UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________
FORM 10-Q
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x☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 20172019
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o☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-14387
Commission File Number 1-13663
___________________________________
United Rentals, Inc.
United Rentals (North America), Inc.
(Exact Names of Registrants as Specified in Their Charters)
___________________________________
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| | |
Delaware Delaware
| | 06-1522496 |
Delaware | | 86-0933835 |
(States of Incorporation) | | (I.R.S. Employer Identification Nos.) |
| |
100 First Stamford Place, Suite 700
| | |
Stamford | | |
Connecticut | | 06902 |
(Address of Principal Executive Offices) | | (Zip Code) |
Registrants’ Telephone Number, Including Area Code: (203) (203) 622-3131
Securities registered pursuant to Section 12(b) of the Act:
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| | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, $.01 par value, of United Rentals, Inc. | | URI | | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer | | x | Accelerated Filer | | o |
Non-Accelerated Filer | | o | Smaller Reporting Company | | o☐ |
Emerging Growth Company | | o☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o☐Yes x No
As of October 16, 2017,July 15, 2019, there were 84,574,58977,162,794 shares of United Rentals, Inc. common stock, $0.01 par value, outstanding. There is no market for the common stock of United Rentals (North America), Inc., all outstanding shares of which are owned by United Rentals, Inc.
This combined Form 10-Q is separately filed by (i) United Rentals, Inc. and (ii) United Rentals (North America), Inc. (which is a wholly owned subsidiary of United Rentals, Inc.). United Rentals (North America), Inc. meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this report with the reduced disclosure format permitted by such instruction.
UNITED RENTALS, INC.
UNITED RENTALS (NORTH AMERICA), INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBERJUNE 30, 20172019
INDEX
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PART I | | |
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Item 1 | | |
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Item 2 | | |
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Item 3 | | |
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Item 4 | | |
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PART II | | |
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Item 1 | | |
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Item 1A | | |
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Item 2 | | |
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Item 6 | | |
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements can be identified by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “seek,” “on-track,” “plan,” “project,” “forecast,” “intend” or “anticipate,” or the negative thereof or comparable terminology, or by discussions of strategy or outlook. You are cautioned that our business and operations are subject to a variety of risks and uncertainties, many of which are beyond our control, and, consequently, our actual results may differ materially from those projected.
Factors that could cause actual results to differ materially from those projected include, but are not limited to, the following:
the possibility that companies that we have acquired or may acquire, in our specialty business or otherwise, including NES RentalsBakerCorp International Holdings, II, Inc. (“NES ”)BakerCorp”) and NeffVander Holding Corporation ("Neff"and its subsidiaries (“BlueLine”), could have undiscovered liabilities or involve other unexpected costs, may strain our management capabilities or may be difficult to integrate;
the cyclical nature of our business, which is highly sensitive to North American construction and industrial activities; if construction or industrial activity decline, our revenues and, because many of our costs are fixed, our profitability may be adversely affected;
our significant indebtedness (which totaled $8.4$11.7 billion at SeptemberJune 30, 2017)2019) requires us to use a substantial portion of our cash flow for debt service and can constrain our flexibility in responding to unanticipated or adverse business conditions;
inability to refinance our indebtedness on terms that are favorable to us, or at all;
incurrence of additional debt, which could exacerbate the risks associated with our current level of indebtedness;
noncompliance with financial or other covenants in our debt agreements, which could result in our lenders terminating the agreements and requiring us to repay outstanding borrowings;
restrictive covenants and amount of borrowings permitted in our debt instruments, which can limit our financial and operational flexibility;
overcapacity of fleet in the equipment rental industry;
inability to benefit from government spending, including spending associated with infrastructure projects;
fluctuations in the price of our common stock and inability to complete stock repurchases in the time frame and/or on the terms anticipated;
rates we charge and time utilization we achieve being less than anticipated;
inability to manage credit risk adequately or to collect on contracts with a large number of customers;
inability to access the capital that our businesses or growth plans may require;
incurrence of impairment charges;
trends in oil and natural gas could adversely affect the demand for our services and products;
the fact that our holding company structure requires us to depend in part on distributions from subsidiaries and such distributions could be limited by contractual or legal restrictions;
increases in our loss reserves to address business operations or other claims and any claims that exceed our established levels of reserves;
incurrence of additional expenses (including indemnification obligations) and other costs in connection with litigation, regulatory and investigatory matters;
the outcome or other potential consequences of regulatory matters and commercial litigation;
shortfalls in our insurance coverage;
our charter provisions as well as provisions of certain debt agreements and our significant indebtedness may have the effect of making more difficult or otherwise discouraging, delaying or deterring a takeover or other change of control of us;
turnover in our management team and inability to attract and retain key personnel;
costs we incur being more than anticipated, and the inability to realize expected savings in the amounts or time frames planned;
dependence on key suppliers to obtain equipment and other supplies for our business on acceptable terms;
inability to sell our new or used fleet in the amounts, or at the prices, we expect;
competition from existing and new competitors;
risks related to security breaches, cybersecurity attacks, failure to protect personal information, compliance with data protection laws and other significant disruptions in our information technology systems;
the costs of complying with environmental, safety and foreign law and regulations, as well as other risks associated with non-U.S. operations, including currency exchange risk;risk (including as a result of Brexit), and tariffs;
labor disputes, work stoppages or other labor difficulties, which may impact our productivity, and potential enactment of new legislation or other changes in law affecting our labor relations or operations generally; and
increases in our maintenance and replacement costs and/or decreases in the residual value of our equipment.equipment; and
the effect of changes in tax law.
For a more complete description of these and other possible risks and uncertainties, please refer to our Annual Report on Form 10-K for the year ended December 31, 2016,2018, as well as to our subsequent filings with the SEC. Our forward-looking statements contained herein speak only as of the date hereof, and we make no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations.
PART I. FINANCIAL INFORMATION
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Item 1. | Financial Statements |
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
| | | September 30, 2017 | | December 31, 2016 | June 30, 2019 | | December 31, 2018 |
| (unaudited) | | (unaudited) | |
ASSETS | | | | | | |
Cash and cash equivalents | $ | 324 |
| | $ | 312 |
| $ | 75 |
| | $ | 43 |
|
Accounts receivable, net of allowance for doubtful accounts of $57 at September 30, 2017 and $54 at December 31, 2016 | 1,151 |
| | 920 |
| |
Accounts receivable, net of allowance for doubtful accounts of $107 at June 30, 2019 and $93 at December 31, 2018 | | 1,525 |
| | 1,545 |
|
Inventory | 82 |
| | 68 |
| 135 |
| | 109 |
|
Prepaid expenses and other assets | 82 |
| | 61 |
| 105 |
| | 64 |
|
Total current assets | 1,639 |
| | 1,361 |
| 1,840 |
| | 1,761 |
|
Rental equipment, net | 7,391 |
| | 6,189 |
| 9,839 |
| | 9,600 |
|
Property and equipment, net | 451 |
| | 430 |
| 578 |
| | 614 |
|
Goodwill | 3,493 |
| | 3,260 |
| 5,134 |
| | 5,058 |
|
Other intangible assets, net | 759 |
| | 742 |
| 1,019 |
| | 1,084 |
|
Operating lease right-of-use assets (note 8) | | 619 |
| | — |
|
Other long-term assets | 11 |
| | 6 |
| 18 |
| | 16 |
|
Total assets | $ | 13,744 |
| | $ | 11,988 |
| $ | 19,047 |
| | $ | 18,133 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
Short-term debt and current maturities of long-term debt | $ | 694 |
| | $ | 597 |
| $ | 995 |
| | $ | 903 |
|
Accounts payable | 612 |
| | 243 |
| 752 |
| | 536 |
|
Accrued expenses and other liabilities | 467 |
| | 344 |
| 788 |
| | 677 |
|
Total current liabilities | 1,773 |
| | 1,184 |
| 2,535 |
| | 2,116 |
|
Long-term debt | 7,677 |
| | 7,193 |
| 10,700 |
| | 10,844 |
|
Deferred taxes | 2,012 |
| | 1,896 |
| 1,743 |
| | 1,687 |
|
Operating lease liabilities (note 8) | | 497 |
| | — |
|
Other long-term liabilities | 71 |
| | 67 |
| 94 |
| | 83 |
|
Total liabilities | 11,533 |
| | 10,340 |
| 15,569 |
| | 14,730 |
|
Common stock—$0.01 par value, 500,000,000 shares authorized, 112,334,897 and 84,571,724 shares issued and outstanding, respectively, at September 30, 2017 and 111,985,215 and 84,222,042 shares issued and outstanding, respectively, at December 31, 2016 | 1 |
| | 1 |
| |
Common stock—$0.01 par value, 500,000,000 shares authorized, 113,741,001 and 77,431,831 shares issued and outstanding, respectively, at June 30, 2019 and 112,907,209 and 79,872,956 shares issued and outstanding, respectively, at December 31, 2018 | | 1 |
| | 1 |
|
Additional paid-in capital | 2,322 |
| | 2,288 |
| 2,415 |
| | 2,408 |
|
Retained earnings | 2,108 |
| | 1,654 |
| 4,546 |
| | 4,101 |
|
Treasury stock at cost—27,763,173 shares at September 30, 2017 and December 31, 2016 | (2,077 | ) | | (2,077 | ) | |
Treasury stock at cost—36,309,170 and 33,034,253 shares at June 30, 2019 and December 31, 2018, respectively | | (3,290 | ) | | (2,870 | ) |
Accumulated other comprehensive loss | (143 | ) | | (218 | ) | (194 | ) | | (237 | ) |
Total stockholders’ equity | 2,211 |
| | 1,648 |
| 3,478 |
| | 3,403 |
|
Total liabilities and stockholders’ equity | $ | 13,744 |
| | $ | 11,988 |
| $ | 19,047 |
| | $ | 18,133 |
|
See accompanying notes.
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In millions, except per share amounts)
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| September 30, | | September 30, | June 30, | | June 30, |
| 2017 |
| 2016 | | 2017 | | 2016 | 2019 |
| 2018 | | 2019 | | 2018 |
Revenues: | | | | | | | | | | | | | | |
Equipment rentals | $ | 1,536 |
| | $ | 1,322 |
| | $ | 4,069 |
| | $ | 3,643 |
| $ | 1,960 |
| | $ | 1,631 |
| | $ | 3,755 |
| | $ | 3,090 |
|
Sales of rental equipment | 139 |
| | 112 |
| | 378 |
| | 361 |
| 197 |
| | 157 |
| | 389 |
| | 338 |
|
Sales of new equipment | 40 |
| | 30 |
| | 126 |
| | 96 |
| 60 |
| | 44 |
| | 122 |
| | 86 |
|
Contractor supplies sales | 21 |
| | 19 |
| | 60 |
| | 60 |
| 27 |
| | 24 |
| | 51 |
| | 42 |
|
Service and other revenues | 30 |
| | 25 |
| | 86 |
| | 79 |
| 46 |
| | 35 |
| | 90 |
| | 69 |
|
Total revenues | 1,766 |
| | 1,508 |
| | 4,719 |
| | 4,239 |
| 2,290 |
| | 1,891 |
| | 4,407 |
| | 3,625 |
|
Cost of revenues: | | | | | | | | | | | | | | |
Cost of equipment rentals, excluding depreciation | 557 |
| | 486 |
| | 1,556 |
| | 1,391 |
| 769 |
| | 620 |
| | 1,511 |
| | 1,212 |
|
Depreciation of rental equipment | 290 |
| | 250 |
| | 804 |
| | 735 |
| 399 |
| | 323 |
| | 794 |
| | 645 |
|
Cost of rental equipment sales | 84 |
| | 68 |
| | 225 |
| | 215 |
| 116 |
| | 92 |
| | 241 |
| | 199 |
|
Cost of new equipment sales | 34 |
| | 25 |
| | 108 |
| | 79 |
| 51 |
| | 38 |
| | 105 |
| | 75 |
|
Cost of contractor supplies sales | 14 |
| | 13 |
| | 42 |
| | 41 |
| 19 |
| | 16 |
| | 36 |
| | 28 |
|
Cost of service and other revenues | 14 |
| | 10 |
| | 42 |
| | 32 |
| 25 |
| | 20 |
| | 48 |
| | 38 |
|
Total cost of revenues | 993 |
| | 852 |
| | 2,777 |
| | 2,493 |
| 1,379 |
| | 1,109 |
| | 2,735 |
| | 2,197 |
|
Gross profit | 773 |
| | 656 |
| | 1,942 |
| | 1,746 |
| 911 |
| | 782 |
| | 1,672 |
| | 1,428 |
|
Selling, general and administrative expenses | 237 |
| | 179 |
| | 648 |
| | 533 |
| 271 |
| | 239 |
| | 551 |
| | 471 |
|
Merger related costs | 16 |
| | — |
| | 32 |
| | — |
| — |
| | 2 |
| | 1 |
| | 3 |
|
Restructuring charge | 9 |
| | 4 |
| | 28 |
| | 8 |
| 6 |
| | 4 |
| | 14 |
| | 6 |
|
Non-rental depreciation and amortization | 63 |
| | 61 |
| | 189 |
| | 192 |
| 105 |
| | 67 |
| | 209 |
| | 138 |
|
Operating income | 448 |
| | 412 |
| | 1,045 |
| | 1,013 |
| 529 |
| | 470 |
| | 897 |
| | 810 |
|
Interest expense, net | 131 |
| | 110 |
| | 338 |
| | 349 |
| 180 |
| | 112 |
| | 331 |
| | 221 |
|
Other income, net | (5 | ) | | (1 | ) | | (5 | ) | | (3 | ) | (2 | ) | | (1 | ) | | (5 | ) | | (2 | ) |
Income before provision for income taxes | 322 |
| | 303 |
| | 712 |
| | 667 |
| 351 |
| | 359 |
| | 571 |
| | 591 |
|
Provision for income taxes | 123 |
| | 116 |
| | 263 |
| | 254 |
| 81 |
| | 89 |
| | 126 |
| | 138 |
|
Net income | $ | 199 |
| | $ | 187 |
| | $ | 449 |
| | $ | 413 |
| $ | 270 |
| | $ | 270 |
| | $ | 445 |
| | $ | 453 |
|
Basic earnings per share | $ | 2.36 |
| | $ | 2.18 |
| | $ | 5.31 |
| | $ | 4.68 |
| $ | 3.45 |
| | $ | 3.22 |
| | $ | 5.65 |
| | $ | 5.40 |
|
Diluted earnings per share | $ | 2.33 |
| | $ | 2.16 |
| | $ | 5.26 |
| | $ | 4.66 |
| $ | 3.44 |
| | $ | 3.20 |
| | $ | 5.62 |
| | $ | 5.34 |
|
See accompanying notes.
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In millions)
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| September 30, | | September 30, | June 30, | | June 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
Net income | $ | 199 |
|
| $ | 187 |
| | $ | 449 |
| | $ | 413 |
| $ | 270 |
|
| $ | 270 |
| | $ | 445 |
| | $ | 453 |
|
Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | | |
Foreign currency translation adjustments(1) | 41 |
|
| (9 | ) | | 75 |
| | 51 |
| 22 |
|
| (21 | ) | | 42 |
| | (46 | ) |
Fixed price diesel swaps | 1 |
|
| — |
| | — |
| | 3 |
| — |
|
| 1 |
| | 1 |
| | 1 |
|
Other comprehensive income (loss) | 42 |
| | (9 | ) | | 75 |
| | 54 |
| 22 |
| | (20 | ) | | 43 |
| | (45 | ) |
Comprehensive income (1) | $ | 241 |
| | $ | 178 |
| | $ | 524 |
| | $ | 467 |
| $ | 292 |
| | $ | 250 |
| | $ | 488 |
| | $ | 408 |
|
(1)There were no material reclassifications from accumulated other comprehensive loss reflected in other comprehensive income (loss) during 20172019 or 2016. There2018. There is no tax impact related to the foreign currency translation adjustments, as the earnings are considered permanently reinvested. We have historically considered the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested. We have not repatriated funds to the U.S. to satisfy domestic liquidity needs, nor do we anticipate the need to do so. If we determine that all or a portion of our foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes and U.S. state income taxes. There were no material taxes associated with other comprehensive income (loss) during 20172019 or 2016.2018.
See accompanying notes.
