Item 1A. Risk Factors
Item 1A. Risk Factors.
Risks Related to the COVID-19 Pandemic
The COVID-19 pandemic , or similar global health concerns, could materially adversely impact our business, results of operations and/or financial condition, supply chain and customer base.
COVID-19 was identified in late 2019 and spread globally thereafter. The rapid spread and the initial response to the virus (such as travel bans, shelter in place orders and shutdowns) initially resulted in weaker demand for our products and services. These factors impacted our operations and may impact all or portions of our workforce and operations in the future.
Economic uncertainties related to the COVID-19 pandemic could affect demand for our products and services, the value of the equipment we sell and lease and the financial condition and credit risk of our customers.
Continuing uncertainties related to the magnitude and duration of the COVID-19 pandemic, including new strains of the virus, may significantly adversely affect our business. These uncertainties could include, among other things: the resurgence in COVID-19 cases in any geographic area in which we operate and the measures taken to address the resurgence; disruptions in our supply chain as a result of shutdowns or other operating limitations placed on manufacturers and transporters; increased logistics and operating costs associated with addressing the safety of our employees and customers; the impact of the pandemic on the Company’s customers; and potential disruptions in the global capital markets which could impact the Company’s ability to obtain funding in the future. While the
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timing of the post-COVID-19 economic recovery remains unclear, a return to Q2 2020 operating limitations associated with the COVID-19 pandemic could materially and adversely impact our business, results of operations and/or financial condition.
Risks Related to the Company’s Business and Industry
The Company’s business could be adversely affected by declines in construction and material handling activities, or a downturn in the economy in general, which could lead to decreased demand for equipment, depressed equipment rental rates and lower sales prices, resulting in a decline in the Company’s revenues, gross margins and operating results.
The Company’s equipment is principally used in connection with construction and material handling activities. Consequently, a downturn in construction or material handling activities, or the economy in general, may lead to a decrease in the demand for equipment and services or depress rental rates and the sales prices for the Company’s equipment. The Company’s business may also be negatively impacted, either temporarily or long-term, by:
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a reduction in spending levels by customers;
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unfavorable credit markets affecting end-user access to capital;
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adverse changes in federal, state and local government infrastructure spending;
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an increase in the cost of construction materials;
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adverse weather conditions or natural disasters which may affect a particular region;
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a labor work stoppage or shortage of skilled technicians;
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a prolonged shutdown of the U.S. government;
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an increase in interest rates;
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terrorism or hostilities involving the United States; or
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the ongoing impact of the global COVID-19 pandemic.
The Company’s inability to forecast trends accurately may adversely impact the Company’s business and financial condition.
An economic downturn or economic uncertainty makes it difficult for the Company to forecast trends, which may have an adverse impact on the Company’s business and financial condition. Uncertainty regarding future equipment product demand could cause the Company to maintain excess equipment inventory and increase the Company’s equipment inventory carrying costs. Alternatively, this forecasting difficulty could cause a shortage of equipment for sale or rental that could result in an inability to satisfy demand for the Company’s products and a loss of market share.
The Company’s revenue and operating results may fluctuate, which could result in a decline in the Company’s profitability and make it more difficult for the Company to grow its business.
The Company’s revenue and operating results may vary from quarter to quarter and by season. Periods of decline could result in an overall decline in profitability and make it more difficult for the Company to make payments on its indebtedness and grow the Company’s business. We expect the Company’s quarterly results to fluctuate in the future due to a number of factors, including:
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general economic conditions in the markets where we operate;
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the cyclical nature of the Company’s customers’ business, particularly the Company’s construction customers;
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seasonal sales and rental patterns of the Company’s construction customers;
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changes in the size of the Company’s rental fleet and/or in the rate at which it sells its used equipment from the fleet;
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changes in corporate spending or changes in government spending for infrastructure projects;
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changes in interest rates and related changes in the Company’s interest expense and the Company’s debt service obligations;
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the effectiveness of integrating acquired businesses and new start-up locations; and
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timing of acquisitions and new location openings and related costs.
In addition, the Company incurs various costs when integrating newly acquired businesses or opening new start-up locations, and the profitability of a new location is generally expected to be lower in the initial months of operation.
