage for any class action and derivative lawsuits against us. It
is also possible that some or all of the insurance that is currently available to us will not be
available in the future on economically reasonable terms or not available at all. In addition,
whether we are covered by insurance or not, certain claims may have the potential for negative
publicity surrounding such claims, which could adversely affect our business and lead to lower
revenues, as well as additional similar claims being filed.
We may be unable to maintain an effective system of internal control over financial reporting and
comply with Section 404 of the Sarbanes-Oxley Act of 2002 and other related provisions of the
U.S. securities laws.
We are required to file certain reports, including annual and quarterly periodic reports,
under the Exchange Act. The Securities and Exchange Commission, as required by Section 404 of the
Sarbanes-Oxley Act of 2002, adopted rules requiring every reporting company to include a management
report on such companys internal control over financial reporting in its annual report, which
contains managements assessment of the effectiveness of the companys internal control over
financial reporting. An independent registered public accounting firm must report on the
effectiveness of our internal control over financial reporting. Compliance with the reporting
obligations under the U.S. securities laws places additional burdens on our management, operational
and financial resources and systems. To the extent that we are unable to maintain effective
internal control over financial reporting and/or disclosure controls and procedures, we may be
unable to produce reliable financial reports and/or public disclosure,
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detect and prevent fraud and comply with the reporting obligations under the U.S. securities
laws, on a timely basis. Any such failure could harm our business. In addition, failure to
maintain effective internal control over financial reporting and/or disclosure controls and
procedures could result in the loss of investor confidence in the reliability of our financial
statements and public disclosure and a loss of customers, which in turn could harm our business.
Environmental, health and safety laws, regulations and requirements and the costs of complying with
them, or any liability or obligation imposed under them, could adversely affect our financial
position, results of operations or cash flow.
Our operations are subject to a variety of federal, state, local and foreign environmental,
health and safety laws and regulations. These laws regulate releases of petroleum products and
other hazardous substances into the environment, the storage, treatment, transport and disposal of
wastes, and the remediation of soil and groundwater contamination. These laws also regulate our
ownership and operation of tanks used for the storage of petroleum products and other regulated
substances. In addition, certain of our customers require us to maintain certain safety levels.
Failure to maintain such levels could lead to a loss of such customers.
We have made, and will continue to make, expenditures to comply with environmental, health and
safety laws and regulations, including, among others, expenditures for the investigation and
cleanup of contamination at or emanating from currently and formerly owned and leased properties,
as well as contamination at other locations at which our wastes have reportedly been identified.
Some of these laws impose strict and in certain circumstances joint and several liability on
current and former owners or operators of contaminated sites and other potentially responsible
parties for investigation, remediation and other costs.
In addition, as climate change issues have become more prevalent, federal, state and local
governments, as well as foreign governments, have begun to respond to these issues with increased
legislation and regulations. Such legislation and regulations could negatively affect us, our
suppliers and our customers. This may cause us to incur additional direct costs in complying with
any new environmental legislation or regulations, as well as increased indirect costs resulting
from our suppliers, customers, or both incurring additional compliance costs that could get passed
through to us.
Compliance with existing or future environmental, health and safety requirements may require
material expenditures by us or otherwise harm our consolidated financial position, results of
operations or cash flow.
Our costs of doing business could increase as a result of changes in U.S. federal, state or local
regulations.
Our operations are principally affected by various statutes, regulations and laws in the
U.S. states and Canadian provinces in which we operate. While we are not engaged in a regulated
industry, we are subject to various laws applicable to businesses generally, including laws
affecting land usage, zoning, transportation, labor and employment practices, competition,
immigration and other matters. In addition, we may be indirectly exposed to changes in regulations
which affect our customers. Changes in U.S. federal, state or local regulations governing our
business could increase our costs of doing business. Moreover, changes to U.S. federal, state and
local tax regulations could increase our costs of doing business. We cannot provide assurance that
we will not incur material costs or liabilities in connection with regulatory requirements. We
cannot predict whether future developments in law and regulations concerning our businesses will
affect our business financial condition and results of operations in a negative manner.
We may not be able to adequately protect our intellectual property and other proprietary rights
that are material to our business.