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In millions)
| | | Common Stock | | | | | | Treasury Stock | | | Three Months Ended June 30, 2019 |
| Number of Shares (1) | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Number of Shares | | Amount | | Accumulated Other Comprehensive (Loss) Income (2) | Common Stock | | | | | | Treasury Stock | | |
Balance at December 31, 2016 | 84 |
| | $ | 1 |
| | $ | 2,288 |
| | $ | 1,654 |
| | 28 |
| | $ | (2,077 | ) | | $ | (218 | ) | |
| | Number of Shares (1) | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Number of Shares | | Amount | | Accumulated Other Comprehensive Loss (2) |
Balance at March 31, 2019 | | 79 |
| | $ | 1 |
| | $ | 2,394 |
| | $ | 4,276 |
| | 35 |
| | $ | (3,080 | ) | | $ | (216 | ) |
Net income | | | | | | | 449 |
| | | | | | | | | | | | | 270 |
| | | | | | |
Foreign currency translation adjustments | | | | | | | | | | | | | 75 |
| | | | | | | | | | | | | 22 |
|
Cumulative effect of a change in accounting for share-based payments (note 1) | | | | | | | 5 |
| | | | | | | |
Stock compensation expense, net | 1 |
| | | | 64 |
| | | | | | | | | (1 | ) | | | | 16 |
| | | | | | | | |
Exercise of common stock options | | | | | 1 |
| | | | | | | | | | | | | 6 |
| | | | | | | | |
Shares repurchased and retired | | | | | (26 | ) | | | | | | | | | | | | | (1 | ) | | | | | | | | |
Other | | | | | (5 | ) | | | | | | | | | |
Balance at September 30, 2017 | 85 |
| | $ | 1 |
| | $ | 2,322 |
| | $ | 2,108 |
| | 28 |
| | $ | (2,077 | ) | | $ | (143 | ) | |
Repurchase of common stock | | (1 | ) | | | | | | | | 1 |
| | (210 | ) | | |
Balance at June 30, 2019 | | 77 |
| | $ | 1 |
| | $ | 2,415 |
| | $ | 4,546 |
| | 36 |
| | $ | (3,290 | ) | | $ | (194 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2018 |
| Common Stock | | | | | | Treasury Stock | | |
| Number of Shares (1) | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Number of Shares | | Amount | | Accumulated Other Comprehensive Loss (2) |
Balance at March 31, 2018 | 84 |
| | $ | 1 |
| | $ | 2,327 |
| | $ | 3,188 |
| | 29 |
| | $ | (2,282 | ) | | $ | (176 | ) |
Net income | | | | | | | 270 |
| | | | | | |
Foreign currency translation adjustments | | | | | | | | | | | | | (21 | ) |
Fixed price diesel swaps | | | | | | | | | | | | | 1 |
|
Stock compensation expense, net | — |
| | | | 24 |
| | | | | | | | |
Exercise of common stock options | | | | | 1 |
| | | | | | | | |
Shares repurchased and retired | | | | | (1 | ) | | | | | | | | |
Repurchase of common stock | (1 | ) | | | | | | | | 1 |
| | (168 | ) | | |
Balance at June 30, 2018 | 83 |
| | $ | 1 |
| | $ | 2,351 |
| | $ | 3,458 |
| | 30 |
| | $ | (2,450 | ) | | $ | (196 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2019 |
| Common Stock | | | | | | Treasury Stock | | |
| Number of Shares (1) | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Number of Shares | | Amount | | Accumulated Other Comprehensive Loss (2) |
Balance at December 31, 2018 | 80 |
| | $ | 1 |
| | $ | 2,408 |
| | $ | 4,101 |
| | 33 |
| | $ | (2,870 | ) | | $ | (237 | ) |
Net income | | | | | | | 445 |
| | | | | | |
Foreign currency translation adjustments | | | | | | | | | | | | | 42 |
|
Fixed price diesel swaps | | | | | | | | | | | | | 1 |
|
Stock compensation expense, net | — |
| | | | 31 |
| | | | | | | | |
Exercise of common stock options | | | | | 10 |
| | | | | | | | |
Shares repurchased and retired | | | | | (34 | ) | | | | | | | | |
Repurchase of common stock | (3 | ) | | | | | | | | 3 |
| | (420 | ) | | |
Balance at June 30, 2019 | 77 |
| | $ | 1 |
| | $ | 2,415 |
| | $ | 4,546 |
| | 36 |
| | $ | (3,290 | ) | | $ | (194 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2018 |
| Common Stock | | | | | | Treasury Stock | | |
| Number of Shares (1) | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Number of Shares | | Amount | | Accumulated Other Comprehensive Loss (2) |
Balance at December 31, 2017 | 84 |
| | $ | 1 |
| | $ | 2,356 |
| | $ | 3,005 |
| | 28 |
| | $ | (2,105 | ) | | $ | (151 | ) |
Net income | | | | | | | 453 |
| | | | | | |
Foreign currency translation adjustments | | | | | | | | | | | | | (46 | ) |
Fixed price diesel swaps | | | | | | | | | | | | | 1 |
|
Stock compensation expense, net | 1 |
| | | | 43 |
| | | | | | | | |
Exercise of common stock options | | | | | 2 |
| | | | | | | | |
Shares repurchased and retired | | | | | (50 | ) | | | | | | | | |
Repurchase of common stock | (2 | ) | | | | | | | | 2 |
| | (345 | ) | | |
Balance at June 30, 2018 | 83 |
| | $ | 1 |
| | $ | 2,351 |
| | $ | 3,458 |
| | 30 |
| | $ | (2,450 | ) | | $ | (196 | ) |
(1)Common stock outstanding decreased by approximately 8less than 5 million net shares during the year ended December 31, 2016.2018.
(2)The Accumulated Other Comprehensive Loss balance primarily reflects foreign currency translation adjustments.
See accompanying notes.
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | Nine Months Ended | Six Months Ended |
| September 30, | June 30, |
| 2017 | | 2016 | 2019 | | 2018 |
Cash Flows From Operating Activities: | | | | | | |
Net income | $ | 449 |
| | $ | 413 |
| $ | 445 |
| | $ | 453 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation and amortization | 993 |
| | 927 |
| 1,003 |
| | 783 |
|
Amortization of deferred financing costs and original issue discounts | 6 |
| | 7 |
| 8 |
| | 6 |
|
Gain on sales of rental equipment | (153 | ) | | (146 | ) | (148 | ) | | (139 | ) |
Gain on sales of non-rental equipment | (4 | ) | | (3 | ) | (3 | ) | | (3 | ) |
Gain on insurance proceeds from damaged equipment | | (12 | ) | | (14 | ) |
Stock compensation expense, net | 64 |
| | 33 |
| 31 |
| | 43 |
|
Merger related costs | 32 |
| | — |
| 1 |
| | 3 |
|
Restructuring charge | 28 |
| | 8 |
| 14 |
| | 6 |
|
Loss on repurchase/redemption of debt securities and amendment of ABL facility | 43 |
| | 36 |
| 32 |
| | — |
|
Excess tax benefits from share-based payment arrangements | — |
| | (53 | ) | |
Increase in deferred taxes | 97 |
| | 90 |
| 49 |
| | 93 |
|
Changes in operating assets and liabilities, net of amounts acquired: | | | | | | |
(Increase) decrease in accounts receivable | (172 | ) | | 7 |
| |
Decrease in accounts receivable | | 39 |
| | 29 |
|
Increase in inventory | (9 | ) | | (3 | ) | (25 | ) | | (19 | ) |
(Increase) decrease in prepaid expenses and other assets | (1 | ) | | 75 |
| (23 | ) | | 25 |
|
Increase in accounts payable | 350 |
| | 137 |
| 211 |
| | 451 |
|
Increase in accrued expenses and other liabilities | 43 |
| | 102 |
| |
Decrease in accrued expenses and other liabilities | | (32 | ) | | (68 | ) |
Net cash provided by operating activities | 1,766 |
| | 1,630 |
| 1,590 |
| | 1,649 |
|
Cash Flows From Investing Activities: | | | | | | |
Purchases of rental equipment | (1,485 | ) | | (1,145 | ) | (1,129 | ) | | (1,226 | ) |
Purchases of non-rental equipment | (87 | ) | | (65 | ) | (97 | ) | | (80 | ) |
Proceeds from sales of rental equipment | 378 |
| | 361 |
| 389 |
| | 338 |
|
Proceeds from sales of non-rental equipment | 10 |
| | 12 |
| 15 |
| | 8 |
|
Insurance proceeds from damaged equipment | | 12 |
| | 14 |
|
Purchases of other companies, net of cash acquired | (1,063 | ) | | (28 | ) | (195 | ) | | (58 | ) |
Purchases of investments | (5 | ) | | — |
| (1 | ) | | (1 | ) |
Net cash used in investing activities | (2,252 | ) | | (865 | ) | (1,006 | ) | | (1,005 | ) |
Cash Flows From Financing Activities: | | | | | | |
Proceeds from debt | 8,702 |
| | 5,812 |
| 4,590 |
| | 4,330 |
|
Payments of debt | (8,156 | ) | | (6,021 | ) | (4,679 | ) | | (4,806 | ) |
Proceeds from the exercise of common stock options | 1 |
| | — |
| 10 |
| | 2 |
|
Common stock repurchased | (26 | ) | | (488 | ) | (454 | ) | | (395 | ) |
Payments of financing costs | (44 | ) | | (12 | ) | (19 | ) | | (1 | ) |
Excess tax benefits from share-based payment arrangements | — |
| | 53 |
| |
Net cash provided by (used in) financing activities | 477 |
| | (656 | ) | |
Net cash used in financing activities | | (552 | ) | | (870 | ) |
Effect of foreign exchange rates | 21 |
| | 9 |
| — |
| | (9 | ) |
Net increase in cash and cash equivalents | 12 |
| | 118 |
| |
Net increase (decrease) in cash and cash equivalents | | 32 |
| | (235 | ) |
Cash and cash equivalents at beginning of period | 312 |
| | 179 |
| 43 |
| | 352 |
|
Cash and cash equivalents at end of period | $ | 324 |
| | $ | 297 |
| $ | 75 |
| | $ | 117 |
|
Supplemental disclosure of cash flow information: | | | | | | |
Cash paid for income taxes, net | $ | 114 |
| | $ | 14 |
| $ | 73 |
| | $ | 39 |
|
Cash paid for interest | 305 |
| | 294 |
| 301 |
| | 213 |
|
See accompanying notes.
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share data, unless otherwise indicated)
1. Organization, Description of Business and Basis of Presentation
United Rentals, Inc. (“Holdings,” “URI” or the “Company”) is principally a holding company and conducts its operations primarily through its wholly owned subsidiary, United Rentals (North America), Inc. (“URNA”), and subsidiaries of URNA. Holdings’ primary asset is its sole ownership of all issued and outstanding shares of common stock of URNA. URNA’s various credit agreements and debt instruments place restrictions on its ability to transfer funds to its shareholder.
We rent equipment to a diverse customer base that includes construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government entities in the United States, Canada and Canada.Europe. In addition to renting equipment, we sell new and used rental equipment, as well as related contractor supplies, parts and service.
We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with the accounting policies described in our annual report on Form 10-K for the year ended December 31, 20162018 (the “20162018 Form 10-K”) and the interim reporting requirements of Form 10-Q. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the 20162018 Form 10-K.
In our opinion, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of financial condition, operating results and cash flows for the interim periods presented have been made. Interim results of operations are not necessarily indicative of the results of the full year.
New Accounting Pronouncements
Leases. In March 2016, the Financial Accounting Standards Board (“FASB”) issued guidance ("Topic 842") to increase transparency and comparability among organizations by requiring i) recognition of lease assets and lease liabilities on the balance sheet and ii) disclosure of key information about leasing arrangements. Some changes to the lessor accounting guidance were made to align both of the following: i) the lessor accounting guidance with certain changes made to the lessee accounting guidance and ii) key aspects of the lessor accounting model with revenue recognition guidance. Topic 842 will be effective for fiscal years and interim periods beginning after December 15, 2018, and early adoption is permitted. A modified retrospective approach is required for adoption for all leases that exist at or commence after the date of initial application with an option to use certain practical expedients. We expect to adopt this guidance when effective.
As discussed below, most of our equipment rental revenues, which accounted for 86 percent of total revenues for the nine months ended September 30, 2017, will be accounted for under the current lease accounting standard ("Topic 840") until the adoption of Topic 842. While our review of the equipment rental revenue accounting under Topic 842 is ongoing, we have tentatively concluded that no significant changes are expected to the accounting for most of our equipment rental revenues upon adoption of Topic 842.
Under Topic 842, our operating leases, which include both real estate and non-rental equipment, will result in lease assets and lease liabilities being recognized on the balance sheet. We lease a significant portion of our branch locations, and also lease other premises used for purposes such as district and regional offices and service centers. We expect that the quantification of the amount of the lease assets and lease liabilities that we will recognize on our balance sheet will take a significant amount of time given the size of our lease portfolio. While our review of the lessee accounting requirements of Topic 842 is ongoing, we believe that the impact on our balance sheet, while not currently estimable, will be significant.
Revenue from Contracts with Customers. In May 2014, and in subsequent updates, the FASB issued guidance ("Topic 606") to clarify the principles for recognizing revenue. This guidance includes the required steps to achieve the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective for fiscal years and interim periods beginning after December 15, 2017, and early adoption (for fiscal years and interim periods beginning after December 15, 2016) is permitted. We expect to adopt this guidance when effective.
Upon adoption of Topic 606, we will recognize revenue in accordance with two different accounting standards: 1) Topic 606 and 2) Topic 840. As discussed above, we expect to adopt Topic 842, an update to Topic 840, when it becomes effective, on January 1, 2019. While our review of our revenue accounting is ongoing, we expect that most of our equipment rental revenues, which accounted for 86 percent of total revenues for the nine months ended September 30, 2017, will be accounted for under
Topic 840 until the adoption of Topic 842, and that our non-equipment rental revenues will be accounted for under Topic 606. While our review of our non-equipment rental revenue accounting is ongoing, we do not believe that Topic 606 will have a significant impact on our financial statements.
We are also evaluating the disclosure requirements of Topic 606, as well as its impact on our internal controls over financial reporting.
Statement of Cash Flows. In August 2016, the FASB issued guidance to reduce the diversity in the presentation of certain cash receipts and cash payments presented and classified in the statement of cash flows. The guidance addresses the following specific cash flow issues: (1) debt prepayment or debt extinguishment costs, (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (6) distributions received from equity method investees, (7) beneficial interests in securitization transitions and (8) separately identifiable cash flows and application of predominance principle. The guidance will be effective for fiscal years and interim periods beginning after December 15, 2017, and early adoption is permitted. The guidance requires retrospective adoption. We expect to adopt this guidance when effective, and do not expect the guidance to have a significant impact on our financial statements.
Measurement of Credit Losses on Financial Instruments. In June 2016, the FASBFinancial Accounting Standards Board ("FASB") issued guidance that will require companies to present assets held at amortized cost and available for sale debt securities net of the amount expected to be collected. The guidance requires the measurement of expected credit losses to be based on relevant information from past events, including historical experiences, current conditions and reasonable and supportable forecasts that affect collectibility. The guidance will be effective for fiscal years and interim periods beginning after December 15, 2019 and early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Different components of the guidance require modified retrospective or prospective adoption. We are currently assessing whether we will early adopt, andThis guidance does not apply to receivables arising from operating leases. As discussed in note 2 to the impact on ourcondensed consolidated financial statements, most of our equipment rental revenue is not currently estimable.
Intra-Entity Transfersaccounted for as lease revenue (such revenue represented 78 percent of Assets Other Than Inventory. In October 2016,our total revenues for the FASB issued guidance that will require companies to recognize the income tax effects of intra-entity sales and transfers of assets other than inventory in the period in which the transfer occurs. The guidance will be effective for fiscal years and interim periods beginning after December 15, 2017, and early adoption is permitted. The guidance requires modified retrospective adoption.six months ended June 30, 2019). We expect to adopt this guidance when effective, and do not expect the guidance to have a significant impact on our financial statements.statements, while limited to our non-operating lease receivables, is not currently estimable, as it will depend on market conditions and our forecast expectations upon, and following, adoption.
Simplifying the Test for Goodwill Impairment. In January 2017, the FASB issued guidance intended to simplify the subsequent accounting for goodwill acquired in a business combination. Prior guidance required utilizing a two-step process to review goodwill for impairment. A second step was required if there was an indication that an impairment may exist, and the second step required calculating the potential impairment by comparing the implied fair value of the reporting unit's goodwill (as if purchase accounting were performed on the testing date) with the carrying amount of the goodwill. The new guidance eliminates the second step from the goodwill impairment test. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and then recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value (although the loss should not exceed the total amount of goodwill allocated to the reporting unit). The guidance requires prospective adoption and will be effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption of this guidance is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We expect to adopt this guidance when effective, and do not expect it to have a significant impact on our financial statements.
Clarifying the Definition of a Business. In January 2017, the FASB issued guidance to clarify the definition of a business with the objective of assisting entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is intended to make determining when a set of assets and activities is a business more consistent and cost-efficient. The guidance will be effective for fiscal years and interim periods beginning after December 15, 2017 and early adoption is permitted for transactions that occurred before the issuance date or effective date of the guidance if the transactions were not reported in financial statements that have been issued or made available for issuance. We expect to adopt this guidance when effective. The impact of this guidance will depend on the nature of our activities after adoption, and fewer transactions may be treated as acquisitions (or disposals) of businesses after adoption.
Stock Compensation: Scope of Modification Accounting. In May 2017, the FASB issued guidance to provide clarity and reduce both the (1) diversity in practice and (2) cost and complexity when changing the terms or conditions of share-based
payment awards. Under the updated guidance, a modification is defined as a change in the terms or conditions of a share-based payment award, and an entity should account for the effects of a modification unless all of the following are met:
1.The fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation techniques that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification.
2.The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified.
3.The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified.