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The Company is subject to competition, which may have a material adverse effect on the Company’s business by reducing the Company’s ability to increase or maintain revenues or profitability.
The equipment rental and retail distribution industries are highly competitive, and the equipment rental industry is highly fragmented. Many of the markets in which the Company operates are served by a large number of competitors, ranging from national and multi-regional equipment rental companies to small, independent businesses with a limited number of locations. Some of the Company’s competitors have significantly greater financial, marketing and other resources than the Company does, and may be able to reduce rental rates or sales prices. The Company may encounter increased competition from existing competitors or new market entrants in the future, which could have a material adverse effect on the Company’s business, financial condition and results of operations.
The Company purchases a significant amount of its equipment from a limited number of manufacturers. Termination of one or more of the Company’s relationships with any of those manufacturers could have a material adverse effect on the Company’s business, as it may be unable to obtain adequate or timely parts or rental and sales equipment.
The Company purchases most of its sales and rental equipment, and aftermarket parts from leading, nationally known original equipment manufacturers. Approximately 45% of the Company’s sales and rental equipment, and aftermarket parts are purchased from three major manufacturers (Hyster-Yale, Volvo, and JCB). Although the Company believes that it has alternative sources of supply for the sales and rental equipment, and aftermarket parts it purchases in each of its core product categories, termination of one or more of the Company’s relationships with any of these major suppliers could have a material adverse effect on the Company’s business, financial condition or results of operations if it were unable to obtain adequate or timely parts or sales and rental equipment.
The Company’s suppliers of new equipment and aftermarket parts may appoint additional distributors, sell directly or unilaterally terminate the Company’s distribution agreements, which could have a material adverse effect on the Company’s business due to a reduction of, or inability to increase, the Company’s revenues.
The Company is a distributor of new equipment and parts supplied by leading, nationally known suppliers. Under the Company’s distribution agreements with these suppliers, manufacturers generally retain the right to appoint additional dealers and sell directly to national accounts and government agencies. Primarily, the Company has distribution agreements with the Company’s equipment suppliers, operates under its established course of dealing with the suppliers and is subject to applicable state laws regarding such relationships. In most instances, the suppliers may appoint additional distributors, elect to sell to customers directly or unilaterally terminate distribution agreements with the Company at any time without cause. Any such actions could have a material adverse effect on the Company’s business, financial condition, and results of operations due to a reduction of, or an inability to increase, the Company’s revenues.
The cost of new equipment that the Company sells or purchases for use in its rental fleet may increase and, in some cases, the Company may not be able to procure new equipment on a timely basis due to supplier constraints.
The cost of new equipment from manufacturers that the Company sells or purchases for use in its rental fleet may increase as a result of increased raw material costs, including increases in the cost of steel, which is a primary material used in most of the equipment the Company uses, or due to increased regulatory requirements, such as those related to emissions. These increases could materially impact the Company’s financial condition or results of operations in future periods if the Company is not able to pass such cost increases through to the Company’s customers. Similarly, any increase in the cost of parts the Company purchases for resale could materially impact the Company’s financial condition or results of operations in future periods if the Company is not able to pass such cost increases through to the Company’s customers.
The Company’s 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: the market price for new equipment of a like kind; wear and tear on the equipment relative to its age; worldwide and domestic demands for used equipment; the supply of used equipment on the market; and general economic conditions.
Any significant decline in the selling prices for used equipment could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.
The Company incurs maintenance and repair costs associated with its rental fleet equipment that could have a material adverse effect on its business in the event these costs are greater than anticipated.
As the Company’s fleet of rental equipment ages, the cost of maintaining such equipment, if not replaced within a certain period of time, generally increases. Determining the optimal age for the Company’s rental fleet equipment is based on subjective estimates
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made by the Company’s management team. The Company’s future operating results could be adversely affected because the Company’s maintenance and repair costs may be higher than estimated.
Security breaches and other disruptions in the Company’s information technology systems, including the Company’s customer relationship management system, could limit the Company’s capacity to effectively monitor and control its operations, compromise its or its customers’ and suppliers’ confidential information or otherwise adversely affect the Company’s operating results or business reputation.