Our ability to compete effectively depends in part upon protection of our rights in
trademarks, copyrights and other intellectual property rights we own or license, including
proprietary software. Our use of contractual provisions, confidentiality procedures and agreements,
and trademark, copyright, unfair competition, trade secret and other laws to protect our
intellectual property and other proprietary rights may not be adequate. Litigation may be necessary
to enforce our intellectual property rights and protect our proprietary information, or to defend
against claims by third parties that our services or our use of intellectual property infringe
their intellectual property rights. Any litigation or claims brought by or against us could result
in substantial costs and diversion of our resources. A successful claim of trademark, copyright or
other intellectual property infringement against us could prevent us from
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providing services, which could harm our business, financial condition or results of
operations. In addition, a breakdown in our internal policies and procedures may lead to an
unintentional disclosure of our proprietary, confidential or material non-public information, which
could in turn harm our business, financial condition or results of operations.
Certain existing stockholders of RSC Holdings have significant control over our company and large
ownership positions that could be sold, transferred or distributed.
As of June 30, 2009, our Sponsors each beneficially owned approximately 33.6% of the
outstanding shares of RSC Holdings common stock, which results in RSC Holdings being a closely
controlled company with the Sponsors having significant influence over: (1) the election of RSC
Holdings Board of Directors; (2) the approval or disapproval of any other matters requiring
stockholder approval; and (3) the affairs, policy and direction of our business. Ripplewood, Oak
Hill, ACF and RSC Holdings are parties to an amended and restated stockholders agreement (the
Stockholders Agreement) pursuant to which the Sponsors have the right to nominate a majority of
the members of RSC Holdings Board of Directors and to exercise control over matters requiring
stockholder approval and our policy and affairs, for example, by being able to direct the use of
proceeds received from this and future security offerings. The interests of RSC Holdings existing
stockholders may conflict with the interests of other security holders. In addition, actual or
possible sales, transfers or distributions of substantial amounts of the common stock of RSC
Holdings by either or both of the Sponsors, in light of their concentrated holdings of RSC
Holdings common stock, or the directors, executive officers or other large stockholders of RSC
Holdings could adversely affect our ability to obtain financing in the future.
We face risks related to changes in our ownership.
Certain of our agreements with third parties, including our real property leases, require the
consent of such parties in connection with any change in ownership of us. We will generally seek
such consents and waivers, although we may not seek certain consents if our not obtaining them will
not, in our view, have a material adverse effect on our consolidated financial position or results
of operations. If we fail to obtain any required consent or waiver, the applicable third parties
could seek to terminate their agreement with us and, as a result, our ability to conduct our
business could be impaired until we are able to enter into replacement agreements, which could harm
our results of operations or financial condition.
Risks Related to our Indebtedness
We have substantial debt, which could adversely affect our financial condition, our ability to
obtain financing in the future and our ability to react to changes in our business and make
payments on our indebtedness.
We have a substantial amount of debt. As of June 30, 2009, we had $2,357.2 million of debt
outstanding.
Our substantial debt could have important consequences. For example, it could:
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make it more difficult for us to satisfy our obligations to the holders of our Notes and
to the lenders under our Senior Credit Facilities, resulting in possible defaults on and
acceleration of such debt; |
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require us to dedicate a substantial portion of our cash flow from operations to make
payments on our debt, which would reduce the availability of our cash flow from operations
to fund working capital, capital expenditures, acquisitions or other general corporate
purposes; |
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increase our vulnerability to general adverse economic and industry conditions, including
interest rate fluctuations, because a portion of our borrowings, including under the Senior
Credit Facilities, bears interest at variable rates; |
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place us at a competitive disadvantage to our competitors with proportionately less debt
or comparable debt at more favorable interest rates; |
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limit our ability to refinance our existing indebtedness on favorable terms or at all or
borrow additional funds in the future for, among other things, working capital, capital
expenditures, acquisitions or debt service requirements; |
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limit our flexibility in planning for, or reacting to, changing conditions in our
business and industry; and |
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limit our ability to react to competitive pressures, or make it difficult for us to carry
out capital spending that is necessary or important to our growth strategy and our efforts
to improve operating margins. |
Any of the foregoing impacts of our substantial indebtedness could harm our business,
financial condition and results of operations.
Despite our current indebtedness levels, we and our subsidiaries may be able to incur substantial
additional debt, which could further exacerbate the risks associated with our current substantial
debt.