This guidance requires prospective adoption and will be effective for fiscal years and interim periods beginning after December 15, 2017, and early adoption is permitted. The majority of our modifications relate to the acceleration of vesting conditions and we would continue to be required to account for the effects of such modifications under the updated guidance. We expect to adopt this guidance when effective, and do not expect that this guidance will have a significant impact on our financial statements.
Derivatives and Hedging. In August 2017, the FASB issued guidance with the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The guidance is additionally intended to simplify hedge accounting, and no longer requires separate measurement and reporting of hedge ineffectiveness. For cash flow and net investment hedges existing at the date of adoption, entities must apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings. The amended presentation and disclosure guidance is required prospectively. The guidance will be effective for fiscal years and interim periods beginning after December 15, 2018, and early adoption is permitted. We are currently assessing whether we will early adopt. Given our currently limited use of derivative instruments (see note 6 to our condensed consolidated financial statements), theThe guidance is not expected to have a significant impact on our financial statements.
Guidance Adopted in 20172019
ImprovementsLeases. See note 8 to Employee Share-Based Payment Accounting.our condensed consolidated financial statements for a discussion of our lease accounting following our adoption of an updated FASB lease accounting standard in 2019.
2. Revenue Recognition
Revenue Recognition Accounting Standards
In May 2014, and in subsequent updates, the FASB issued guidance ("Topic 606") to clarify the principles for recognizing revenue. We adopted Topic 606 on January 1, 2018. Topic 606 includes the required steps to achieve the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
In March 2016, the FASB issued updated lease accounting guidance ("Topic 842"), as explained further in note 8 to the condensed consolidated financial statements. We adopted Topic 842 on January 1, 2019. Topic 842 is an update to Topic 840, which was the lease accounting standard in place through December 31, 2018. As reflected below, most of our revenue is accounted for under Topic 842 (Topic 840 for 2018). There were no significant changes to our revenue accounting upon adoption of Topic 842.
We recognize revenue in accordance with two different accounting standards: 1) Topic 606 and 2) Topic 842. Under Topic 606, revenue from contracts with customers is measured based on the consideration specified in the contract with the customer, and excludes any sales incentives and amounts collected on behalf of third parties. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer, and is the unit of account under Topic 606. As reflected below, most of our revenue is accounted for under Topic 842. Our contracts with customers generally do not include multiple performance obligations. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for such products or services.
Nature of goods and services
In the first quarterfollowing table, revenue is summarized by type and by the applicable accounting standard. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | |
| Three Months Ended June 30, |
| | | 2019 | | | | | | 2018 | | |
| Topic 842 | | Topic 606 | | Total | | Topic 840 | | Topic 606 | | Total |
Revenues: | | | | | | | | | | | |
Owned equipment rentals | $ | 1,668 |
| | $ | — |
| | $ | 1,668 |
| | $ | 1,406 |
| | $ | — |
| | $ | 1,406 |
|
Re-rent revenue | 37 |
| | — |
| | 37 |
| | 29 |
| | — |
| | 29 |
|
Ancillary and other rental revenues: | | | | | | | | | | | |
Delivery and pick-up | — |
| | 143 |
| | 143 |
| | — |
| | 112 |
| | 112 |
|
Other | 87 |
| | 25 |
| | 112 |
| | 64 |
| | 20 |
| | 84 |
|
Total ancillary and other rental revenues | 87 |
| | 168 |
| | 255 |
| | 64 |
| | 132 |
| | 196 |
|
Total equipment rentals | 1,792 |
| | 168 |
| | 1,960 |
| | 1,499 |
| | 132 |
| | 1,631 |
|
Sales of rental equipment | — |
| | 197 |
| | 197 |
| | — |
| | 157 |
| | 157 |
|
Sales of new equipment | — |
| | 60 |
| | 60 |
| | — |
| | 44 |
| | 44 |
|
Contractor supplies sales | — |
| | 27 |
| | 27 |
| | — |
| | 24 |
| | 24 |
|
Service and other revenues | — |
| | 46 |
| | 46 |
| | — |
| | 35 |
| | 35 |
|
Total revenues | $ | 1,792 |
| | $ | 498 |
| | $ | 2,290 |
| | $ | 1,499 |
| | $ | 392 |
| | $ | 1,891 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| | | 2019 | | | | | | 2018 | | |
| Topic 842 | | Topic 606 | | Total | | Topic 840 | | Topic 606 | | Total |
Revenues: | | | | | | | | | | | |
Owned equipment rentals | $ | 3,198 |
| | $ | — |
| | $ | 3,198 |
| | $ | 2,671 |
| | $ | — |
| | $ | 2,671 |
|
Re-rent revenue | 72 |
| | — |
| | 72 |
| | 54 |
| | — |
| | 54 |
|
Ancillary and other rental revenues: | | | | | | | | | | | |
Delivery and pick-up | — |
| | 262 |
| | 262 |
| | — |
| | 204 |
| | 204 |
|
Other | 167 |
| | 56 |
| | 223 |
| | 120 |
| | 41 |
| | 161 |
|
Total ancillary and other rental revenues | 167 |
| | 318 |
| | 485 |
| | 120 |
| | 245 |
| | 365 |
|
Total equipment rentals | 3,437 |
| | 318 |
| | 3,755 |
| | 2,845 |
| | 245 |
| | 3,090 |
|
Sales of rental equipment | — |
| | 389 |
| | 389 |
| | — |
| | 338 |
| | 338 |
|
Sales of new equipment | — |
| | 122 |
| | 122 |
| | — |
| | 86 |
| | 86 |
|
Contractor supplies sales | — |
| | 51 |
| | 51 |
| | — |
| | 42 |
| | 42 |
|
Service and other revenues | — |
| | 90 |
| | 90 |
| | — |
| | 69 |
| | 69 |
|
Total revenues | $ | 3,437 |
| | $ | 970 |
| | $ | 4,407 |
| | $ | 2,845 |
| | $ | 780 |
| | $ | 3,625 |
|
Revenues by reportable segment and geographical market are presented in notes 4 and 11 of 2017,the condensed consolidated financial statements, respectively, using the revenue captions reflected in our condensed consolidated statements of operations. The majority of our revenue is recognized in our general rentals segment and in the U.S. (for the six months ended June 30, 2019, 80 percent and 91 percent of total revenues, respectively). We believe that the disaggregation of our revenue from contracts to customers as reflected above, coupled with the further discussion below and the reportable segment and geographical market disclosures in notes 4 and 11, depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.
Lease revenues (Topic 842)
The accounting for the types of revenue that are accounted for under Topic 842 is discussed below.
Owned equipment rentals represent our most significant revenue type (they accounted for 73 percent of total revenues for the six months ended June 30, 2019) and are governed by our standard rental contract. We account for such rentals as operating leases. The lease terms are included in our contracts, and the determination of whether our contracts contain leases generally does not require significant assumptions or judgments. Our lease revenues do not include material amounts of variable payments.
Owned equipment rentals: Owned equipment rentals represent revenues from renting equipment that we adopted guidanceown. We do not generally provide an option for the lessee to purchase the rented equipment at the end of the lease, and do not generate material revenue from sales of equipment under such options.
We recognize revenues from renting equipment on a straight-line basis. Our rental contract periods are hourly, daily, weekly or monthly. By way of example, if a customer were to rent a piece of equipment and the daily, weekly and monthly rental rates for that simplified several aspectsparticular piece were (in actual dollars) $100, $300 and $900, respectively, we would recognize revenue of $32.14 per day. The daily rate for recognition purposes is calculated by dividing the monthly rate of $900 by the monthly term of 28 days. This daily rate assumes that the equipment will be on rent for the full 28 days, as we are unsure of when the customer will return the equipment and therefore unsure of which rental contract period will apply.
As part of this straight-line methodology, when the equipment is returned, we recognize as incremental revenue the excess, if any, between the amount the customer is contractually required to pay, which is based on the rental contract period applicable to the actual number of days the equipment was out on rent, over the cumulative amount of revenue recognized to date. In any given accounting period, we will have customers return equipment and be contractually required to pay us more than the cumulative amount of revenue recognized to date under the straight-line methodology. For instance, continuing the above example, if the customer rented the above piece of equipment on December 29 and returned it at the close of business on January 1, we would recognize incremental revenue on January 1 of $171.44 (in actual dollars, representing the difference between the amount the customer is contractually required to pay, or $300 at the weekly rate, and the cumulative amount recognized to date on a straight-line basis, or $128.56, which represents four days at $32.14 per day).
We record amounts billed to customers in excess of recognizable revenue as deferred revenue on our balance sheet. We had deferred revenue (associated with both Topic 842/840 and Topic 606) of $58 and $56 as of June 30, 2019 and December 31, 2018, respectively.
As noted above, we are unsure of when the customer will return rented equipment. As such, we do not know how much the customer will owe us upon return of the equipment and cannot provide a maturity analysis of future lease payments. Our equipment is generally rented for short periods of time. Lessees do not provide residual value guarantees on rented equipment.
We expect to derive significant future benefits from our equipment following the end of the rental term. Our rentals are generally short-term in nature, and our equipment is typically rented for the majority of the time that we own it. We additionally recognize revenue from sales of rental equipment when we dispose of the equipment.
Re-rent revenue: Re-rent revenue reflects revenues from equipment that we rent from vendors and then rent to our customers. We account for such rentals as subleases. The accounting for re-rent revenue is the same as the accounting for share-based payment transactions,owned equipment rentals described above.
“Other” equipment rental revenue is primarily comprised of 1) Rental Protection Plan (or "RPP") revenue associated with the damage waiver customers can purchase when they rent our equipment to protect against potential loss or damage, 2) environmental charges associated with the rental of equipment, and 3) charges for rented equipment that is damaged by our customers.
Revenues from contracts with customers (Topic 606)
The accounting for the types of revenue that are accounted for under Topic 606 is discussed below. Substantially all of our revenues under Topic 606 are recognized at a point-in-time rather than over time.
Delivery and pick-up: Delivery and pick-up revenue associated with renting equipment is recognized when the service is performed.
“Other” equipment rental revenue is primarily comprised of revenues associated with the consumption of fuel by our customers which are recognized when the equipment is returned by the customer (and consumption, if any, can be measured).
Sales of rental equipment, new equipment and contractor supplies are recognized at the time of delivery to, or pick-up by, the customer and when collectibility is reasonably assured.
Service and other revenues primarily represent revenues earned from providing repair and maintenance services on our customers’ fleet (including parts sales). Service revenue is recognized as the services are performed.
Receivables and contract assets and liabilities
As reflected above, most of our equipment rental revenue is accounted for under Topic 842 (such revenue represented 78 percent of our total revenues for the six months ended June 30, 2019). The customers that are responsible for the remaining revenue that is accounted for under Topic 606 are generally the same customers that rent our equipment. We manage credit risk associated with our accounts receivables at the customer level. Because the same customers generate the revenues that are accounted for under both Topic 606 and Topic 842, the discussions below on credit risk and our allowances for doubtful accounts address receivables arising from revenues from both Topic 606 and Topic 842 (Topic 840 for 2018).
Concentration of credit risk with respect to our receivables is limited because a large number of geographically diverse customers makes up our customer base. Our largest customer accounted for less than one percent of total revenues for the six months ended June 30, 2019, and for each of the last three full years. Our customer with the largest receivable balance represented approximately one percent of total receivables at June 30, 2019 and December 31, 2018. We manage credit risk through credit approvals, credit limits and other monitoring procedures.
Our allowances for doubtful accounts reflect our estimate of the amount of our receivables that we will be unable to collect based on historical write-off experience. Our estimate could require change based on changing circumstances, including changes in the income tax consequences, classificationeconomy or in the particular circumstances of awards as either equityindividual customers. Accordingly, we may be required to increase or liabilities, and classificationdecrease our allowances. Trade receivables that have contractual maturities of one year or less are written-off when they are determined to be uncollectible based on the statementcriteria necessary to qualify as a deduction for federal tax purposes. Write-offs of cash flows. such receivables require management approval based on specified dollar thresholds. During the six months ended June 30, 2019 and 2018, we recognized total additions, excluding acquisitions, to our allowances for doubtful accounts of $27 and $12, respectively, primarily 1) as a reduction to equipment rental revenue or 2) as bad debt expense within selling, general and administrative expenses in our condensed consolidated statements of income.
We prospectively adopted the amendmentsdo not have material contract assets, or impairment losses associated therewith, or material contract liabilities, associated with contracts with customers. Our contracts with customers do not generally result in this guidance that relatematerial amounts billed to the classification of excess tax benefits from share-based payment arrangements on the statement of cash flows. The excess tax benefits from share-based payment arrangements result from stock-based compensation windfall deductionscustomers in excess of recognizable revenue. We did not recognize material revenue during the three or six months ended June 30, 2019 or 2018 that was included in the contract liability balance as of the beginning of such periods.
Performance obligations
Most of our Topic 606 revenue is recognized at a point-in-time, rather than over time. Accordingly, in any particular period, we do not generally recognize a significant amount of revenue from performance obligations satisfied (or partially satisfied) in previous periods, and the amounts reported for financial reporting purposes. Inof such revenue recognized during the ninethree and six months ended SeptemberJune 30, 2017,2019 and 2018 were not material. We also do not expect to recognize material revenue in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of June 30, 2019.
Payment terms
Our Topic 606 revenues do not include material amounts of variable consideration. Our payment terms vary by the type and location of our customer and the products or services offered. The time between invoicing and when payment is due is not significant. Our contracts do not generally include a significant financing component. For certain products or services and customer types, we recognized $8 of such excess tax benefits, and, pursuantrequire payment before the products or services are delivered to the adopted guidance,customer. Our contracts with customers do not generally result in significant obligations associated with returns, refunds or warranties. See above for a discussion of how we manage credit risk.
Revenue is recognized net income increased by $8, or $0.10 per diluted share, reflecting the tax reductionof taxes collected from customers, which are subsequently remitted to governmental authorities.
Contract costs
We do not recognize any assets associated with the excess tax benefits. Prior periods have not been adjustedincremental costs of obtaining a contract with a customer (for example, a sales commission) that we expect to reflectrecover. Most of our revenue is recognized at a point-in-time or over a period of one year or less, and we use the new guidance relatedpractical expedient that allows us to recognize the classificationincremental costs of obtaining a contract as an expense when incurred if the amortization period of the excess tax benefits, asasset that we otherwise would have elected to prospectively adopt such guidance. Accordingly, our statement of cash flowsrecognized is one year or less.
Contract estimates and judgments
Our revenues accounted for under Topic 606 generally do not require significant estimates or judgments, primarily for the nine months ended September 30, 2016 reflects $53 of such excess tax benefits within net cash used in financing activities. Allfollowing reasons:
The transaction price is generally fixed and stated on our contracts;
As noted above, our contracts generally do not include multiple performance obligations, and accordingly do not generally require estimates of the excess tax benefitsstandalone selling price for each performance obligation;
Our revenues do not include material amounts of variable consideration, or result in significant obligations associated with returns, refunds or warranties; and
Most of our revenue is recognized as of a point-in-time and the nine months ended September 30, 2016 pertain to share based payments that vested prior to 2016, and, accordingly, would not have impacted net income under the new guidance.
Other significant componentstiming of the adopted guidance include:
The guidance requires that cash paid by an employer to a taxing authority when directly withholding shares for tax-withholding purposes should be classified as a financing activity on the statement of cash flows. We have historically classified such payments as financing activities, so no retrospective change was required to our 2016 statement of cash flows.
Certain aspectssatisfaction of the guidance requireapplicable performance obligations is readily determinable. As noted above, our Topic 606 revenue is generally recognized at the time of delivery to, or pick-up by, the customer.
We monitor and review our estimated standalone selling prices on a cumulative change to retained earnings upon adoption. Upon adopting this guidance, we elected to record forfeitures of share-based payments as they occur. Making such an election requires a cumulative change to retained earnings upon adoption. However, we historically adjusted estimated forfeitures to reflect actual forfeitures annually, as a result of which no change to retained earnings was required. In 2016, we utilized all of the prior federal excess tax benefits from share-based payments that vested through 2016, and, accordingly, no change to retained earnings was required associated with federal excess tax benefits from share-based payments. A $5 change to retained earnings was required associated with state excess tax benefits from share-based payments that were not previously recognized because the related tax deduction had not reduced taxes payable.regular basis.
3. Acquisitions
BakerCorp Acquisition
In July 2018, we completed the acquisition of BakerCorp. BakerCorp was a leading multinational provider of tank, pump, filtration and trench shoring rental solutions for a broad range of industrial and construction applications. BakerCorp had approximately 950 employees, and its operations were primarily concentrated in the United States and Canada, where it had 46 locations. BakerCorp also had 11 locations in France, Germany, the United Kingdom and the Netherlands. BakerCorp had annual revenues of approximately $295. The acquisition:
•Augmented our bundled solutions for fluid storage, transfer and treatment;
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
2. Acquisitions•Expanded our strategic account base; and
NES Acquisition
In April 2017, we completed the acquisition of NES Rentals Holdings II, Inc. (“NES”). NES was•Provided a provider of rental equipment with 73 branches located throughout the eastern half of the U.S.,significant opportunity to increase revenue and had approximately 1,100 employees and approximately $900 of rental assets at original equipment cost as of December 31, 2016. NES had annual revenues of approximately $369. The acquisition is expected to:
•Increaseenhance customer service by cross-selling to our density in strategically important markets, including the East Coast, Gulf States and the Midwest;
•Strengthen our relationships with local and strategic accounts in the construction and industrial sectors, which we expect will enhance cross-selling opportunities and drive revenue synergies; and
•Create meaningful opportunities for cost synergies in areas such as corporate overhead, operational efficiencies and purchasing.broader customer base.