The Company’s information technology systems, some of which are managed by third parties, facilitate the Company’s ability to monitor and control the Company’s operations and adjust to changing market conditions, including processing, transmitting, storing, managing and supporting a variety of business processes, activities and information. Further, as the Company pursues its growth strategy it is also expanding and improving its information technologies, resulting in a larger technological presence and corresponding exposure to cybersecurity risk. Any disruption in any of these systems, including the Company’s customer management system, or the failure of any of these systems to operate as expected could, depending on the magnitude of the problem, adversely affect the Company’s operating results by limiting the Company’s capacity to effectively monitor and control the Company’s operations and adjust to changing market conditions.
The Company collects and stores sensitive data, including proprietary business information and the proprietary business information of the Company’s customers and suppliers, in data centers and on information technology networks, including cloud-based networks. The secure operation of these information technology networks and the processing and maintenance of this information is critical to the Company’s business operations and strategy. Despite security measures and business continuity plans, the Company’s information technology networks and infrastructure may be vulnerable to damage, disruptions or shutdowns due to attacks by cyber criminals or breaches due to employee error or malfeasance or other disruptions during the process of upgrading or replacing computer software or hardware, power outages, computer viruses, telecommunication or utility failures, terrorist acts or natural disasters or other catastrophic events. The growing use and rapid evolution of technology, including mobile devices, has heightened the risk of unintentional data breaches or leaks. The occurrence of any of these events could compromise the Company’s networks, and the information stored there could be accessed, publicly disclosed, lost or stolen. In addition, the Company may need to invest additional resources to protect the security of the Company’s systems or to comply with evolving privacy, data security, cybersecurity and data protection laws applicable to the Company’s business.
Any failure to effectively prevent, detect and/or recover from any such access, disclosure or other loss of information, or to comply with any such current or future law related thereto, could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disrupt operations, and damage the Company’s reputation, which could adversely affect the Company’s business.
Fluctuations in fuel costs or reduced supplies of fuel could harm the Company’s business.
The Company could be adversely affected by limitations on fuel supplies or significant increases in fuel prices that result in higher costs related to the Company’s field service fleet and for transporting equipment from one location to another. A significant or protracted disruption of fuel supplies could have an adverse effect on the Company’s financial condition and results of operations.
The Company is dependent on key personnel. A loss of key personnel could have a material adverse effect on the Company’s business, which could result in a decline in the Company’s revenues and profitability.
The Company’s success is dependent, in part, on the experience and skills of the Company’s management team. Competition for top management talent within the Company’s industry is generally significant. If the Company is unable to fill and keep filled all of the Company’s senior management positions, or if the Company loses the services of any key member of the Company’s senior management team and is unable to find a suitable replacement in a timely manner, the Company may be challenged to effectively manage its business and execute its strategy.
If the Company fails to maintain an effective system of internal controls, the Company may not be able to accurately report financial results or prevent fraud.
Effective internal controls are necessary to provide reliable financial reports and to assist in the effective prevention of fraud. Any inability to provide reliable financial reports or prevent fraud could harm the Company’s business. If the Company fails to maintain the adequacy of its internal controls, as such standards are modified, supplemented or amended from time to time, the Company could be subject to regulatory scrutiny, civil or criminal penalties or stockholder litigation.
In addition, failure to maintain effective internal controls could result in financial statements that do not accurately reflect the Company’s financial condition or results of operations. There can be no assurance that the Company will be able to maintain a system
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of internal controls that fully complies with the requirements of the Sarbanes-Oxley Act or that the Company’s management and independent registered public accounting firm will continue to conclude that the Company’s internal controls are effective.
Labor disputes could disrupt the Company’s ability to serve its customers and/or lead to higher labor costs.
The Company has approximately 375 employees who are covered by a collective bargaining agreement and approximately 1,645 employees who are not represented by unions or covered by collective bargaining agreements. Various unions periodically seek to organize certain of the Company’s nonunion employees. Union organizing efforts or collective bargaining negotiations could potentially lead to work stoppages and/or slowdowns or strikes by certain of the Company’s employees, which could adversely affect the Company’s ability to serve its customers. Further, settlement of actual or threatened labor disputes or an increase in the number of the Company’s employees covered by collective bargaining agreements can have unknown effects on the Company’s labor costs, productivity and flexibility.