We and our subsidiaries may be able to incur substantial additional indebtedness in the
future. The terms of the instruments governing our indebtedness do not prohibit us or fully
prohibit us or our subsidiaries from doing so. As of June 30, 2009, our Senior Credit Facilities
provided us commitments for additional aggregate borrowings of approximately $373.2 million subject
to, among other things, our maintenance of a sufficient borrowing base under such facilities. Both
the Senior ABL Facilities and the Second Lien Term Facility permit additional borrowings beyond the
committed financing under these facilities under certain circumstances. If new indebtedness is
added to our current debt levels, the related risks that we now face would increase. In addition,
the instruments governing our indebtedness do not prevent us or our subsidiaries from incurring
obligations that do not constitute indebtedness.
Restrictive covenants in certain of the agreements and instruments governing our indebtedness may
adversely affect our financial and operational flexibility.
Our Senior Credit Facilities contain covenants that, among other things, restrict our ability
to:
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incur additional indebtedness or provide guarantees; |
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engage in mergers, acquisitions or dispositions of assets; |
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enter into sale-leaseback transactions; |
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make dividends or other restricted payments; |
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prepay other indebtedness; |
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engage in certain transactions with affiliates; |
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change the nature of our business; |
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enter into currency, commodity and other hedging transactions; and |
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amend specified debt agreements. |
In addition, under the Senior ABL Facilities, upon excess availability falling below
$100 million we are subject to additional reporting requirements. Upon excess availability falling
below $140 million, pursuant to the Extension Credit Agreement
Amendment, we will come under close supervision by our lenders and we will then be subject
to financial covenants, including covenants that will obligate us to maintain (1) a specified
leverage ratio of 4.50 to 1.00 in 2009 and 4.25 to 1.00 thereafter and (2) a specified fixed charge
coverage ratio of 1.00 to 1.00. Our
ability to comply with these covenants in future periods and our available borrowing capacity under
the Senior ABL Facilities will depend on our ongoing financial and operating performance, which in
turn will be subject to economic conditions and to financial, market and competitive factors, many
of which are beyond our control. Our ability to comply with these covenants in future periods will
also depend substantially on the pricing of our products and services, our success at implementing
cost reduction initiatives and our ability to successfully implement our overall business strategy.
Each
of the indentures governing the Notes Indentures also contains restrictive covenants
that, among other things, limit our ability and the ability of our restricted subsidiaries to:
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pay dividends or distributions on their capital stock or repurchase their capital stock; |
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make certain investments; |
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create liens on their assets to secure debt; |
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enter into certain transactions with affiliates; |
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create limitations on the ability of the restricted subsidiaries to make dividends or
distributions to their respective parents; |
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merge or consolidate with another company; and |
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transfer and sell assets. |
These covenants could have a material adverse effect on our business by limiting our ability
to take advantage of financing, merger and acquisition or other corporate opportunities and to fund
our operations. Also, although the Notes Indentures limits our ability to make restricted
payments, these restrictions are subject to significant exceptions and qualifications.
Our ability to comply with the covenants and restrictions contained in the Senior Credit
Facilities and the Notes Indentures may be affected by economic, financial and industry conditions
beyond our control. The breach of any of these covenants or restrictions could result in a default
under either the Senior Credit Facilities or such indentures that would permit the applicable
lenders or noteholders, as the case may be, to declare all amounts outstanding thereunder to be due
and payable, together with accrued and unpaid interest. In any such case, we may be unable to make
borrowings under the Senior Credit Facilities and may not be able to repay the amounts due under
the Senior Credit Facilities, the Senior Notes and the Senior Secured Notes. Any of the events
described in this paragraph could have a material adverse effect our financial condition and
results of operations and could cause us to become bankrupt or insolvent.
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We may not be able to generate sufficient cash to make payments on all of our debt, and our ability
to refinance all or a portion of our debt or obtain additional financing depends on many factors
beyond our control. As a result, we may be forced to take other actions to satisfy our obligations
under such indebtedness, which may not be successful.