The aggregate consideration paid to holders of NES common stock and options was approximately $960.$720. The acquisition and related fees and expenses were funded through available cash, drawings on our senior secured asset-based revolving credit facility (“ABL facility”) and new debt issuances. See note 8 to the condensed consolidated financial statements for additional detail on the debt issuances.facility.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed asassumed.
|
| | | |
Accounts receivable, net of allowance for doubtful accounts (1) | $ | 74 |
|
Inventory | 5 |
|
Rental equipment | 268 |
|
Property and equipment | 25 |
|
Intangibles (2) | 171 |
|
Other assets | 4 |
|
Total identifiable assets acquired | 547 |
|
Current liabilities | (61 | ) |
Deferred taxes | (13 | ) |
Total liabilities assumed | (74 | ) |
Net identifiable assets acquired | 473 |
|
Goodwill (3) | 247 |
|
Net assets acquired | $ | 720 |
|
(1) The fair value of accounts receivables acquired was $74, and the gross contractual amount was $81. We estimated that $7 would be uncollectible.
(2) The following table reflects the fair values and useful lives of the acquired intangible assets identified based on our purchase accounting assessments: |
| | | | |
| Fair value | Life (years) |
Customer relationships | $ | 166 |
| 8 |
Trade names and associated trademarks | 5 |
| 5 |
Total | $ | 171 |
| |
(3) All of the goodwill was assigned to our trench, power and fluid solutions segment. The level of goodwill that resulted from the acquisition is primarily reflective of BakerCorp's going-concern value, the value of BakerCorp's assembled workforce, new customer relationships expected to arise from the acquisition, and operational synergies that we expect to achieve that are not associated with the identifiable assets. $6 of goodwill is expected to be deductible for income tax purposes.
The three and six months ended June 30, 2019 include BakerCorp acquisition-related costs which are included in “Merger related costs” in our condensed consolidated statements of income.
Since the acquisition date, significant amounts of fleet have been moved between URI locations and the acquired BakerCorp locations, and it is not practicable to reasonably estimate the amounts of revenue and earnings of BakerCorp since the acquisition date. The opening balance sheetimpact of the BakerCorp acquisition on our equipment rentals revenue is primarily reflected in the increases in average OEC of 23.2 percent and 23.4 percent for the three and six months ended June 30, 2019, respectively. Such increases include the impact of the acquisition of BlueLine discussed below.
BlueLine Acquisition
In October 2018, we completed the acquisition of BlueLine. BlueLine was one of the ten largest equipment rental companies in North America and served customers in the construction and industrial sectors with a focus on mid-sized and local accounts. BlueLine had 114 locations and over 1,700 employees based in 25 U.S. states, Canada and Puerto Rico. BlueLine had annual revenues of approximately $786. The acquisition:
•Expanded our equipment rental capacity in many of the largest metropolitan areas in North America,
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
including both U.S. coasts, the Gulf South and Ontario;
•Provided a well-diversified customer base with a balanced mix of commercial construction and industrial accounts;
•Added more mid-sized and local accounts to our customer base; and
•Provided a significant opportunity to increase revenue and enhance customer service by cross-selling to our broader customer base.
The aggregate consideration paid was approximately $2.072 billion. The acquisition and related fees and expenses were funded through borrowings under a new $1 billion senior secured term loan credit facility (the “term loan facility”) and the issuance of $1.1 billion principal amount of 6 1/2 percent Senior Notes due 2026.
The following table summarizes the fair values assigned toof the assets acquired and liabilities assumed. The purchase price allocations for these assets and liabilities are based on preliminary valuations and are subject to change as we obtain additional information during the acquisition measurement period.
| | Accounts receivable, net of allowance for doubtful accounts (1) | $ | 49 |
| $ | 117 |
|
Inventory | 4 |
| 7 |
|
Rental equipment | 571 |
| 1,078 |
|
Property and equipment | 48 |
| 71 |
|
Intangibles (2) | 139 |
| |
Intangibles (customer relationships) (2) | | 230 |
|
Other assets | 7 |
| 42 |
|
Total identifiable assets acquired | 818 |
| 1,545 |
|
Short-term debt and current maturities of long-term debt (3) | (3 | ) | (12 | ) |
Current liabilities | (28 | ) | (130 | ) |
Deferred taxes | (14 | ) | (7 | ) |
Long-term debt (3) | (11 | ) | (25 | ) |
Other long-term liabilities | (5 | ) | (4 | ) |
Total liabilities assumed | (61 | ) | (178 | ) |
Net identifiable assets acquired | 757 |
| 1,367 |
|
Goodwill (4) | 203 |
| 705 |
|
Net assets acquired | $ | 960 |
| $ | 2,072 |
|
(1) The fair value of accounts receivables acquired was $49,$117, and the gross contractual amount was $53.$125. We estimated that $4$8 would be uncollectible.
(2) The following table reflects the estimated fair values and useful lives of the acquired intangible assets identified based on our purchase accounting assessments:customer relationships are being amortized over a 5 year life. |
| | | | |
| Fair value | Life (years) |
Customer relationships | $ | 138 |
| 10 |
Non-compete agreements | 1 |
| 1 |
Total | $ | 139 |
| |
(3) The acquired debt reflects capitalfinance lease obligations.
(4) All of the goodwill was assigned to our general rentals segment. The level of goodwill that resulted from the acquisition is primarily reflective of NES'sBlueLine's going-concern value, the value of NES'sBlueLine's assembled workforce, new customer
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
relationships expected to arise from the acquisition, and operational synergies that we expect to achieve that wouldare not be available to other market participants. $1associated with the identifiable assets. $25 of goodwill is expected to be deductible for income tax purposes.
The three and ninesix months ended SeptemberJune 30, 20172019 include NESBlueLine acquisition-related costs of $1 and $17, respectively, which are included in “Merger related costs” in our condensed consolidated statements of income. The merger related costs are comprised of financial and legal advisory fees. In addition to the acquisition-related costs reflected in our condensed consolidated statements of income, the debt issuance costs and the original issue premiums associated with the issuance of debt to fund the acquisition are reflected, net of amortization subsequent to the acquisition date, in long-term debt in our condensed consolidated balance sheets. See note 8 to the condensed consolidated financial statements for additional detail on the debt issuances.
Since the acquisition date, significant amounts of fleet have been moved between URI locations and the acquired NESBlueLine locations, and it is not practicable to reasonably estimate the amounts of revenue and earnings of NESBlueLine since the acquisition date. The impact of the NESBlueLine acquisition on our equipment rentals revenue is primarily reflected in the increases in the volumeaverage OEC of OEC on rent of 18.223.2 percent and 14.523.4 percent for the three and ninesix months ended SeptemberJune 30, 2017,2019, respectively. Such increases include the impact of the acquisition of BakerCorp discussed above.
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
Pro forma financial information
The pro forma information below gives effect to the NES acquisitionBakerCorp and BlueLine acquisitions as if itthey had been completed on January 1, 20162018 (“the pro forma acquisition date”). The pro forma information is not necessarily indicative of our results of operations had the acquisitionacquisitions been completed on the above date, nor is it necessarily indicative of our future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisition,acquisitions, and also does not reflect additional revenue opportunities following the acquisition.acquisitions. The pro forma information includes adjustments to record the assets and liabilities of NESBakerCorp and BlueLine at their respective fair values based on available information and to give effect to the financing for the acquisitionacquisitions and related transactions. The pro forma adjustments reflected in the table below are subject to change as additional analysis is performed. The acquisition measurement period for BakerCorp has ended and the values assigned to the BakerCorp assets acquired and liabilities assumed are final. The opening balance sheet values assigned to the BlueLine assets acquired and liabilities assumed are based on preliminary valuations and are subject to change as we obtain additional information during the acquisition measurement period. Increases or decreases in the estimated fair values of the net assets acquired may impact our statements of income in future periods. We expect that the values assigned to the assets acquired and liabilities assumed will be finalized in 2017. The tabletables below presentspresent unaudited pro forma consolidated income statement information as if NESBakerCorp and BlueLine had been included in our consolidated results for the entire periods reflected:period reflected. |
| | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended | |
| September 30, | | September 30, | |
| 2017 | | 2016 | | 2017 |
| | 2016 | |
United Rentals historic revenues | $ | 1,766 |
| | $ | 1,508 |
| | $ | 4,719 |
| | $ | 4,239 |
| |
NES historic revenues | — |
| | 95 |
| | 81 |
| | 266 |
| |
Pro forma revenues | 1,766 |
| | 1,603 |
| | 4,800 |
| | 4,505 |
| |
United Rentals historic pretax income | 322 |
| | 303 |
| | 712 |
| | 667 |
| |
NES historic pretax income (loss) | — |
| | 6 |
| | (12 | ) | | 11 |
| |
Combined pretax income | 322 |
| | 309 |
| | 700 |
| | 678 |
| |
Pro forma adjustments to combined pretax income: | | | | | | | | |
Impact of fair value mark-ups/useful life changes on depreciation (1) | — |
| | (9 | ) | | (9 | ) | | (28 | ) | |
Impact of the fair value mark-up of acquired NES fleet on cost of rental equipment sales (2) | — |
| | (1 | ) | | (1 | ) | | (1 | ) | |
Gain on sale of equity interest (3) | — |
| | — |
| | — |
| | (7 | ) | |
Interest expense (4) | — |
| | (9 | ) | | (9 | ) | | (28 | ) | |
Elimination of historic NES interest (5) | — |
| | 9 |
| | 12 |
| | 28 |
| |
Elimination of merger related costs (6) | 1 |
| | — |
| | 17 |
| | — |
| |
Restructuring charges (7) | 9 |
| | (9 | ) | | 27 |
| | (27 | ) | |
Pro forma pretax income | $ | 332 |
| | $ | 290 |
| | $ | 737 |
| | $ | 615 |
| |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | |
| June 30, 2018 | | June 30, 2018 | |
| United Rentals | | BlueLine | | BakerCorp | | Total | | United Rentals | | BlueLine | | BakerCorp | | Total | |
Historic/pro forma revenues | $ | 1,891 |
| | $ | 194 |
| | $ | 82 |
| | $ | 2,167 |
| | $ | 3,625 |
| | $ | 382 |
| | $ | 156 |
| | $ | 4,163 |
| |
Historic/combined pretax income (loss) | 359 |
| | (8 | ) | | (8 | ) | | 343 |
| | 591 |
| | (30 | ) | | (21 | ) | | 540 |
| |
Pro forma adjustments to pretax income (loss): | | | | | | | | | | | | | | | | |
Impact of fair value mark-ups/useful life changes on depreciation (1) | | | (1 | ) | | (3 | ) | | (4 | ) | | | | (3 | ) | | (6 | ) | | (9 | ) | |
Impact of the fair value mark-up of acquired fleet on cost of rental equipment sales (2) | | | (3 | ) | | — |
| | (3 | ) | | | | (8 | ) | | — |
| | (8 | ) | |
Intangible asset amortization (3) | | | (19 | ) | | (10 | ) | | (29 | ) | | | | (38 | ) | | (20 | ) | | (58 | ) | |
Interest expense (4) | | | (27 | ) | | (6 | ) | | (33 | ) | | | | (54 | ) | | (12 | ) | | (66 | ) | |
Elimination of historic interest (5) | | | 32 |
| | 11 |
| | 43 |
| | | | 63 |
| | 21 |
| | 84 |
| |
Elimination of merger related costs (6) | | | 2 |
| | 1 |
| | 3 |
| | | | 2 |
| | 1 |
| | 3 |
| |
Restructuring charges (7) | | | (10 | ) | | (3 | ) | | (13 | ) | | | | (23 | ) | | (9 | ) | | (32 | ) | |
Pro forma pretax income | | | | | | | $ | 307 |
| | | | | | | | $ | 454 |
| |
(1) Depreciation of rental equipment and non-rental depreciation were adjusted for the fair value mark-ups, and the changes in useful lives and salvage values, of the equipment acquired in the NES acquisition. The useful lives assigned to such equipment did not change significantly from the lives historically used by NES.BakerCorp and BlueLine acquisitions.
(2) Cost of rental equipment sales was adjusted for the fair value mark-ups of rental equipment acquired in the NESBlueLine acquisition. BakerCorp did not historically recognize a material amount of rental equipment sales, and accordingly no adjustment was required for BakerCorp.
(3) The intangible assets acquired in the BakerCorp and BlueLine acquisitions were amortized.
(4) As discussed above, we issued debt to fund the BakerCorp and BlueLine acquisitions. Interest expense was adjusted to reflect these changes in our debt portfolio.
(5) Historic interest on debt that is not part of the combined entity was eliminated.
(6) Merger related costs primarily comprised of financial and legal advisory fees associated with the BakerCorp and BlueLine acquisitions were eliminated as they were assumed to have been recognized prior to the pro forma acquisition date. The adjustments for BlueLine for the three and six months ended June 30, 2018 include $2 of merger related costs recognized by BlueLine prior to the acquisition.
(7) We expect to recognize restructuring charges primarily comprised of severance costs and branch closure charges associated with the acquisitions over a period of approximately one year following the acquisition dates, which, for the pro forma presentation, was January 1, 2018. The adjustments above reflect the timing of the actual restructuring charges following
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
(3) In 2016, NES sold its equity interest in a successor company and recognized a gain of $7. This gain was eliminated as the equity interest that was sold is not a component of the combined company.
(4) To partially fund the NES acquisition, URNA issued an aggregate of $500 principal amount of debt, as discussed in note 8 to the condensed consolidated financial statements. Drawings on the ABL facility were also used to partially fund the purchase price. Interest expense was adjusted to reflect these changes in our debt portfolio.
(5) NES historic interest on debt that is not part of the combined entity was eliminated.
(6) Merger related costs comprised of financial and legal advisory fees associated with the NES acquisition were eliminated as they were assumed to have been recognized prior to theacquisitions (the pro forma acquisition date. The merger related costs reflected in our condensed consolidated statements of income also include costs associated withrestructuring charges above for the acquisition of Neff Corporation (“Neff”) discussed below.
(7)three and six months ended June 30, 2018 reflect the actual restructuring charges recognized during the three and six months following the acquisitions). We expect to recognize restructuring charges primarily comprised of severance costs and branch closure charges associated with the acquisition over a period of approximately one year following the acquisition date, which, for the pro forma presentation, was January 1, 2016. As such, the restructuring charges recognized in 2017 were moved to 2016. The restructuring charges reflected in our condensed consolidated statements of income also include non-NES restructuring charges, as discussed in note 4 to the condensed consolidated financial statements. We do not expect to recognize significantincur additional restructuring charges associated withfor BakerCorp and BlueLine, however the acquisition. The 2016 restructuring charges above reflectremaining costs are not currently estimable, as we are still identifying the total charges recorded as of September 30, 2017 recognized on a straight-line basis from the pro forma acquisition date through September 30, 2016.actions that will be undertaken.
Neff Acquisition
In August 2017, we entered into a definitive merger agreement with Neff, pursuant to which we agreed to acquire Neff in an all cash transaction. The merger closed on October 2, 2017. The aggregate consideration paid to complete the acquisition was approximately $1.3 billion. The merger and related fees and expenses were funded through available cash, drawings on current debt facilities and new debt issuances. See note 8 to the condensed consolidated financial statements for additional detail on the debt issuances. Neff was a provider of earthmoving, material handling, aerial and other equipment, and had 69 branches located in 14 states, with a concentration in southern geographies. Neff had approximately 1,100 employees and approximately $860 of rental assets at original equipment cost as of September 30, 2017. Neff had annual revenues of approximately $413.
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
34. Segment Information
Our reportable segments are i) general rentals and ii) trench, power and pump.fluid solutions. The general rentals segment includes the rental of i) general construction and industrial equipment, such as backhoes, skid-steer loaders, forklifts, earthmoving equipment and material handling equipment, ii) aerial work platforms, such as boom lifts and scissor lifts and iii) general tools and light equipment, such as pressure washers, water pumps and power tools. The general rentals segment reflects the aggregation of ten11 geographic regions—Carolinas, Gulf South, Industrial (which serves the geographic Gulf region and has a strong industrial presence), Mid-Atlantic, Mid-Central,Mid Central, Midwest, Northeast, Pacific West, South, Southeast and Western Canada—and operates throughout the United States and Canada. We periodically review the size and geographic scope of our regions, and have occasionally reorganized the regions to create a more balanced and effective structure.