Risk Related to the Company’s Acquisitions, Growth and Integration
The Company may not be able to identify or complete transactions with attractive acquisition candidates. Future acquisitions may result in significant transaction expenses and the Company may involve significant costs. The Company may experience integration and consolidation risks associated with future acquisitions.
An important element of the Company’s growth strategy is to selectively pursue on an opportunistic basis acquisitions of additional businesses, in particular rental companies that complement the Company’s existing business and footprint. The success of this element of the Company’s growth strategy depends, in part, on selecting strategic acquisition candidates at attractive prices and effectively integrating their businesses into the Company’s own, including with respect to financial reporting and regulatory matters. The Company cannot assure you that it will be able to identify attractive acquisition candidates or complete the acquisition of any identified candidates at favorable prices and upon advantageous terms and conditions, including financing alternatives.
The Company may not have sufficient management, financial and other resources to integrate and consolidate any future acquisitions. Any significant diversion of management’s attention or any major difficulties encountered in the integration of the businesses the Company acquire could have a material adverse effect on the Company’s business, financial condition or results of operations, which could decrease the Company’s profitability and make it more difficult for the Company to grow its business. Among other things, these integration risks could include:
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the loss of key employees;
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the disruption of operations and business;
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the retention or transition of the existing customers and vendors;
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the integration of corporate cultures and maintenance of employee morale;
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inability to maintain and increase competitive presence;
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customer loss and revenue loss;
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possible inconsistencies in standards, control procedures and policies;
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problems with the assimilation of new operations, sites or personnel, which could divert resources from the Company’s regular operations;
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integration of financial reporting, treasury and regulatory reporting functions; and/or
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potential unknown liabilities.
In addition, general economic conditions or unfavorable capital and credit markets could affect the timing and extent to which the Company can successfully acquire or integrate new businesses, which could limit the Company’s revenues and profitability.
The Company may not be able to facilitate its growth strategy by identifying and opening start-up locations, which could limit the Company’s revenues and profitability.
An element of the Company’s growth strategy is to selectively identify and implement start-up locations in order to add new customers. The success of this element of the Company’s growth strategy depends, in part, on identifying strategic start-up locations. The Company cannot be sure that it will be able to identify attractive start-up locations, and opening start-up locations may involve significant costs and limit the Company’s ability to expand its operations.
The Company may not have sufficient management, financial and other resources to successfully operate new locations. Any significant diversion of management’s attention or any major difficulties encountered in the locations that the Company opens in the future could have a material adverse effect on the Company’s business, financial condition or results of operations, which could decrease the Company’s profitability and make it more difficult for the Company to grow its business.
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Financial Risk and Risk Related to our Indebtedness
The Company’s substantial indebtedness could adversely affect the Company’s financial condition.
The Company has, and will continue to have, a significant amount of indebtedness outstanding. The Company’s indebtedness may result in important consequences, such as:
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increasing the Company’s vulnerability to general adverse economic, industry and competitive conditions;
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requiring the Company to dedicate a substantial portion of its cash flow from operations to payments on its indebtedness, thereby reducing the availability of its cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes;
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limiting the Company’s flexibility in planning for, or reacting to, changes in the Company’s business and the industry in which it operates;
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placing the Company at a competitive disadvantage compared to its competitors that have less debt; and
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limiting the Company’s ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes.
The Company expects to use cash flow from operations and borrowings under its credit facilities to meet its current and future financial obligations, including funding its operations, debt service and capital expenditures. The Company’s ability to make these payments depends on the Company’s future performance, which will be affected by financial, business, economic and other factors, many of which the Company cannot control. The Company’s business may not generate sufficient cash flow from operations in the future, which could result in the Company’s being unable to repay indebtedness, or to fund other liquidity needs. If the Company does not have enough capital, it may be forced to reduce or delay its business activities and capital expenditures, sell assets, obtain additional debt or equity capital or restructure or refinance all or a portion of its debt. The Company cannot make any assurances that it will be able to accomplish any of these alternatives on terms acceptable to it, or at all. In addition, the Company’s current and future credit arrangements may limit the Company’s ability to pursue any of these alternatives.