Our ability to make scheduled payments on or to refinance our obligations under, our debt,
will depend on our financial and operating performance, which, in turn, will be subject to
prevailing economic and competitive conditions and to the financial and business factors, many of
which may be beyond our control. We may not maintain a level of cash flow from operating activities
sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If
our cash flow and capital resources are insufficient to fund our debt service obligations, we may
be forced to reduce or delay capital expenditures, sell assets, seek to obtain additional equity
capital or restructure our debt. In the future, our cash flow and capital resources may not be
sufficient for payments of interest on and principal of our debt, and such alternative measures may
not be successful and may not permit us to meet our scheduled debt service obligations. We may not
be able to refinance any of our indebtedness or obtain additional financing, particularly because
of our anticipated high levels of debt and the debt incurrence restrictions imposed by the
agreements governing our debt, as well as prevailing market conditions. In the absence of such
operating results and resources, we could face substantial liquidity problems and might be required
to dispose of material assets or operations to meet our debt service and other obligations. The
instruments governing our indebtedness, restrict our ability to dispose of assets and use the
proceeds from any such dispositions. We may not be able to consummate those sales, or if we do, the
timing of any such sales may not be advantageous to us and the proceeds that we realize may not be
adequate to meet debt service obligations when due.
A significant portion of our outstanding indebtedness is secured by substantially all of our
consolidated assets. As a result of these security interests, such assets would only be available
to satisfy claims of our general creditors or to holders of our equity securities if we were to
become insolvent to the extent the value of such assets exceeded the amount of our indebtedness and
other obligations. In addition, the existence of these security interests may adversely affect our
financial flexibility.
Indebtedness under the Senior Credit Facilities and the Senior Secured Notes are secured by a
lien on substantially all our assets, including pledges of substantially all of the assets of RSC
Holdings II, LLC, which consist primarily of the capital stock of RSC Holdings III, LLC. The
Senior Notes are unsecured and therefore do not have the benefit of such collateral. Accordingly,
if an event of default were to occur under the Senior Credit Facilities or the Senior Secured
Notes, the senior secured lenders under such facilities would have a prior right to our assets, to
the exclusion of our general creditors, including the holders of our Senior Notes. In that event,
our assets would first be used to repay in full all indebtedness and other obligations secured by
them (including all amounts outstanding under our Senior Credit Facilities and the Senior Secured
Notes), resulting in all or a portion of our assets being unavailable to satisfy the claims of our
unsecured indebtedness.
As of June 30, 2009, substantially all of our consolidated assets, including our equipment
rental fleet, has been pledged for the benefit of the lenders under our Senior Credit Facilities
and the holders of the Senior Secured Notes. As a result, the lenders under these facilities and
the holders of the Senior Secured Notes would have a prior claim on such assets in the event of our
bankruptcy, insolvency, liquidation or reorganization, and we may not have sufficient funds to pay
all of our creditors and holders of our unsecured indebtedness may receive less, ratably, than the
holders of our senior debt, and may not be fully paid, or may not be paid at all, even when other
creditors receive full payment for their claims. In that event, holders of our equity securities
would not be entitled to receive any of our assets or the proceeds therefrom.
In addition, the pledge of these assets and other restrictions may limit our flexibility in
raising capital for other purposes. Because substantially all of our assets are pledged under
these financing arrangements, our ability to incur additional secured indebtedness or to sell or
dispose of assets to raise capital may be impaired, which could have an adverse effect on our
financial flexibility.
40
An increase in interest rates would increase the cost of servicing our indebtedness and could
reduce our profitability.
Indebtedness we have and may incur under the Senior Credit Facilities bears interest at
variable rates. As a result, an increase in interest rates, whether because of an increase in
market interest rates or an increase in our own cost of borrowing, would increase the cost of
servicing our indebtedness and could materially reduce our profitability. In addition, we expect
the Extension Credit Agreement Amendment, if effected, to increase the interest rates applicable to
the extended portion of the Senior ABL Revolving Facility. In addition, recent turmoil in the
credit markets has reduced the availability of debt financing, which may result in increases in the
interest rates and borrowing spreads at which lenders are willing to make future debt financing
available to us. The impact of such an increase would be more significant than it would be for some
other companies because of our substantial indebtedness.
Risks Related to our Common Stock and Market and Economic Factors
Our share price may decline due to the large number of shares eligible for future sale.