The trench, power and pumpfluid solutions segment includes the rental of specialty construction products such as i) trench safety equipment, such as trench shields, aluminum hydraulic shoring systems, slide rails, crossing plates, construction lasers and line testing equipment for underground work, ii) power and HVAC equipment, such as portable diesel generators, electrical distribution equipment, and temperature control equipment and iii) pumpsfluid solutions equipment primarily used by municipalities, industrial plants,for fluid containment, transfer and mining, construction, and agribusiness customers.treatment. The trench, power and pumpfluid solutions segment is comprised of the following regions, each of which primarily rents the corresponding equipment type described above: (i)i) the Trench Safety region, (ii)ii) the Power and HVAC region, iii) the Fluid Solutions region and (iii)iv) the PumpFluid Solutions Europe region. The trench, power and pumpfluid solutions segment’s customers include construction companies involved in infrastructure projects, municipalities and industrial companies. This segment operates throughout the United States and in Canada.Canada and Europe.
These segments align our external segment reporting with how management evaluates and allocates resources. We evaluate segment performance based on segment equipment rentals gross profit.
The following tables set forth financial information by segment.
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
| | | General rentals | | Trench, power and pump | | Total | General rentals | | Trench, power and fluid solutions | | Total |
Three Months Ended September 30, 2017 | | | | | | |
Three Months Ended June 30, 2019 | | | | | | |
Equipment rentals | $ | 1,237 |
| | $ | 299 |
| | $ | 1,536 |
| $ | 1,527 |
| | $ | 433 |
| | $ | 1,960 |
|
Sales of rental equipment | 130 |
| | 9 |
| | 139 |
| 180 |
| | 17 |
| | 197 |
|
Sales of new equipment | 34 |
| | 6 |
| | 40 |
| 52 |
| | 8 |
| | 60 |
|
Contractor supplies sales | 17 |
| | 4 |
| | 21 |
| 19 |
| | 8 |
| | 27 |
|
Service and other revenues | 26 |
| | 4 |
| | 30 |
| 40 |
| | 6 |
| | 46 |
|
Total revenue | 1,444 |
| | 322 |
| | 1,766 |
| 1,818 |
| | 472 |
| | 2,290 |
|
Depreciation and amortization expense | 306 |
| | 47 |
| | 353 |
| 416 |
| | 88 |
| | 504 |
|
Equipment rentals gross profit | 525 |
| | 164 |
| | 689 |
| 593 |
| | 199 |
| | 792 |
|
Three Months Ended September 30, 2016 | | | | | | |
Three Months Ended June 30, 2018 | | | | | | |
Equipment rentals | $ | 1,097 |
| | $ | 225 |
| | $ | 1,322 |
| $ | 1,332 |
| | $ | 299 |
| | $ | 1,631 |
|
Sales of rental equipment | 103 |
| | 9 |
| | 112 |
| 145 |
| | 12 |
| | 157 |
|
Sales of new equipment | 27 |
| | 3 |
| | 30 |
| 38 |
| | 6 |
| | 44 |
|
Contractor supplies sales | 16 |
| | 3 |
| | 19 |
| 19 |
| | 5 |
| | 24 |
|
Service and other revenues | 23 |
| | 2 |
| | 25 |
| 32 |
| | 3 |
| | 35 |
|
Total revenue | 1,266 |
| | 242 |
| | 1,508 |
| 1,566 |
| | 325 |
| | 1,891 |
|
Depreciation and amortization expense | 266 |
| | 45 |
| | 311 |
| 334 |
| | 56 |
| | 390 |
|
Equipment rentals gross profit | 469 |
| | 117 |
| | 586 |
| 543 |
| | 145 |
| | 688 |
|
Nine Months Ended September 30, 2017 | | | | | | |
Six Months Ended June 30, 2019 | | | | | | |
Equipment rentals | $ | 3,357 |
| | $ | 712 |
| | $ | 4,069 |
| $ | 2,950 |
| | $ | 805 |
| | $ | 3,755 |
|
Sales of rental equipment | 348 |
| | 30 |
| | 378 |
| 358 |
| | 31 |
| | 389 |
|
Sales of new equipment | 112 |
| | 14 |
| | 126 |
| 107 |
| | 15 |
| | 122 |
|
Contractor supplies sales | 49 |
| | 11 |
| | 60 |
| 36 |
| | 15 |
| | 51 |
|
Service and other revenues | 76 |
| | 10 |
| | 86 |
| 77 |
| | 13 |
| | 90 |
|
Total revenue | 3,942 |
| | 777 |
| | 4,719 |
| 3,528 |
| | 879 |
| | 4,407 |
|
Depreciation and amortization expense | 855 |
| | 138 |
| | 993 |
| 828 |
| | 175 |
| | 1,003 |
|
Equipment rentals gross profit | 1,350 |
| | 359 |
| | 1,709 |
| 1,094 |
| | 356 |
| | 1,450 |
|
Capital expenditures | 1,404 |
| | 168 |
| | 1,572 |
| 1,015 |
| | 211 |
| | 1,226 |
|
Nine Months Ended September 30, 2016 | | | | | | |
Six Months Ended June 30, 2018 | | | | | | |
Equipment rentals | $ | 3,067 |
| | $ | 576 |
| | $ | 3,643 |
| $ | 2,533 |
| | $ | 557 |
| | $ | 3,090 |
|
Sales of rental equipment | 334 |
| | 27 |
| | 361 |
| 316 |
| | 22 |
| | 338 |
|
Sales of new equipment | 84 |
| | 12 |
| | 96 |
| 75 |
| | 11 |
| | 86 |
|
Contractor supplies sales | 49 |
| | 11 |
| | 60 |
| 33 |
| | 9 |
| | 42 |
|
Service and other revenues | 71 |
| | 8 |
| | 79 |
| 62 |
| | 7 |
| | 69 |
|
Total revenue | 3,605 |
| | 634 |
| | 4,239 |
| 3,019 |
| | 606 |
| | 3,625 |
|
Depreciation and amortization expense | 791 |
| | 136 |
| | 927 |
| 671 |
| | 112 |
| | 783 |
|
Equipment rentals gross profit | 1,243 |
| | 274 |
| | 1,517 |
| 969 |
| | 264 |
| | 1,233 |
|
Capital expenditures | 1,086 |
| | 124 |
| | 1,210 |
| 1,153 |
| | 153 |
| | 1,306 |
|
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Total reportable segment assets | | | |
General rentals | $ | 16,124 |
| | $ | 15,597 |
|
Trench, power and fluid solutions | 2,923 |
| | 2,536 |
|
Total assets | $ | 19,047 |
| | $ | 18,133 |
|
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Total reportable segment assets | | | |
General rentals | $ | 12,118 |
| | $ | 10,496 |
|
Trench, power and pump | 1,626 |
| | 1,492 |
|
Total assets | $ | 13,744 |
| | $ | 11,988 |
|
Equipment rentals gross profit is the primary measure management reviews to make operating decisions and assess segment performance. The following is a reconciliation of equipment rentals gross profit to income before provision for income taxes: |
| | | | | | | | | | | | | | | |
| Three Months Ended |
| Six Months Ended |
| June 30, |
| June 30, |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
Total equipment rentals gross profit | $ | 792 |
| | $ | 688 |
| | $ | 1,450 |
| | $ | 1,233 |
|
Gross profit from other lines of business | 119 |
| | 94 |
| | 222 |
| | 195 |
|
Selling, general and administrative expenses | (271 | ) | | (239 | ) | | (551 | ) | | (471 | ) |
Merger related costs | — |
| | (2 | ) | | (1 | ) |
| (3 | ) |
Restructuring charge | (6 | ) | | (4 | ) | | (14 | ) | | (6 | ) |
Non-rental depreciation and amortization | (105 | ) | | (67 | ) | | (209 | ) | | (138 | ) |
Interest expense, net | (180 | ) | | (112 | ) | | (331 | ) | | (221 | ) |
Other income, net | 2 |
| | 1 |
| | 5 |
| | 2 |
|
Income before provision for income taxes | $ | 351 |
| | $ | 359 |
|
| $ | 571 |
|
| $ | 591 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended |
| Nine Months Ended |
| September 30, |
| September 30, |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
Total equipment rentals gross profit | $ | 689 |
| | $ | 586 |
| | $ | 1,709 |
| | $ | 1,517 |
|
Gross profit from other lines of business | 84 |
| | 70 |
| | 233 |
| | 229 |
|
Selling, general and administrative expenses | (237 | ) | | (179 | ) | | (648 | ) | | (533 | ) |
Merger related costs | (16 | ) | | — |
| | (32 | ) |
| — |
|
Restructuring charge | (9 | ) | | (4 | ) | | (28 | ) | | (8 | ) |
Non-rental depreciation and amortization | (63 | ) | | (61 | ) | | (189 | ) | | (192 | ) |
Interest expense, net | (131 | ) | | (110 | ) | | (338 | ) | | (349 | ) |
Other income, net | 5 |
| | 1 |
| | 5 |
| | 3 |
|
Income before provision for income taxes | $ | 322 |
| | $ | 303 |
|
| $ | 712 |
|
| $ | 667 |
|
45. Restructuring Charges
Restructuring Charges
Restructuring charges primarily include severance costs associated with headcount reductions, as well as branch closure charges which principally relate to continuing lease obligations at vacant facilities.charges. We incur severance costs and branch closure charges in the ordinary course of our business. We only include such costs that are part of a restructuring program as restructuring charges. Since the first such restructuring program was initiated in 2008, we have completed threefour restructuring programs and have incurred total restructuring charges of $262.$329.
Closed Restructuring Programs
We have threeOur closed restructuring programs. The first wasprograms were initiated in 2008either in recognition of a challenging economic environment and was completed in 2011. The second was initiatedor following the Aprilcompletion of certain significant acquisitions. As of June 30, 2012 acquisition of RSC Holdings Inc. ("RSC"), and was completed in 2013. The third was initiated in2019, the fourth quarter of 2015 in response to challenges in our operating environment. In particular, during 2015, we experienced volume and pricing pressure in our general rental business and our Pump Solutions regiontotal liability associated with upstream oil and gas customers. Additionally, our Lean initiatives did not fully generate the anticipated cost savings due to lower than expected growth. In 2016, we achieved the anticipated run rate savings from the Lean initiatives, and thisclosed restructuring programprograms was completed in 2016.$13.
NES/Neff/Project XLBakerCorp/BlueLine Restructuring Program
In the secondthird quarter of 2017,2018, we initiated a restructuring program following the closing of the NESBakerCorp acquisition discussed in note 23 to the condensed consolidated financial statements. The restructuring program also includes actions undertaken associated with Project XL, which is a set of eight specific work streams focused on driving profitable growth through revenue opportunities and generating incremental profitability through cost savings across our business. Additionally, following the closing of the NeffBlueLine acquisition that is discussed in note 23 to the condensed consolidated financial statements on October 2, 2017, the restructuring program will include actions that westatements. We expect to undertake associated with the Neff acquisition. We expect
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
to complete the restructuring program in the first half of 2018.2019. The total costs expected to be incurred in connection with the program are not currently estimable, as we are still identifying the actions that will be undertaken.
The table below provides certain information concerning restructuring activity under the BakerCorp/BlueLine restructuring program during the ninesix months ended SeptemberJune 30, 2017: 2019:
|
| | | | | | | | | | | | | | | |
| Reserve Balance at | | Charged to Costs and Expenses (1) | | Payments and Other | | Reserve Balance at |
| December 31, 2018 | | | | June 30, 2019 |
Branch closure charges | $ | 3 |
| | $ | 13 |
| | $ | (2 | ) | | $ | 14 |
|
Severance and other | 9 |
| | 5 |
| | (11 | ) | | 3 |
|
Total | $ | 12 |
| | $ | 18 |
| | $ | (13 | ) | | $ | 17 |
|
|
| | | | | | | | | | | | | | | | |
| | Reserve Balance at | | Charged to Costs and Expenses (1) | | Payments and Other | | Reserve Balance at |
| | December 31, 2016 | | | | September 30, 2017 |
Closed Restructuring Programs | | | | | | | | |
Branch closure charges | | $ | 16 |
| | $ | 1 |
| | $ | (3 | ) | | $ | 14 |
|
Severance and other | | 1 |
| | — |
| | (1 | ) | | — |
|
Total | | $ | 17 |
| | $ | 1 |
| | $ | (4 | ) | | $ | 14 |
|
NES/Neff/Project XL Restructuring Program | | | | | | | | |
Branch closure charges | | $ | — |
| | $ | 7 |
| | $ | (1 | ) | | $ | 6 |
|
Severance and other | | — |
| | 20 |
| | (16 | ) | | 4 |
|
Total | | $ | — |
| | $ | 27 |
| | $ | (17 | ) | | $ | 10 |
|
Total | | | | | | | | |
Branch closure charges | | $ | 16 |
| | $ | 8 |
| | $ | (4 | ) | | $ | 20 |
|
Severance and other | | 1 |
| | 20 |
| | (17 | ) | | 4 |
|
Total | | $ | 17 |
| | $ | 28 |
| | $ | (21 | ) | | $ | 24 |
|
_________________
| |
(1) | Reflected in our condensed consolidated statements of income as “Restructuring charge.” These charges are not allocated to our reportable segments.
|
5. Goodwill and Other Intangible Assets
The following table presents the changes in the carrying amount of goodwill for the nine months ended September 30, 2017:
|
| | | | | | | | | | | |
| General rentals | | Trench, power and pump | | Total |
Balance at January 1, 2017 (1) | $ | 2,797 |
| | $ | 463 |
| | $ | 3,260 |
|
Goodwill related to acquisitions (2) | 212 |
| | 2 |
| | 214 |
|
Foreign currency translation | 14 |
| | 5 |
| | 19 |
|
Balance at September 30, 2017 (1) | 3,023 |
| | 470 |
| | 3,493 |
|
_________________
| |
(1) | The total carrying amount of goodwill for all periods in the table above is reflected net of $1.557 billion of accumulated impairment charges, which were primarily recorded in our general rentals segment. |
| |
(2) | For additional detail on the April 2017 acquisition of NES, which accounted for most of the goodwill related to acquisitions, see note 2 to our condensed consolidated financial statements. |
Other intangible assets were comprised of the following at September 30, 2017 and December 31, 2016:
|
| | | | | | | | | | | | | | | | | | | |
| September 30, 2017 |
| Weighted-Average Remaining Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Amount |
Non-compete agreements | 27 months | | | $ | 67 |
| | | | $ | 60 |
| | | | $ | 7 |
| |
Customer relationships | 9 years | | | $ | 1,590 |
| | | | $ | 838 |
| | | | $ | 752 |
| |
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
|
| | | | | | | | | | | | | | | | | | | |
| December 31, 2016 |
| Weighted-Average Remaining Amortization Period | | Gross Carrying Amount | | Accumulated Amortization | | Net Amount |
Non-compete agreements | 28 months | | | $ | 70 |
| | | | $ | 57 |
| | | | $ | 13 |
| |
Customer relationships | 10 years | | | $ | 1,465 |
| | | | $ | 737 |
| | | | $ | 728 |
| |
Trade names and associated trademarks | 4 months | | | $ | 80 |
| | | | $ | 79 |
| | | | $ | 1 |
| |
Our other intangibles assets, net at September 30, 2017 include the following assets associated with the acquisition of NES discussed in note 2 to our condensed consolidated financial statements. No residual value has been assigned to these assets which are being amortized using the sum of the years' digits method, which we believe best reflects the estimated pattern in which the economic benefits will be consumed. |
| | | | | | |
| September 30, 2017 |
| Weighted-Average Remaining Amortization Period | | | Net Carrying Amount |
Customer relationships | 10 years | | | $ | 125 |
|
Amortization expense for other intangible assets was $41 and $42 for the three months ended September 30, 2017 and 2016, respectively, and $125 and $132 for the nine months ended September 30, 2017 and 2016, respectively.
As of September 30, 2017, estimated amortization expense for other intangible assets for each of the next five years and thereafter is as follows:
|
| | | | | |
2017 | | $ | 41 |
| |
2018 | 150 | | |
2019 | 132 | | |
2020 | 114 | | |
2021 | 95 | | |
Thereafter | 227 | | |
Total | | $ | 759 |
| |
6. Derivatives
We recognize all derivative instruments as either assets or liabilities at fair value, and recognize changes in the fair value of the derivative instruments based on the designation of the derivative. We are exposed to certain risks relating to our ongoing business operations. During the nine months ended September 30, 2017 and 2016, the risks we managed using derivative instruments were diesel price risk and foreign currency exchange rate risk. At September 30, 2017, we had outstanding fixed price swap contracts on diesel purchases which were entered into to mitigate the price risk associated with forecasted purchases of diesel. During the nine months ended September 30, 2017, we entered into forward contracts to purchase Canadian dollars to mitigate the foreign currency exchange rate risk associated with certain Canadian dollar denominated intercompany loans. There were no outstanding forward contracts to purchase Canadian dollars at September 30, 2017.
Fixed Price Diesel Swaps
The fixed price swap contracts on diesel purchases that were outstanding at September 30, 2017 were designated and qualify as cash flow hedges and the effective portion of the gain or loss on these contracts is reported as a component of accumulated other comprehensive income and is reclassified into earnings in the period during which the hedged transaction affects earnings (i.e., when the hedged gallons of diesel are used). The remaining gain or loss on the fixed price swap contracts in excess of the cumulative change in the present value of future cash flows of the hedged item, if any (i.e., the ineffective portion), is recognized(1) Reflected in our condensed consolidated statements of income during the current period. As of September 30, 2017, we had outstanding fixed price swap contracts covering 2.7 million gallons of diesel which will be purchased throughout 2017 and 2018.as “Restructuring charge” (such charge also includes activity under our closed restructuring programs). These charges are not allocated to our reportable segments.