The Company may not be able to generate sufficient cash to service all of the Company’s indebtedness and may be forced to take other actions to satisfy its obligations under its indebtedness, which may not be successful.
The Company’s ability to make scheduled debt payments depends on its financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond the Company’s control. The Company cannot make assurances that we will maintain a level of cash flows from operating activities sufficient to permit it to pay scheduled payments of principal and interest on the Company’s indebtedness. In the absence of adequate operating performance, the Company could face substantial liquidity problems and might be required to dispose of material assets or operations to meet its debt service and other obligations. The Company may not be able to consummate those dispositions, and any proceeds it does receive from a disposition may not be adequate to meet any debt service obligations then due.
If the Company’s cash flows and capital resources are insufficient to fund its debt service obligations, the Company may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance its indebtedness.
The agreements governing credit facilities may restrict the Company’s business and its ability to engage in certain corporate and financial transactions.
The agreements governing the credit facilities contain certain covenants that, among other things, may restrict or limit the Company and its subsidiaries’ ability to:
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incur more debt;
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pay dividends (including dividends on preferred stock) and make distributions;
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make investments;
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repurchase stock;
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create liens;
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enter into transactions with affiliates;
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enter into sale and lease-back transactions;
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merge or consolidate; and
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transfer and sell assets.
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Events beyond the Company’s control may also affect its ability to comply with other provisions governing the Company’s credit facilities. The Company’s failure to comply with obligations under the agreements may result in an event of default. A default, if not cured or waived, may permit acceleration of this indebtedness and the Company’s other indebtedness. The Company may not be able to remedy these defaults. If the Company’s indebtedness is accelerated, it may not have sufficient funds available to pay the accelerated indebtedness and may not have the ability to refinance the accelerated indebtedness on terms favorable to the Company or at all.
The Company’s business could be hurt if it is unable to obtain additional capital as required, resulting in a decrease in the Company’s revenues and profitability. In addition, the Company’s inability to refinance its indebtedness on favorable terms, or at all, could materially and adversely affect the Company’s liquidity and its ongoing results of operations.
The cash that the Company generates from its business, together with cash that it may borrow, if credit is available, may not be sufficient to fund the Company’s capital requirements. The Company may require additional financing to obtain capital for, among other purposes, purchasing equipment, completing acquisitions, establishing new locations and refinancing existing indebtedness. Any additional indebtedness that the Company incurs will make it more vulnerable to economic downturns and limit the Company’s ability to withstand competitive pressures. Moreover, the Company may not be able to obtain additional capital on acceptable terms, if at all. If it is unable to obtain sufficient additional financing in the future, the Company’s business could be adversely affected by reducing its ability to increase revenues and profitability.
In addition, the Company’s ability to refinance indebtedness will depend in part on the Company’s operating and financial performance, which, in turn, is subject to prevailing economic conditions and to financial, business, legislative, regulatory and other factors beyond the Company’s control. In addition, prevailing interest rates or other factors at the time of refinancing could increase the Company’s interest expense. A refinancing of the Company’s indebtedness could also require it to comply with more onerous covenants and further restrict the Company’s business operations. the Company’s inability to refinance the Company’s indebtedness or to do so upon attractive terms could materially and adversely affect the Company’s business, prospects, results of operations, financial condition and cash flows, and make it vulnerable to adverse industry and general economic conditions.
Unfavorable conditions or disruptions in the capital and credit markets may adversely impact business conditions and the availability of credit.
Disruptions in the global capital and credit markets as a result of an economic downturn, economic uncertainty, changing or increased regulation, reduced alternatives or failures of significant financial institutions could adversely affect the Company’s customers’ ability to access capital and could adversely affect the Company’s access to liquidity needed for business in the future. Additionally, unfavorable market conditions may depress demand for the Company’s products and services or make it difficult for the Company’s customers to obtain financing and credit on reasonable terms. Unfavorable market conditions also may cause more of the Company’s customers to be unable to meet their payment obligations to the Company, increasing delinquencies and credit losses. If the Company is unable to manage credit risk or customer risk adequately, the Company’s credit losses could increase above historical levels and the Company’s operating results would be adversely affected. the Company’s suppliers may also be adversely impacted by unfavorable capital and credit markets, causing disruption or delay of product availability. These events could negatively impact the Company’s business, financial position, results of operations and cash flows.