Sales, transfers, or distributions of substantial amounts of our common stock, or the
possibility of such by our Sponsors, directors, or executive officers or other large stock holders,
may adversely affect the price of our common stock and impede our ability to raise capital through
the issuance of equity securities. As of June 30, 2009, our largest stockholders owned collectively
77.7% of our common stock, with Ripplewood owning 33.6%, Oak Hill owning 33.6%, and Atlas owning
10.5%. Because of our public float and average volume, any sales, transfers or distributions, by
any one of or a combination of our largest stockholders, or the perception of the forgoing by
investors, may cause the trading price of our common stock to decline.
RSC Holdings is a holding company with no operations of its own that depends on its subsidiaries
for cash.
The operations of RSC Holdings are conducted almost entirely through its subsidiaries and its
ability to generate cash to meet its debt service obligations or to pay dividends is highly
dependent on the earnings and the receipt of funds from its subsidiaries via dividends or
intercompany loans. However, none of the subsidiaries of RSC Holdings is obligated to make funds
available to RSC Holdings for the payment of dividends. In addition, payments of dividends and
interest among the companies in our group may be subject to withholding taxes. Further, the
indentures governing the Notes and the Senior Credit Facilities significantly restrict the ability
of the subsidiaries of RSC Holdings to pay dividends or otherwise transfer assets to RSC Holdings.
See Risk FactorsRisks Related to Our IndebtednessRestrictive covenants in certain of the
agreements and instruments governing our indebtedness may adversely affect our financial and
operational flexibility. In addition, Delaware law may impose requirements that may restrict our
ability to pay dividends to holders of our common stock.
Our operating and financial performance in any given period might not meet the guidance we have
provided to the public.
We provide public guidance on our expected operating and financial results for future periods.
Although we believe that this guidance provides investors and analysts with a better understanding
of managements expectations for the future, and is useful to our stockholders and potential
stockholders, such guidance is comprised of forward-looking statements subject to the risks and
uncertainties described in this report and in our other public filings and public statements.
Actual results may differ from the projected guidance. If in the future, our operating or financial
results for a particular period do not meet our guidance or the expectations of investment
analysts, or if we reduce our guidance for future periods, the market price of our common stock
could significantly decline.
Fluctuations in the stock market, as well as general economic and market conditions may impact our
operations, sales, financial results and market price of our common stock.
The market price of our common stock has been and may continue to be subject to significant
fluctuations in response to operating results and other factors including, but not limited to:
|
|
|
general economic changes, including rising interest rates, increased fuel costs and
other energy costs; increased labor and healthcare costs, and increased levels of
unemployment; |
41
|
|
|
variations in quarterly operating results; |
|
|
|
changes in the strategy and actions taken by our competitors, including pricing
changes; |
|
|
|
securities analysts elections to discontinue coverage of our common stock, changes
in financial estimates by analysts or a downgrade of our stock or our sector by
analysts; |
|
|
|
announcements by us or our competitors of significant contracts, acquisitions,
strategic partnerships, joint ventures or capital commitments; |
|
|
|
loss of a large customer or supplier; |
|
|
|
future sales of our common stock; |
|
|
|
investor perceptions of us and the equipment rental industry; |
|
|
|
our ability to successfully integrate acquisitions and consolidations; and |
|
|
|
national or regional catastrophes or circumstances and natural disasters,
hostilities and acts of terrorism. |
These broad market and industry factors may materially reduce the market price of our common
stock, regardless of our operating performance. In addition, the stock market in recent years has
experienced price and volume fluctuations that often have been unrelated or disproportionate to the
operating performance of companies. These fluctuations, as well as general economic and market
conditions, including but not limited to those listed above, may depress the market price of our
common stock.
Our certificate of incorporation, by-laws and Delaware law may discourage takeovers and business
combinations that our stockholders might consider in their best interests.