Foreign Currency Forward Contracts
The forward contracts to purchase Canadian dollars, which were all settled as of September 30, 2017, represented derivative instruments not designated as hedging instruments and gains or losses due to changes in the fair value of the forward contracts were recognized in our consolidated statements of income during the period in which the changes in fair value
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
occurred. During the three and nine months ended September 30, 2017, forward contracts were used to purchase $326 and $728 Canadian dollars, respectively, representing the total amount due at maturity for certain Canadian dollar denominated intercompany loans that were settled during the three and nine months ended September 30, 2017. Upon maturity, the proceeds from the forward contracts were used to pay down the Canadian dollar denominated intercompany loans.
Financial Statement Presentation
As of September 30, 2017 and December 31, 2016, immaterial amounts ($1 or less) were reflected in prepaid expenses and other assets, accrued expenses and other liabilities, and accumulated other comprehensive income in our condensed consolidated balance sheets associated with the outstanding fixed price swap contracts that were designated and qualify as cash flow hedges.
The effect of our derivative instruments on our condensed consolidated statements of income for the three and nine months ended September 30, 2017 and 2016 was as follows:
|
| | | | | | | | | | | | | | | |
| | | Three Months Ended September 30, 2017 | | Three Months Ended September 30, 2016 |
| Location of income (expense) recognized on derivative/hedged item | | Amount of income (expense) recognized on derivative | | Amount of income (expense) recognized on hedged item | | Amount of income (expense) recognized on derivative | | Amount of income (expense) recognized on hedged item |
Derivatives designated as hedging instruments: | | | | | | | | | |
Fixed price diesel swaps | Other income (expense), net (1) | | $ * |
| | | | $ * |
| | |
| Cost of equipment rentals, excluding depreciation (2), (3) | | * |
| | $ | (4 | ) | | (1 | ) | | $ | (6 | ) |
Derivatives not designated as hedging instruments: | | | | | | | | | |
Foreign currency forward contracts (4) | Other income (expense), net | | 8 |
| | (8 | ) | | (4 | ) | | 4 |
|
| | | Nine Months Ended September 30, 2017 | | Nine Months Ended September 30, 2016 |
| Location of income (expense) recognized on derivative/hedged item | | Amount of income (expense) recognized on derivative | | Amount of income (expense) recognized on hedged item | | Amount of income (expense) recognized on derivative | | Amount of income (expense) recognized on hedged item |
Derivatives designated as hedging instruments: | | | | | | | | | |
Fixed price diesel swaps | Other income (expense), net (1) | | $ * |
| | | | $ * |
| | |
| Cost of equipment rentals, excluding depreciation (2), (3) | | * |
| | $ | (14 | ) | | (5 | ) | | $ | (17 | ) |
Derivatives not designated as hedging instruments: | | | | | | | | | |
Foreign currency forward contracts (4) | Other income (expense), net | | 15 |
| | (15 | ) | | (1 | ) | | 1 |
|
| |
* | Amounts are insignificant (less than $1). |
| |
(1) | Represents the ineffective portion of the fixed price diesel swaps. |
| |
(2) | Amounts recognized on derivative represent the effective portion of the fixed price diesel swaps. |
| |
(3) | Amounts recognized on hedged item reflect the use of 1.7 million and 2.7 million gallons and of diesel covered by the fixed price swaps during the three months ended September 30, 2017 and 2016, respectively, and the use of 5.5 million and 7.7 million gallons and of diesel covered by the fixed price swaps during the nine months ended September 30, 2017
|
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
and 2016, respectively. These amounts are reflected, net of cash received from, or paid to, the counterparties to the fixed price swaps, in operating cash flows in our condensed consolidated statement of cash flows.
| |
(4) | Insignificant amounts were reflected in our condensed consolidated statement of cash flows associated with the forward contracts to purchase Canadian dollars, as the cash impact of the gains/losses recognized on the derivatives were offset by the gains/losses recognized on the hedged items. |
76. Fair Value Measurements
We account for certainAs of June 30, 2019 and December 31, 2018, the amounts of our assets and liabilities that were accounted for at fair value. We categorize each of our fairvalue were immaterial.
Fair value measurements are categorized in one of the following three levels based on the lowest level input that is significant to the fair value measurement in its entirety:
Level 1- Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2- Observable inputs other than quoted prices in active markets for identical assets or liabilities include:
| |
a) | quoted prices for similar assets or liabilities in active markets; |
| |
b) | quoted prices for identical or similar assets or liabilities in inactive markets; |
| |
c) | inputs other than quoted prices that are observable for the asset or liability; |
| |
d) | inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3- Inputs to the valuation methodology are unobservable (i.e., supported by little or no market activity) and significant to the fair value measure.
Assets and Liabilities Measured at Fair Value
As of September 30, 2017 and December 31, 2016, our only assets and liabilities measured at fair value were our fixed price diesel swaps contracts, which are Level 2 derivatives measured at fair value on a recurring basis. As of September 30, 2017 and December 31, 2016, immaterial amounts ($1 or less) were reflected in prepaid expenses and other assets, and accrued expenses and other liabilities in our condensed consolidated balance sheets, reflecting the fair values of the fixed price diesel swaps contracts. As discussed in note 6 to the condensed consolidated financial statements, we entered into the fixed price swap contracts on diesel purchases to mitigate the price risk associated with forecasted purchases of diesel. Fair value is determined based on observable market data. As of September 30, 2017, we have fixed price swap contracts that mature throughout 2017 and 2018 covering 2.7 million gallons of diesel which we will buy at the average contract price of $2.58 per gallon, while the average forward price for the hedged gallons was $2.78 per gallon as of September 30, 2017.
Fair Value of Financial Instruments
The carrying amounts reported in our condensed consolidated balance sheets for accounts receivable, accounts payable and accrued expenses and other liabilities approximate fair value due to the immediate to short-term maturity of these financial instruments. The fair values of our ABL, facility, accounts receivable securitization facility and term loan facilities and finance/capital leases (the classification of such leases changed upon adoption of a new lease accounting standard, as explained further in note 8 to the condensed consolidated financial statements) approximated their book values as of SeptemberJune 30, 20172019 and December 31, 20162018. The estimated fair values of our financial instruments, all of which are categorized in Level 1 of the fair value hierarchy, as of SeptemberJune 30, 20172019 and December 31, 20162018 have been calculated based upon available market information, and were as follows:
|
| | | | | | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Senior notes | $ | 8,005 |
| | $ | 8,396 |
| | $ | 8,102 |
| | $ | 7,632 |
|
|
| | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Senior notes | $ | 7,228 |
| | $ | 7,616 |
| | $ | 5,506 |
| | $ | 5,715 |
|
8.7. Debt
Debt, net of unamortized original issue discounts or premiums, and unamortized debt issuance costs, consists of the following:
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
Debt, net of unamortized original issue discounts or premiums, and unamortized debt issuance costs, consists of the following:
|
| | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Accounts Receivable Securitization Facility expiring 2018 (1) | $ | 666 |
| | $ | 568 |
|
$3.0 billion ABL Facility expiring 2021 (2) | 408 |
| | 1,645 |
|
7 5/8 percent Senior Notes due 2022 (3) | 223 |
| | 469 |
|
6 1/8 percent Senior Notes due 2023 (4) | — |
| | 936 |
|
4 5/8 percent Senior Secured Notes due 2023 | 992 |
| | 991 |
|
5 3/4 percent Senior Notes due 2024 | 840 |
| | 839 |
|
5 1/2 percent Senior Notes due 2025 | 793 |
| | 792 |
|
4 5/8 percent Senior Notes due 2025 (5) | 739 |
| | — |
|
5 7/8 percent Senior Notes due 2026 (6) | 998 |
| | 740 |
|
5 1/2 percent Senior Notes due 2027 (7) | 990 |
| | 739 |
|
4 7/8 percent Senior Notes due 2028 (8) | 912 |
| | — |
|
4 7/8 percent Senior Notes due 2028 (9) | 741 |
| | — |
|
Capital leases | 69 |
| | 71 |
|
Total debt (10) | 8,371 |
| | 7,790 |
|
Less short-term portion (11) | (694 | ) | | (597 | ) |
Total long-term debt | $ | 7,677 |
| | $ | 7,193 |
|
|
| | | | | | | |
| June 30, 2019 | | December 31, 2018 |
Accounts Receivable Securitization Facility expiring 2020 (1) (2) | $ | 945 |
| | $ | 850 |
|
$3.75 billion ABL Facility expiring 2024 (1) (3) | 1,646 |
| | 1,685 |
|
Term loan facility expiring 2025 (1) | 984 |
| | 988 |
|
4 5/8 percent Senior Secured Notes due 2023 | 994 |
| | 994 |
|
5 3/4 percent Senior Notes due 2024 (4) | — |
| | 842 |
|
5 1/2 percent Senior Notes due 2025 | 794 |
| | 794 |
|
4 5/8 percent Senior Notes due 2025 | 742 |
| | 741 |
|
5 7/8 percent Senior Notes due 2026 | 999 |
| | 999 |
|
6 1/2 percent Senior Notes due 2026 | 1,088 |
| | 1,087 |
|
5 1/2 percent Senior Notes due 2027 | 992 |
| | 991 |
|
4 7/8 percent Senior Notes due 2028 (5) | 1,651 |
| | 1,650 |
|
4 7/8 percent Senior Notes due 2028 (5) | 4 |
| | 4 |
|
5 1/4 percent Senior Notes due 2030 (6) | 741 |
| | — |
|
Finance leases (7) | 115 |
| | — |
|
Capital leases (7) | — |
| | 122 |
|
Total debt | 11,695 |
| | 11,747 |
|
Less short-term portion (8) | (995 | ) | | (903 | ) |
Total long-term debt | $ | 10,700 |
| | $ | 10,844 |
|
___________________
(1)The table below presents financial information associated with our variable rate indebtedness as of and for the six months ended June 30, 2019. We have borrowed the full available amount under the term loan facility. The principal obligation under the term loan facility is required to be repaid in quarterly installments in an aggregate amount equal to 1.0 percent per annum, with the balance due at the maturity of the facility. The average amount of debt outstanding under the term loan facility decreases slightly each quarter due to the requirement to repay a portion of the principal obligation. |
| | | | | | | | | | | |
| ABL facility | | Accounts receivable securitization facility | | Term loan facility |
Borrowing capacity, net of letters of credit | $ | 2,046 |
| | $ | 30 |
| | $ | — |
|
Letters of credit | 45 |
| | | | |
Interest rate at June 30, 2019 | 3.9 | % | | 3.2 | % | | 4.2 | % |
Average month-end debt outstanding | 1,558 |
| | 898 |
| | 995 |
|
Weighted-average interest rate on average debt outstanding | 4.0 | % | | 3.3 | % | | 4.2 | % |
Maximum month-end debt outstanding | 1,691 |
| | 958 |
| | 998 |
|
| |
(1)(2) | In August 2017,June 2019, the accounts receivable securitization facility was amended, primarily to increase the facility size and to extend the maturity date which may be further extended on a 364-day basis by mutual agreement with the purchasers under the facility. The size of the facility which expires on August 28, 2018, was increased to $675. At September 30, 2017, $9 was available under our accounts receivable securitization facility. The interest rate applicable to the accounts receivable securitization facility was 2.0 percent at September 30, 2017. During the nine months ended September 30, 2017, the monthly average amount outstanding under the accounts receivable securitization facility was $584, and the weighted-average interest rate thereon was 1.8 percent. The maximum month-end amount outstanding under the accounts receivable securitization facility during the nine months ended September 30, 2017 was $667.June 26, 2020. Borrowings under the accounts receivable securitization facility are permitted only to the extent that the face amount of the receivables in the collateral pool, net of applicable reserves and other deductions, exceeds the outstanding loans. As of SeptemberJune 30, 20172019, there were $769$1.001 billion of receivables, net of applicable reserves and other deductions, in the collateral pool. |
| |
(2) | In September 2017, the size of the ABL facility was increased to $3.0 billion. At September 30, 2017, $2.5 billion was available under our ABL facility, net of $39 of letters of credit. The interest rate applicable to the ABL facility was 2.8 percent at September 30, 2017. During the nine months ended September 30, 2017, the monthly average amount outstanding under the ABL facility was $1.2 billion, and the weighted-average interest rate thereon was 2.6 percent. The maximum month-end amount outstanding under the ABL facility during the nine months ended September 30, 2017 was $1.8 billion. As discussed below, pending the payment of the purchase price for the Neff acquisition discussed in note 2 to the condensed consolidated financial statements, a portion of the net proceeds from debt issued in the third quarter of 2017 was used to reduce borrowings under the ABL facility. Upon the closing of the Neff acquisition on October 2, 2017, we used borrowings under the ABL facility to partially fund the Neff acquisition.
|
| |
(3) | In June 2017, weFebruary 2019, the ABL facility was amended, primarily to increase the facility size to $3.75 billion, extend the maturity date to February 2024 and make a portion of the facility available for borrowing in British Pounds and Euros by certain subsidiaries of URNA in Europe. |
| |
(4) | In May 2019, URNA redeemed $250 principal amountall of our 7its 5 53/84 percent Senior Notes. Upon redemption, we recognized a loss of $12$32 in interest expense, net. The loss represented the difference between the net carrying amount and the total purchase price of the redeemed notes. In September 2017, we gave notice of our intention to redeem the remaining 7 5/8 percent Senior Notes in October 2017 using borrowings under the ABL facility. |
| |
(4) | In August 2017, we redeemed all of our 6 1/8 percent Senior Notes. Upon redemption, we recognized a loss of $31 in interest expense, net. The loss represented the difference between the net carrying amount and the total purchase price of the redeemed notes.
|
| |
(5) | In September 2017, URNA issued $750 principal amount of 4 5/8 percent Senior Notes (the “4 5/8 percent Notes”) which are due October 15, 2025. The net proceeds from the issuance were approximately $741 (after deducting offering expenses). The 4 5/8 percent Notes are unsecured and are guaranteed by Holdings and certain domestic subsidiaries of
|
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
URNA. The 4 5/8 percent Notes may be redeemed on or after October 15, 2020, at specified redemption prices that range from 102.313 percent in 2020, to 100 percent in 2022 and thereafter, in each case, plus accrued and unpaid interest, if any. The indenture governing the 4 5/8 percent Notes contains certain restrictive covenants, including, among others, limitations on (i) liens; (ii) mergers and consolidations; (iii) sales, transfers and other dispositions of assets; (iv) dividends and other distributions, stock repurchases and redemptions and other restricted payments; and (v) designations of unrestricted subsidiaries, as well as a requirement to timely file periodic reports with the SEC. Each of the restrictive covenants is subject to important exceptions and qualifications that would allow URNA and its subsidiaries to engage in these activities under certain conditions. In addition, the covenant relating to dividends and other distributions, stock repurchases and redemptions and other restricted payments and the requirements relating to additional subsidiary guarantors will not apply to URNA and its restricted subsidiaries during any period when the 4 5/8 percent Notes are rated investment grade by both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc., or, in certain circumstances, another rating agency selected by URNA, provided at such time no default under the indenture has occurred and is continuing. The indenture also requires that, in the event of a change of control (as defined in the indenture), URNA must make an offer to purchase all of the then-outstanding 4 5/8 percent Notes tendered at a purchase price in cash equal to 101 percent of the principal amount thereof, plus accrued and unpaid interest, if any, thereon. The net proceeds from the 4 5/8 percent Notes were primarily used to partially fund the Neff acquisition discussed in note 2 to the condensed consolidated financial statements. Pending the payment of the purchase price for the Neff acquisition, a portion of the net proceeds from the issuance was used to reduce borrowings under the ABL facility. The acquisition closed on October 2, 2017. Upon closing of the Neff acquisition, we used available cash and borrowings under the ABL facility to finance the Neff acquisition. | |
(5) | URNA separately issued 4 7/8 percent Senior Notes in August 2017 and in September 2017. Following the issuances, URNA consummated an exchange offer pursuant to which most of the 4 7/8 percent Senior Notes issued in September 2017 were exchanged for additional notes fungible with the 4 7/8 percent Senior Notes issued in August 2017. |
| |
(6) | In February 2017, in connection with the NES acquisition discussed in note 2 to the condensed consolidated financial statements,May 2019, URNA issued $250$750 aggregate principal amount of 5 71/84 percent Senior Notes (the "5 7/8 percent Notes") as an add-on to our existing 5 7/8 percent Notes. The net proceeds from the issuance were $258 (including the original issue premium and after deducting offering expenses). After the February 2017 issuance, the aggregate principal amount of outstanding 5 7/8 percent Notes was $1.0 billion. The newly issued notes have identical terms, and are fungible, with the 5 7/8 percent Notes outstanding at December 31, 2016. The carrying value of the 5 7/8 percent Notes includes the $11 unamortized portion of the original issue premium recognized in conjunction with the February 2017 issuance, which is being amortized through the maturity date in 2026. The effective interest rate on the 5 7/8 percent Notes is 5.7 percent. |
| |
(7) | In February 2017, in connection with the NES acquisition discussed in note 2 to the condensed consolidated financial statements, URNA issued $250 principal amount of 5 “5 1/24 percent Senior Notes due 2027 (the "2027 5 1/2 percent Senior Notes") as an add-on to our existing 2027 5 1/2 percent Senior Notes. The net proceeds from the issuance were $250 (including the original issue premium and after deducting offering expenses). After the February 2017 issuance, the aggregate principal amount of outstanding 2027 5 1/2 percent Senior Notes was $1.0 billion. The newly issued notes have identical terms, and are fungible, with the 2027 5 1/2 percent Senior Notes outstanding at December 31, 2016. The carrying value of the 2027 5 1/2 percent Senior Notes includes the $3 unamortized portion of the original issue premium recognized in conjunction with the February 2017 issuance, which is being amortized through the maturity date in 2027. The effective interest rate on the 2027 5 1/2 percent Senior Notes is 5.5 percent.