Risk Related to Our Series A Preferred Stock and Depositary Shares
The Series A Preferred Stock and the depositary shares rank junior to all of our indebtedness and other liabilities and are effectively junior to all indebtedness and other liabilities of our subsidiaries.
In the event of our bankruptcy, liquidation, dissolution or winding-up of our affairs, our assets will be available to pay obligations on the Series A Preferred Stock only after all of our indebtedness and other liabilities have been paid. The rights of holders of the Series A Preferred Stock to participate in the distribution of our assets will rank junior to the prior claims of our current and future creditors and any future series or class of preferred stock we may issue that ranks senior to the Series A Preferred Stock. In addition, the Series A Preferred Stock effectively ranks junior to all existing and future indebtedness and other liabilities of (as well as any preferred equity interests held by others in) our existing subsidiaries and any future subsidiaries. Our existing subsidiaries are and any future subsidiaries would be separate legal entities and have no legal obligation to pay any amounts to us in respect of dividends due on the Series A Preferred Stock. If we are forced to liquidate our assets to pay our creditors, we may not have sufficient assets to pay amounts due on any or all of the Series A Preferred Stock then outstanding. We and our subsidiaries have incurred and may in the future incur substantial amounts of debt and other obligations that will rank senior to the Series A Preferred Stock. We may incur additional indebtedness and become more highly leveraged in the future, which could harm our financial position and potentially limit our cash available to pay dividends. As a result, we may not have sufficient funds remaining to satisfy our dividend obligations relating to our Series A Preferred Stock if we incur additional indebtedness. In addition, our existing credit arrangements include
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events of default which could result in acceleration of such indebtedness upon the occurrence of certain events, including failure to meet certain financial covenants.
We may not be able to pay dividends on the Series A Preferred Stock if we have insufficient cash or available ‘surplus’ as defined under Delaware law to make such dividend payments.
Our ability to pay cash dividends on the Series A Preferred Stock requires us to have either net profits or positive net assets (total assets less total liabilities) over our capital, and that we have sufficient working capital in order to be able to pay our debts as they become due in the usual course of business. Our ability to pay dividends may also be impaired by a number of factors, including the other risks identified herein. Also, payment of our dividends depends upon our financial condition and other factors as our board of directors may deem relevant from time to time. Our businesses may not generate sufficient cash flow from operations or future borrowings may not be available to us in an amount sufficient to enable us to fund out liquidity needs and make distributions on our common stock, if any, and preferred stock, including the Series A Preferred Stock to pay our indebtedness.
Our depositary shares representing interests in the Series A Preferred Stock have extremely limited voting rights.
The voting rights of holders of our depositary shares are limited. Our common stock is the only class of our securities that carries full voting rights. Voting rights for holders of depositary shares will exist primarily with respect to the ability to elect (together with the holders of other outstanding series of our preferred stock, or depositary shares representing interests in our preferred stock, or additional series of preferred stock we may issue in the future and upon which similar voting rights have been or are in the future conferred and are exercisable) two additional directors to our Board of Directors in the event that six quarterly dividends (whether or not declared or consecutive) payable on the Series A Preferred Stock are in arrears, and with respect to voting on amendments to our articles of incorporation or certificate of designation (in some cases voting together with the holders of other outstanding series of our preferred stock as a single class) that materially and adversely affect the rights of the holders of depositary shares representing interests in the Series A Preferred Stock (and other series of preferred stock, as applicable) or create additional classes or series of our stock that are senior to the Series A Preferred Stock, provided that in any event adequate provision for redemption has not been made. Other than the limited circumstances included in the certificate of designations for the Series A Preferred Stock and the agreement creating the depositary shares, holders of depositary shares will not have any voting rights.
Legal and Regulatory Risks Related to the Company’s Operations
The Company is exposed to various risks related to legal proceedings or claims that could adversely affect the Company’s operating results. The nature of the Company’s business exposes it to various liability claims, which may exceed the level of the Company’s insurance coverage resulting in the Company not being fully protected.