A number of provisions in our certificate of incorporation and by-laws may have the effect of
delaying, deterring, preventing or rendering more difficult a change in control of RSC Holdings
that our stockholders might consider in their best interests. These provisions include:
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establishment of a classified Board of Directors, with staggered terms; |
|
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|
granting to the Board of Directors sole power to set the number of directors and to
fill any vacancy on the Board of Directors, whether such vacancy occurs as a result of
an increase in the number of directors or otherwise; |
|
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|
limitations on the ability of stockholders to remove directors; |
|
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|
the ability of the Board of Directors to designate and issue one or more series of
preferred stock without stockholder approval, the terms of which may be determined at
the sole discretion of the Board of Directors; |
|
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|
prohibition on stockholders from calling special meetings of stockholders; |
|
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|
establishment of advance notice requirements for stockholder proposals and
nominations for election to the Board of Directors at stockholder meetings; and |
|
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|
prohibiting our stockholders from acting by written consent if the Sponsors cease to
collectively hold a majority of our outstanding common stock. |
42
These provisions may prevent our stockholders from receiving the benefit from any premium to
the market price of our common stock offered by a bidder in a takeover context. Even in the absence
of a takeover attempt, the existence of these provisions may adversely affect the prevailing market
price of our common stock if they are viewed as discouraging takeover attempts in the future. In
addition, we have opted out of Section 203 of the Delaware General Corporation Law, which would
have otherwise imposed additional requirements regarding mergers and other business combinations.
Our certificate of incorporation and by-laws may also make it difficult for stockholders to
replace or remove our management. These provisions may facilitate management entrenchment that may
delay, deter, render more difficult or prevent a change in our control, which may not be in the
best interests of our stockholders.
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Item 2. |
|
Unregistered Sales of Equity Securities and Use of Proceeds |
Not applicable.
|
|
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Item 3. |
|
Defaults Upon Senior Securities |
Not applicable.
|
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|
Item 4. |
|
Submission of Matters to a Vote of Security Holders |
Our 2009 annual meeting of stockholders was held on April 28, 2009.
Proxies for the meeting were solicited pursuant to Regulation 14(a) of the Exchange Act, as
amended. There were no solicitations in opposition to managements nominees for director as listed
in Item No. 1 in the proxy statement, and all of such nominees were elected.
|
1. |
|
The results of the voting by the stockholders to elect four directors to hold office
until the 2012 annual meeting of stockholders were as follows: |
|
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|
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|
|
|
|
Director |
|
For |
|
Withheld |
Douglas Kaden |
|
|
83,108,559 |
|
|
|
5,330,014 |
|
Erik Olsson |
|
|
73,709,886 |
|
|
|
14,728,687 |
|
James H. Ozanne |
|
|
87,872,272 |
|
|
|
566,301 |
|
Scott Spielvogel |
|
|
83,102,320 |
|
|
|
5,336,253 |
|
In addition to the directors elected at the meeting, the directors whose terms of office
continued after the meeting were: Dennis J. Nayden, Timothy Collins, Edward Dardani, Pierre E.
Leroy, Christopher Minnetian, John R. Monsky, Donald C. Roof and Donald Wagner.
|
2. |
|
The results of the voting by the stockholders to ratify the appointment of KPMG LLP, as
our independent registered public accounting firm for the year ending December 31, 2009,
were as follows: |
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|
|
|
|
|
|
|
|
|
|
|
|
For |
|
Against |
|
Abstain |
Total Shares Voted |
|
|
88,425,204 |
|
|
|
12,837 |
|
|
|
532 |
|
|
|
|
Item 5. |
|
Other Information |
None.