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| |
(8) | In August 2017, URNA issued $925 principal amount of 4 7/8 percent Senior Notes (the “Initial 4 7/8 percent Notes”) which are due January 15, 2028.2030. The net proceeds from the issuance were approximately $913$741 (after deducting offering expenses). The Initial 5 1/47/8 percent Notes are unsecured and are guaranteed by Holdings and certain domestic subsidiaries of URNA. The Initial 5 1/47/8 percent Notes may be redeemed on or after January 15, 2023,2025, at specified redemption prices that range from 102.438102.625 percent in 2023,2025, to 100 percent in 20262028 and thereafter, in each case, plus accrued and unpaid interest, if any. In addition, at any time on or prior to January 15, 2023, up to 40 percent of the aggregate principal amount of the 5 1/4 percent Notes may be redeemed with the net cash proceeds of certain equity offerings at a redemption price equal to 105.250 percent of the aggregate principal amount of the notes plus accrued and unpaid interest, if any. The indenture governing the Initial 5 1/47/8 percent Notes contains certain restrictive covenants, including, among others, limitations on (i) liens; (ii) mergers and consolidations; (iii) sales, transfers and other dispositions of assets; (iv) dividends and other distributions, stock repurchases and redemptions and other restricted payments; and (v) designations of unrestricted subsidiaries, as well as a requirement to timely file periodic reports with the SEC. Each of the restrictive covenants is subject to important exceptions and qualifications that would allow URNA and its subsidiaries to engage in these activities under certain conditions. In addition, the covenant relating to dividends and other distributions, stock repurchases and redemptions and other restricted payments and the requirements relating to additional subsidiary guarantors will not apply to URNA and its restricted subsidiaries during any period when the Initial 5 1/47/8 percent Notes are rated investment grade by both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc., or, in certain circumstances, another rating agency selected by URNA, provided at such time no default under the indenture has occurred and is continuing. The indenture also requires that, in the event of a change of control (as defined in the indenture), URNA must make an offer to purchase all of the then-outstanding Initial 5 1/47/8 percent Notes tendered at a purchase price in cash equal to 101 percent of the principal amount thereof, plus accrued and unpaid interest, if any,
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UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
thereon. The net proceeds from the Initial 4 7/8 percent Notes were primarily used to fund the redemption of all of our 6 1/8 percent Senior Notes that is discussed above.
| |
(9) | In September 2017, URNA issued $750 principal amount of 4 7/8 percent Senior Notes (the “Subsequent 4 7/8 percent Notes”) which are due January 15, 2028. The net proceeds from the issuance were approximately $743 (including the original issue premium and after deducting offering expenses). The Subsequent 4 7/8 percent Notes are unsecured and are guaranteed by Holdings and certain domestic subsidiaries of URNA. The Subsequent 4 7/8 percent Notes may be redeemed on or after January 15, 2023, at specified redemption prices that range from 102.438 percent in 2023, to 100 percent in 2026 and thereafter, in each case, plus accrued and unpaid interest, if any. The indenture governing the Subsequent 4 7/8 percent Notes contains certain restrictive covenants, including, among others, limitations on (i) liens; (ii) mergers and consolidations; (iii) sales, transfers and other dispositions of assets; (iv) dividends and other distributions, stock repurchases and redemptions and other restricted payments; and (v) designations of unrestricted subsidiaries, as well as a requirement to timely file periodic reports with the SEC. Each of the restrictive covenants is subject to important exceptions and qualifications that would allow URNA and its subsidiaries to engage in these activities under certain conditions. In addition, the covenant relating to dividends and other distributions, stock repurchases and redemptions and other restricted payments and the requirements relating to additional subsidiary guarantors will not apply to URNA and its restricted subsidiaries during any period when the Subsequent 4 7/8 percent Notes are rated investment grade by both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc., or, in certain circumstances, another rating agency selected by URNA, provided at such time no default under the indenture has occurred and is continuing. The indenture also requires that, in the event of a change of control (as defined in the indenture), URNA must make an offer to purchase all of the then-outstanding Subsequent 4 7/8 percent Notes tendered at a purchase price in cash equal to 101 percent of the principal amount thereof, plus accrued and unpaid interest, if any, thereon. The carrying value of the Subsequent 4 7/8 percent Notes includes $2 of the unamortized original issue premium, which is being amortized through the maturity date in 2028. The effective interest rate on the Subsequent 4 7/8 percent Notes is 4.84 percent. The net proceeds from the Subsequent 4 7/8 percent Notes were primarily used to partially fund the Neff acquisition discussed in note 2 to the condensed consolidated financial statements. Pending the payment of the purchase price for the Neff acquisition, a portion of the net proceeds from the issuance was used to reduce borrowings under the ABL facility. The acquisition closed on October 2, 2017. Upon closing of the Neff acquisition, we used available cash and borrowings under the ABL facility to finance the Neff acquisition.
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(10)(7) | As discussed above,in note 8 to the condensed consolidated financial statements, we completedadopted an updated lease accounting standard on January 1, 2019. Upon adoption of the Neff acquisition on October 2, 2017. The aggregate consideration paidnew standard, the leases that were previously classified as capital leases through December 31, 2018 were classified as finance leases. There were no significant changes to complete the acquisition was approximately $1.3 billion. Total debt as of September 30, 2017 reflects approximately $1.4 billion of debt issuedaccounting upon this change in connection with the acquisition (this amount reflects $2.425 billion principal amount of debt issued in the third quarter of 2017, net of (i) cash paid to redeem $925 principal amount of 6 1/8 percent Senior Notes and (ii) fees and expenses associated with the issued debt), as discussed above. Upon closing, we paid the consideration due to holders of Neff common stock and options using available cash and drawings on the ABL facility. After payment of such consideration, total outstanding debt was approximately $9.7 billion. classification. |
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(11)(8) | As of SeptemberJune 30, 2017,2019, our short-term debt primarily reflects $666$945 of borrowings under our accounts receivable securitization facility. |
Loan Covenants and Compliance
As of SeptemberJune 30, 2017,2019, we were in compliance with the covenants and other provisions of the ABL, facility, the accounts receivable securitization facilityand term loan facilities and the senior notes. Any failure to be in compliance with any material provision or covenant of these agreements could have a material adverse effect on our liquidity and operations.
The only financial maintenance covenant that currently exists under the ABL facility is the fixed charge coverage ratio. Subject to certain limited exceptions specified in the ABL facility, the fixed charge coverage ratio covenant under the ABL facility will only apply in the future if specified availability under the ABL facility falls below 10 percent of the maximum revolver amount under the ABL facility. When certain conditions are met, cash and cash equivalents and borrowing base collateral in excess of the ABL facility size may be included when calculating specified availability under the ABL facility. As of SeptemberJune 30, 2017,2019, specified availability under the ABL facility exceeded the required threshold and, as a result, this financial maintenance covenant was inapplicable. Under our accounts receivable securitization facility, we are required, among other things, to maintain certain financial tests relating to: (i) the default ratio, (ii) the delinquency ratio, (iii) the dilution ratio and (iv) days sales outstanding. The accounts receivable securitization facility also requires us to comply with the fixed charge coverage ratio under the ABL facility, to the extent the ratio is applicable under the ABL facility.
9. Legal8. Leases
Adoption of Accounting Standards Codification (“ASC”) Topic 842, “Leases”
In March 2016, the FASB issued guidance ("Topic 842") to increase transparency and Regulatory Matterscomparability among organizations by requiring (1) recognition of lease assets and lease liabilities on the balance sheet and (2) disclosure of key information about leasing arrangements. Some changes to the lessor accounting guidance were made to align both of the following: (1) the lessor accounting guidance with certain changes made to the lessee accounting guidance and (2) key aspects of the lessor accounting model with revenue recognition guidance. We adopted Topic 842 at the required adoption date of January 1, 2019, using the transition method that allowed us to initially apply Topic 842 as of January 1, 2019 and recognize a cumulative-effect
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
adjustment to the opening balance of retained earnings in the period of adoption. We used the package of practical expedients permitted under the transition guidance that allowed us to not reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. We additionally used, for our real estate operating leases, the practical expedient that allows lessees to treat the lease and non-lease components of leases as a single lease component. We did not recognize a material adjustment to the opening balance of retained earnings upon adoption. Because of the transition method we used to adopt Topic 842, Topic 842 was not applied to periods prior to adoption and the adoption of Topic 842 had no impact on our previously reported results.
As discussed in note 2 to the condensed consolidated financial statements, most of our equipment rental revenues, which accounted for 85 percent of total revenues for the six months ended June 30, 2019, were accounted for under the previous lease accounting standard through December 31, 2018 and are accounted for under Topic 842 following adoption. There were no significant changes to our revenue accounting upon adoption of Topic 842. See note 2 to the condensed consolidated financial statements for a discussion of our revenue accounting (such discussion includes lessor disclosures required under Topic 842).
The adoption of Topic 842 had a material impact on our condensed consolidated balance sheet due to the recognition of right-of-use (“ROU”) assets and lease liabilities, as discussed further below. The adoption of Topic 842 did not have a material impact on our condensed consolidated income statement (as noted above, although a significant portion of our revenue is accounted for under Topic 842 following adoption, there were no significant changes to our revenue accounting upon adoption) or our condensed consolidated cash flow statement.
Lease Accounting
We determine if an arrangement is a lease at inception. Our material lease contracts are generally for real estate or vehicles, and the determination of whether such contracts contain leases generally does not require significant estimates or judgments. We lease real estate and equipment under operating leases. We lease a significant portion of our branch locations, and also lease other premises used for purposes such as district and regional offices and service centers. Our finance lease obligations consist primarily of rental equipment (primarily vehicles) and building leases.
Operating leases result in the recognition of ROU assets and lease liabilities on the balance sheet. ROU assets represent our right to use the leased asset for the lease term and lease liabilities represent our obligation to make lease payments. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate at the commencement date to determine the present value of lease payments. The operating lease ROU assets also include any lease payments made and exclude lease incentives. Our lease terms may include options, at our sole discretion, to extend or terminate the lease that we are reasonably certain to exercise. The amount of payments associated with such options reflected in the “Maturity of lease liabilities” table below is not material. Most real estate leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 5 years or more. Lease expense is recognized on a straight-line basis over the lease term.
Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense on such leases is recognized on a straight-line basis over the lease term. The primary leases we enter into with initial terms of 12 months or less are for equipment that we rent from vendors and then rent to our customers. We generate sublease revenue from such leases that we refer to as "re-rent revenue" as discussed in note 2 to the condensed consolidated financial statements. Apart from the re-rent revenue discussed in note 2, we do not generate material sublease income.
We have lease agreements with lease and non-lease components, and, for our real estate operating leases, we account for the lease and non-lease components as a single lease component. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The tables below present financial information associated with our leases. This information is only presented as of, and for the three and six months ended, June 30, 2019 because, as noted above, we adopted Topic 842 using a transition method that does not require application to periods prior to adoption.
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
|
| | | | |
| Classification | June 30, 2019 |
Assets | | |
Operating lease assets | Operating lease right-of-use assets | $ | 619 |
|
Finance lease assets | Rental equipment | 267 |
|
| Less accumulated depreciation | (91 | ) |
| Rental equipment, net | 176 |
|
| Property and equipment, net: | |
| Non-rental vehicles | 8 |
|
| Buildings | 16 |
|
| Less accumulated depreciation and amortization | (19 | ) |
| Property and equipment, net | 5 |
|
Total leased assets | | 800 |
|
Liabilities | | |
Current | | |
Operating | Accrued expenses and other liabilities | 170 |
|
Finance | Short-term debt and current maturities of long-term debt | 40 |
|
Long-term | | |
Operating | Operating lease liabilities | 497 |
|
Finance | Long-term debt | 75 |
|
Total lease liabilities | | $ | 782 |
|
|
| | | | | | | | |
Lease cost | Classification | Three Months Ended June 30, 2019 | | Six Months Ended June 30, 2019 |
Operating lease cost (1) | Cost of equipment rentals, excluding depreciation (1) | $ | 86 |
| | $ | 175 |
|
| Selling, general and administrative expenses | 2 |
| | 5 |
|
| Restructuring charge | 7 |
| | 13 |
|
Finance lease cost | | | | |
Amortization of leased assets | Depreciation of rental equipment | 7 |
| | 14 |
|
| Non-rental depreciation and amortization | — |
| | 1 |
|
Interest on lease liabilities | Interest expense, net | 1 |
| | 3 |
|
Sublease income (2) | | (37 | ) | | (72 | ) |
Net lease cost | | $ | 66 |
| | $ | 139 |
|
_________________
(1) Includes variable lease costs, which are immaterial. Cost of equipment rentals, excluding depreciation for the three and six months ended, June 30, 2019 includes $29 and $63, respectively, of short-term lease costs associated with equipment that we rent from vendors and then rent to our customers, as discussed further above. Apart from these costs, short-term lease costs are immaterial.
(2) Primarily reflects re-rent revenue as discussed further above.
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
|
| | | | | | | |
Maturity of lease liabilities (as of June 30, 2019) | Operating leases (1) | | Finance leases (2) |
2019 | $ | 116 |
| | $ | 22 |
|
2020 | 188 |
| | 38 |
|
2021 | 156 |
| | 38 |
|
2022 | 117 |
| | 14 |
|
2023 | 82 |
| | 3 |
|
Thereafter | 98 |
| | 6 |
|
Total | 757 |
| | 121 |
|
Less amount representing interest | (90 | ) | | (6 | ) |
Present value of lease liabilities | $ | 667 |
| | $ | 115 |
|
_________________
(1) Reflects payments for non-cancelable operating leases with initial or remaining terms of one year or more as of June 30, 2019. The table above does not include any legally binding minimum lease payments for leases signed but not yet commenced, and such leases are not material in the aggregate.
(2) The table above does not include any legally binding minimum lease payments for leases signed but not yet commenced, and such leases are not material in the aggregate.