The Company is a party to lawsuits in the normal course of the Company’s business. Litigation in general can be expensive, lengthy and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. Responding to lawsuits brought against the Company, or legal actions that the Company may initiate, can often be expensive and time-consuming. Unfavorable outcomes from these claims and/or lawsuits could adversely affect the Company’s business, results of operations, or financial condition, and the Company could incur substantial monetary liability and/or be required to change its business practices.
The Company’s business exposes it to claims for personal injury, death or property damage resulting from the use of the equipment it rents or sells and from injuries caused in motor vehicle accidents in which the Company’s delivery and service personnel are involved and other employee related matters. Additionally, the Company could be subject to potential litigation associated with compliance with various laws and governmental regulations at the federal, state or local levels, such as those relating to the protection of persons with disabilities, employment, health, safety, security and other regulations under which the Company operates.
The Company carries comprehensive insurance, subject to deductibles, at levels it believes are sufficient to cover existing and future claims made during the respective policy periods. However, the Company may be exposed to multiple claims, and, as a result, could incur significant out-of-pocket costs before reaching the deductible amount which could adversely affect the Company’s financial condition and results of operations. In addition, the cost of such insurance policies may increase significantly upon renewal of those policies as a result of general rate increases for the type of insurance the Company carries as well as the Company’s historical experience and experience in the Company’s industry. Although the Company has not experienced any material losses that were not covered by insurance, the Company’s existing or future claims may exceed the coverage level of the Company’s insurance, and such insurance may not continue to be available on economically reasonable terms, or at all. If the Company is required to pay significantly higher premiums for insurance, is not able to maintain insurance coverage at affordable rates or if it must pay amounts in excess of claims covered by the Company’s insurance, the Company could experience higher costs that could adversely affect the Company’s financial condition and results of operations.
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The Company has operations throughout the United States, which exposes it to multiple federal, state and local regulations. Changes in applicable law, regulations or requirements, or the Company’s material failure to comply with any of them, can increase the Company’s costs and have other negative impacts on the Company’s business.
The Company’s 54 branch locations in the United States are located in 11 different states, which exposes it to different federal, state and local regulations. These laws and requirements address multiple aspects of the Company’s operations, such as worker safety, consumer rights, privacy, employee benefits and more, and can often have different requirements in different jurisdictions. Changes in these requirements, or any material failure by the Company to comply with them, could increase the Company’s costs, affect its reputation, limit its business, drain management’s time and attention or otherwise, generally impact its operations in adverse ways.
The Company could be adversely affected by environmental and safety requirements, which could force it to use significant capital resources, increase operational costs and/or may subject it to unanticipated liabilities.
The Company’s operations, like those of other companies engaged in similar businesses, require the handling, use, storage and disposal of certain regulated materials. As a result, the Company is subject to the requirements of federal, state and local environmental and occupational health and safety laws and regulations. The Company is subject to potentially significant civil or criminal fines or penalties if it fails to comply with any of these requirements. The Company has made and will continue to make capital and other expenditures in order to comply with these laws and regulations, but the requirements of these laws and regulations are complex, change frequently, and could become more stringent in the future. It is possible that these requirements will change or that liabilities will arise in the future in a manner that could have a material adverse effect on the Company’s business, financial condition and results of operations.
Environmental laws also impose obligations and liability for the cleanup of properties affected by hazardous substance spills or releases. These liabilities can be imposed on the parties generating or disposing of such substances or the operator of the affected property, often without regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous substances. Accordingly, the Company may become liable, either contractually or by operation of law, for remediation costs even if a contaminated property is not currently owned or operated by the Company, or if the contamination was caused by third parties during or prior to the Company’s ownership or operation of the property. Given the nature of the Company’s operations (which involve the use of petroleum products, solvents and other hazardous substances for fueling and maintaining the Company’s equipment and vehicles), there can be no assurance that prior site assessments or investigations have identified all potential instances of soil or groundwater contamination. Future events, such as changes in existing laws or policies or their enforcement, or the discovery of currently unknown contamination, may give rise to additional remediation liabilities, which may be material.
Item 1B. Unresolved Staff Comments.
None.