43
Exhibits and Financial Statement Schedules
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
4.1(1)
|
|
Indenture, dated as of July 1, 2009, by and among RSC Equipment
Rental, Inc., RSC Holdings III, LLC, Wells Fargo Bank, National
Association, as Trustee, and Deutsche Bank AG, New York Branch, as
Note Collateral Agent |
|
|
|
4.2(1)
|
|
First Amendment to Intercreditor Agreement, dated as of July 1, 2009,
by and among RSC Holdings II, LLC, RSC Holdings III, LLC, RSC
Equipment Rental, Inc., each other grantor from time to time party
thereto, Deutsche Bank AG, New York Branch, as U.S. collateral agent
under the First-Lien Loan Documents (as defined therein) |
|
|
|
4.3(1)
|
|
First Lien Intercreditor Agreement, dated as of July 1, 2009, by and
among RSC Holdings III, LLC, RSC Equipment Rental, Inc., Deutsche Bank
AG, New York Branch, as U.S. collateral agent under the Senior Loan
Documents (as defined therein) and as collateral agent under the First
Lien Last Out Note Documents (as defined therein) |
|
|
|
4.4(1)
|
|
Collateral Agreement, dated as of July 1, 2009, by and between RSC
Equipment Rental, Inc., RSC Holdings III, LLC, certain domestic
subsidiaries of RSC Holdings III, LLC that may become party thereto
from time to time and Deutsche Bank AG, New York Branch, as Note
Collateral Agent |
|
|
|
10.1(1)
|
|
First Amendment to Credit Agreement, dated as of June 26, 2009, by and
among RSC Holdings II, LLC, RSC Holdings III, LLC, RSC Equipment
Rental, Inc., RSC Equipment Rental of Canada Ltd., Deutsche Bank AG,
New York Branch, as U.S. administrative agent, Deutsche Bank AG,
Canada Branch, as Canadian administrative agent, and the other
financial institutions party thereto from time to time |
|
|
|
31.1
|
|
Certification of Chief Executive Officer as required by Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended |
|
|
|
31.2
|
|
Certification of Chief Financial Officer as required by Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended |
|
|
|
32.1
|
|
Certifications of Chief Executive Officer and Chief Financial Officer
as required by Rule 13a-14(b) of the Securities Exchange Act of 1934,
as amended |
|
|
|
(1) |
|
Incorporated by reference to the like numbered exhibit to RSC Holdings Inc. Current Report
on Form 8-K, dated June 26, 2009 and filed with the Securities and Exchange Commission on July
2, 2009 (file no. 001-33485). |
44
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
RSC Holdings Inc.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Erik Olsson
Erik Olsson
|
|
President and Director (Principal Executive Officer)
|
|
July 30, 2009 |
|
|
|
|
|
/s/ David Mathieson
David Mathieson
|
|
Chief Financial Officer (Principal Financial and Principal
Accounting Officer)
|
|
July 30, 2009 |
45
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
4.1(1)
|
|
Indenture, dated as of July 1, 2009, by and among RSC Equipment
Rental, Inc., RSC Holdings III, LLC, Wells Fargo Bank, National
Association, as Trustee, and Deutsche Bank AG, New York Branch, as
Note Collateral Agent |
|
|
|
4.2(1)
|
|
First Amendment to Intercreditor Agreement, dated as of July 1, 2009,
by and among RSC Holdings II, LLC, RSC Holdings III, LLC, RSC
Equipment Rental, Inc., each other grantor from time to time party
thereto, Deutsche Bank AG, New York Branch, as U.S. collateral agent
under the First-Lien Loan Documents (as defined therein) |
|
|
|
4.3(1)
|
|
First Lien Intercreditor Agreement, dated as of July 1, 2009, by and
among RSC Holdings III, LLC, RSC Equipment Rental, Inc., Deutsche Bank
AG, New York Branch, as U.S. collateral agent under the Senior Loan
Documents (as defined therein) and as collateral agent under the First
Lien Last Out Note Documents (as defined therein) |
|
|
|
4.4(1)
|
|
Collateral Agreement, dated as of July 1, 2009, by and between RSC
Equipment Rental, Inc., RSC Holdings III, LLC, certain domestic
subsidiaries of RSC Holdings III, LLC that may become party thereto
from time to time and Deutsche Bank AG, New York Branch, as Note
Collateral Agent |
|
|
|
10.1(1)
|
|
First Amendment to Credit Agreement, dated as of June 26, 2009, by and
among RSC Holdings II, LLC, RSC Holdings III, LLC, RSC Equipment
Rental, Inc., RSC Equipment Rental of Canada Ltd., Deutsche Bank AG,
New York Branch, as U.S. administrative agent, Deutsche Bank AG,
Canada Branch, as Canadian administrative agent, and the other
financial institutions party thereto from time to time |
|
|
|
31.1
|
|
Certification of Chief Executive Officer as required by Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended |
|
|
|
31.2
|
|
Certification of Chief Financial Officer as required by Rule 13a-14(a)
of the Securities Exchange Act of 1934, as amended |
|
|
|
32.1
|
|
Certifications of Chief Executive Officer and Chief Financial Officer
as required by Rule 13a-14(b) of the Securities Exchange Act of 1934,
as amended |
|
|
|
(1) |
|
Incorporated by reference to the like numbered exhibit to RSC Holdings Inc. Current Report
on Form 8-K, dated June 26, 2009 and filed with the Securities and Exchange Commission on July
2, 2009 (file no. 001-33485). |
46