|
| | |
Lease term and discount rate | June 30, 2019 |
Weighted-average remaining lease term (years) | |
Operating leases | 4.5 |
|
Finance leases | 3.5 |
|
Weighted-average discount rate | |
Operating leases | 4.9 | % |
Finance leases | 3.9 | % |
|
| | | |
Other information | Six Months Ended June 30, 2019 |
Cash paid for amounts included in the measurement of lease liabilities | |
Operating cash flows from operating leases | $ | 102 |
|
Operating cash flows from finance leases | 3 |
|
Financing cash flows from finance leases | 22 |
|
Leased assets obtained in exchange for new operating lease liabilities | 104 |
|
Leased assets obtained in exchange for new finance lease liabilities | $ | 17 |
|
9. Legal and Regulatory Matters
We are subject to a number of claims and proceedings that generally arise in the ordinary course of our business. These matters include, but are not limited to, general liability claims (including personal injury, property and auto claims), indemnification and guarantee obligations, employee injuries and employment-related claims, self-insurance obligations, contract and real estate matters, and other general business litigation. Based on advice of counsel and available information, including current status or stage of proceeding, and taking into account accruals for matters where we have established them, we currently believe that any liabilities ultimately resulting from such claims and proceedings will not, individually or in the aggregate, have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
10. Earnings Per Share
Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares plus the effect of dilutive potential common shares outstanding during the period. The following table sets forth the computation of basic and diluted earnings per share (shares in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 30, | | September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Numerator: | | | | | | | |
Net income available to common stockholders | $ | 199 |
| | $ | 187 |
| | 449 |
| | 413 |
|
Denominator: | | | | | | | |
Denominator for basic earnings per share—weighted-average common shares | 84,663 |
| | 85,945 |
| | 84,585 |
| | 88,175 |
|
Effect of dilutive securities: | | | | | | | |
Employee stock options | 398 |
| | 278 |
| | 401 |
| | 281 |
|
Restricted stock units | 531 |
| | 222 |
| | 488 |
| | 168 |
|
Denominator for diluted earnings per share—adjusted weighted-average common shares | 85,592 |
| | 86,445 |
| | 85,474 |
| | 88,624 |
|
Basic earnings per share | $ | 2.36 |
| | $ | 2.18 |
| | $ | 5.31 |
| | $ | 4.68 |
|
Diluted earnings per share | $ | 2.33 |
| | $ | 2.16 |
| | $ | 5.26 |
| | $ | 4.66 |
|
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
|
| | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2019 | | 2018 | | 2019 | | 2018 |
Numerator: | | | | | | | |
Net income available to common stockholders | $ | 270 |
| | $ | 270 |
| | 445 |
| | 453 |
|
Denominator: | | | | | | | |
Denominator for basic earnings per share—weighted-average common shares | 78,264 |
| | 83,456 |
| | 78,829 |
| | 83,854 |
|
Effect of dilutive securities: | | | | | | | |
Employee stock options | 108 |
| | 370 |
| | 200 |
| | 393 |
|
Restricted stock units | 95 |
| | 373 |
| | 211 |
| | 476 |
|
Denominator for diluted earnings per share—adjusted weighted-average common shares | 78,467 |
| | 84,199 |
| | 79,240 |
| | 84,723 |
|
Basic earnings per share | $ | 3.45 |
| | $ | 3.22 |
| | $ | 5.65 |
| | $ | 5.40 |
|
Diluted earnings per share | $ | 3.44 |
| | $ | 3.20 |
| | $ | 5.62 |
| | $ | 5.34 |
|
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
11. Condensed Consolidating Financial Information of Guarantor Subsidiaries
URNA is 100 percent owned by Holdings (“Parent”) and has certain outstanding indebtedness that is guaranteed by both Parent and, with the exception of its U.S. special purpose vehicle which holds receivable assets relating to the Company’s accounts receivable securitization facility (the “SPV”), all of URNA’s U.S. subsidiaries (the “guarantor subsidiaries”). Other than the guarantee by certain Canadian subsidiaries of URNA's indebtedness under the ABL facility, none of URNA’s indebtedness is guaranteed by URNA's foreign subsidiaries or the SPV (together, the “non-guarantor subsidiaries”). The receivable assets owned by the SPV have been sold or contributed by URNA to the SPV and are not available to satisfy the obligations of URNA or Parent’s other subsidiaries. The guarantor subsidiaries are all 100 percent-owned and the guarantees are made on a joint and several basis. The guarantees are not full and unconditional because a guarantor subsidiary can be automatically released and relieved of its obligations under certain circumstances, including sale of the guarantor subsidiary, the sale of all or substantially all of the guarantor subsidiary's assets, the requirements for legal defeasance or covenant defeasance under the applicable indenture being met, designating the guarantor subsidiary as an unrestricted subsidiary for purposes of the applicable covenants or other than with respect to the guarantees of the 7 5/8 percent Senior Notes due 2022 and the 5 3/4 percent Senior Notes due 2024, the notes being rated investment grade by both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc., or, in certain circumstances, another rating agency selected by URNA. The guarantees are also subject to subordination provisions (to the same extent that the obligations of the issuer under the relevant notes are subordinated to other debt of the issuer) and to a standard limitation which provides that the maximum amount guaranteed by each guarantor will not exceed the maximum amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws. Based on our understanding of Rule 3-10 of Regulation S-X ("Rule 3-10"), we believe that the guarantees of the guarantor subsidiaries comply with the conditions set forth in Rule 3-10 and therefore continue to utilize Rule 3-10 to present condensed consolidating financial information for Holdings, URNA, the guarantor subsidiaries and the non-guarantor subsidiaries. Separate consolidated financial statements of the guarantor subsidiaries have not been presented because management believes that such information would not be material to investors. However, condensed consolidating financial information is presented.
URNA covenantsCovenants in the ABL, facility, accounts receivable securitization facilityand term loan facilities, and the other agreements governing our debt, impose operating and financial restrictions on URNA, Parent and the guarantor subsidiaries, including limitations on the ability to make share repurchases and dividend payments. As of SeptemberJune 30, 2017,2019, the amount available for distribution under the most restrictive of these covenants was $536.$843. The Company’s total available capacity for making share repurchases and dividend payments includes the intercompany receivable balance of Parent. As of SeptemberJune 30, 2017,2019, our total available capacity for making share repurchases and dividend payments, which includes URNA’s capacity to make restricted payments and the intercompany receivable balance of Parent, was $1.234$2.766 billion.
The condensed consolidating financial information of Parent and its subsidiaries is as follows:
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
CONDENSED CONSOLIDATING BALANCE SHEET
SeptemberJune 30, 2017 2019
| | | Parent | | URNA | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total | Parent | | URNA | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Foreign | | SPV | | Foreign | | SPV | |
ASSETS | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 23 |
| | $ | — |
| | $ | 301 |
| | $ | — |
| | $ | — |
| | $ | 324 |
| $ | — |
| | $ | 51 |
| | $ | — |
| | $ | 24 |
| | $ | — |
| | $ | — |
| | $ | 75 |
|
Accounts receivable, net | — |
| | 39 |
| | — |
| | 123 |
| | 989 |
| | — |
| | 1,151 |
| — |
| | — |
| | — |
| | 150 |
| | 1,375 |
| | — |
| | 1,525 |
|
Intercompany receivable (payable) | 698 |
| | (481 | ) | | (204 | ) | | (129 | ) | | — |
| | 116 |
| | — |
| 1,923 |
| | (1,807 | ) | | (109 | ) | | (8 | ) | | 1 |
| | — |
| | — |
|
Inventory | — |
| | 74 |
| | — |
| | 8 |
| | — |
| | — |
| | 82 |
| — |
| | 123 |
| | — |
| | 12 |
| | — |
| | — |
| | 135 |
|
Prepaid expenses and other assets | 6 |
| | 74 |
| | — |
| | 2 |
| | — |
| | — |
| | 82 |
| — |
| | 87 |
| | — |
| | 18 |
| | — |
| | — |
| | 105 |
|
Total current assets | 704 |
| | (271 | ) | | (204 | ) | | 305 |
| | 989 |
| | 116 |
| | 1,639 |
| 1,923 |
| | (1,546 | ) | | (109 | ) | | 196 |
| | 1,376 |
| | — |
| | 1,840 |
|
Rental equipment, net | — |
| | 6,819 |
| | — |
| | 572 |
| | — |
| | — |
| | 7,391 |
| — |
| | 9,091 |
| | — |
| | 748 |
| | — |
| | — |
| | 9,839 |
|
Property and equipment, net | 38 |
| | 338 |
| | 33 |
| | 42 |
| | — |
| | — |
| | 451 |
| 59 |
| | 420 |
| | 49 |
| | 50 |
| | — |
| �� | — |
| | 578 |
|
Investments in subsidiaries | 1,488 |
| | 1,206 |
| | 1,074 |
| | — |
| | — |
| | (3,768 | ) | | — |
| 1,507 |
| | 1,598 |
| | 1,034 |
| | — |
| | — |
| | (4,139 | ) | | — |
|
Goodwill | — |
| | 3,226 |
| | — |
| | 267 |
| | — |
| | — |
| | 3,493 |
| — |
| | 4,749 |
| | — |
| | 385 |
| | — |
| | — |
| | 5,134 |
|
Other intangible assets, net | — |
| | 709 |
| | — |
| | 50 |
| | — |
| | — |
| | 759 |
| — |
| | 946 |
| | — |
| | 73 |
| | — |
| | — |
| | 1,019 |
|
Operating lease right-of-use assets | | — |
| | 550 |
| | — |
| | 69 |
| | — |
| | — |
| | 619 |
|
Other long-term assets | 4 |
| | 7 |
| | — |
| | — |
| | — |
| | — |
| | 11 |
| 10 |
| | 8 |
| | — |
| | — |
| | — |
| | — |
| | 18 |
|
Total assets | $ | 2,234 |
| | $ | 12,034 |
| | $ | 903 |
| | $ | 1,236 |
| | $ | 989 |
| | $ | (3,652 | ) | | $ | 13,744 |
| $ | 3,499 |
| | $ | 15,816 |
| | $ | 974 |
| | $ | 1,521 |
| | $ | 1,376 |
| | $ | (4,139 | ) | | $ | 19,047 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | | | | | | | | | | | | | | | | | | | | | | | | | | |
Short-term debt and current maturities of long-term debt | $ | 1 |
| | $ | 25 |
| | $ | — |
| | $ | 2 |
| | $ | 666 |
| | $ | — |
| | $ | 694 |
| $ | — |
| | $ | 48 |
| | $ | — |
| | $ | 2 |
| | $ | 945 |
| | $ | — |
| | $ | 995 |
|
Accounts payable | — |
| | 564 |
| | — |
| | 48 |
| | — |
| | — |
| | 612 |
| — |
| | 687 |
| | — |
| | 65 |
| | — |
| | — |
| | 752 |
|
Accrued expenses and other liabilities | — |
| | 415 |
| | 17 |
| | 34 |
| | 1 |
| | — |
| | 467 |
| — |
| | 729 |
| | 11 |
| | 46 |
| | 2 |
| | — |
| | 788 |
|
Total current liabilities | 1 |
| | 1,004 |
| | 17 |
| | 84 |
| | 667 |
| | — |
| | 1,773 |
| — |
| | 1,464 |
| | 11 |
| | 113 |
| | 947 |
| | — |
| | 2,535 |
|
Long-term debt | 1 |
| | 7,555 |
| | 118 |
| | 3 |
| | — |
| | — |
| | 7,677 |
| — |
| | 10,680 |
| | 8 |
| | 12 |
| | — |
| | — |
| | 10,700 |
|
Deferred taxes | 21 |
| | 1,916 |
| | — |
| | 75 |
| | — |
| | — |
| | 2,012 |
| 21 |
| | 1,632 |
| | — |
| | 90 |
| | — |
| | — |
| | 1,743 |
|
Operating lease liabilities | | — |
| | 439 |
| | — |
| | 58 |
| | — |
| | — |
| | 497 |
|
Other long-term liabilities | — |
| | 71 |
| | — |
| | — |
| | — |
| | — |
| | 71 |
| — |
| | 94 |
| | — |
| | — |
| | — |
| | — |
| | 94 |
|
Total liabilities | 23 |
| | 10,546 |
| | 135 |
| | 162 |
| | 667 |
| | — |
| | 11,533 |
| 21 |
| | 14,309 |
| | 19 |
| | 273 |
| | 947 |
| | — |
| | 15,569 |
|
Total stockholders’ equity (deficit) | 2,211 |
| | 1,488 |
| | 768 |
| | 1,074 |
| | 322 |
| | (3,652 | ) | | 2,211 |
| 3,478 |
| | 1,507 |
| | 955 |
| | 1,248 |
| | 429 |
| | (4,139 | ) | | 3,478 |
|
Total liabilities and stockholders’ equity (deficit) | $ | 2,234 |
| | $ | 12,034 |
| | $ | 903 |
| | $ | 1,236 |
| | $ | 989 |
| | $ | (3,652 | ) | | $ | 13,744 |
| $ | 3,499 |
| | $ | 15,816 |
| | $ | 974 |
| | $ | 1,521 |
| | $ | 1,376 |
| | $ | (4,139 | ) | | $ | 19,047 |
|
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 20162018
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Parent | | URNA | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Foreign | | SPV | |
ASSETS | | | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 1 |
| | $ | — |
| | $ | 42 |
| | $ | — |
| | $ | — |
| | $ | 43 |
|
Accounts receivable, net | — |
| | — |
| | — |
| | 159 |
| | 1,386 |
| | — |
| | 1,545 |
|
Intercompany receivable (payable) | 1,534 |
| | (1,423 | ) | | (96 | ) | | (15 | ) | | — |
| | — |
| | — |
|
Inventory | — |
| | 96 |
| | — |
| | 13 |
| | — |
| | — |
| | 109 |
|
Prepaid expenses and other assets | — |
| | 60 |
| | — |
| | 4 |
| | — |
| | — |
| | 64 |
|
Total current assets | 1,534 |
| | (1,266 | ) | | (96 | ) | | 203 |
| | 1,386 |
| | — |
| | 1,761 |
|
Rental equipment, net | — |
| | 8,910 |
| | — |
| | 690 |
| | — |
| | — |
| | 9,600 |
|
Property and equipment, net | 57 |
| | 462 |
| | 40 |
| | 55 |
| | — |
| | — |
| | 614 |
|
Investments in subsidiaries | 1,826 |
| | 1,646 |
| | 980 |
| | — |
| | — |
| | (4,452 | ) | | — |
|
Goodwill | — |
| | 4,661 |
| | — |
| | 397 |
| | — |
| | — |
| | 5,058 |
|
Other intangible assets, net | — |
| | 1,004 |
| | — |
| | 80 |
| | — |
| | — |
| | 1,084 |
|
Other long-term assets | 9 |
| | 7 |
| | — |
| | — |
| | — |
| | — |
| | 16 |
|
Total assets | $ | 3,426 |
| | $ | 15,424 |
| | $ | 924 |
| | $ | 1,425 |
| | $ | 1,386 |
| | $ | (4,452 | ) | | $ | 18,133 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | | | | | | | | | | | | | |
Short-term debt and current maturities of long-term debt | $ | 1 |
| | $ | 50 |
| | $ | — |
| | $ | 2 |
| | $ | 850 |
| | $ | — |
| | $ | 903 |
|
Accounts payable | — |
| | 481 |
| | — |
| | 55 |
| | — |
| | — |
| | 536 |
|
Accrued expenses and other liabilities | — |
| | 619 |
| | 14 |
| | 42 |
| | 2 |
| | — |
| | 677 |
|
Total current liabilities | 1 |
| | 1,150 |
| | 14 |
| | 99 |
| | 852 |
| | — |
| | 2,116 |
|
Long-term debt | — |
| | 10,778 |
| | 9 |
| | 57 |
| | — |
| | — |
| | 10,844 |
|
Deferred taxes | 22 |
| | 1,587 |
| | — |
| | 78 |
| | — |
| | — |
| | 1,687 |
|
Other long-term liabilities | — |
| | 83 |
| | — |
| | — |
| | — |
| | — |
| | 83 |
|
Total liabilities | 23 |
| | 13,598 |
| | 23 |
| | 234 |
| | 852 |
| | — |
| | 14,730 |
|
Total stockholders’ equity (deficit) | 3,403 |
| | 1,826 |
| | 901 |
| | 1,191 |
| | 534 |
| | (4,452 | ) | | 3,403 |
|
Total liabilities and stockholders’ equity (deficit) | $ | 3,426 |
| | $ | 15,424 |
| | $ | 924 |
| | $ | 1,425 |
| | $ | 1,386 |
| | $ | (4,452 | ) | | $ | 18,133 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Parent | | URNA | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Foreign | | SPV | |
ASSETS | | | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 21 |
| | $ | — |
| | $ | 291 |
| | $ | — |
| | $ | — |
| | $ | 312 |
|
Accounts receivable, net | — |
| | 38 |
| | — |
| | 96 |
| | 786 |
| | — |
| | 920 |
|
Intercompany receivable (payable) | 336 |
| | (137 | ) | | (188 | ) | | (115 | ) | | — |
| | 104 |
| | — |
|
Inventory | — |
| | 61 |
| | — |
| | 7 |
| | — |
| | — |
| | 68 |
|
Prepaid expenses and other assets | 5 |
| | 51 |
| | — |
| | 5 |
| | — |
| | — |
| | 61 |
|
Total current assets | 341 |
| | 34 |
| | (188 | ) | | 284 |
| | 786 |
| | 104 |
| | 1,361 |
|
Rental equipment, net | — |
| | 5,709 |
| | — |
| | 480 |
| | — |
| | — |
| | 6,189 |
|
Property and equipment, net | 38 |
| | 326 |
| | 26 |
| | 40 |
| | — |
| | — |
| | 430 |
|
Investments in subsidiaries | 1,292 |
| | 1,013 |
| | 978 |
| | — |
| | — |
| | (3,283 | ) | | — |
|
Goodwill | — |
| | 3,013 |
| | — |
| | 247 |
| | — |
| | — |
| | 3,260 |
|
Other intangible assets, net | — |
| | 686 |
| | — |
| | 56 |
| | — |
| | — |
| | 742 |
|
Other long-term assets | — |
| | 6 |
| | — |
| | — |
| | — |
| | — |
| | 6 |
|
Total assets | $ | 1,671 |
| | $ | 10,787 |
| | $ | 816 |
| | $ | 1,107 |
| | $ | 786 |
| | $ | (3,179 | ) | | $ | 11,988 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | | | | | | | | | | | | | |
Short-term debt and current maturities of long-term debt | $ | 1 |
| | $ | 25 |
| | $ | — |
| | $ | 3 |
| | $ | 568 |
| | $ | — |
| | $ | 597 |
|
Accounts payable | — |
| | 217 |
| | — |
| | 26 |
| | — |
| | — |
| | 243 |
|
Accrued expenses and other liabilities | — |
| | 305 |
| | 13 |
| | 25 |
| | 1 |
| | — |
| | 344 |
|
Total current liabilities | 1 |
| | 547 |
| | 13 |
| | 54 |
| | 569 |
| | — |
| | 1,184 |
|
Long-term debt | 2 |
| | 7,076 |
| | 111 |
| | 4 |
| | — |
| | — |
| | 7,193 |
|
Deferred taxes | 20 |
| | 1,805 |
| | — |
| | 71 |
| | — |
| | — |
| | 1,896 |
|
Other long-term liabilities | — |
| | 67 |
| | — |
| | — |
| | — |
| | — |
| | 67 |
|
Total liabilities | 23 |
| | 9,495 |
| | 124 |
| | 129 |
| | 569 |
| | — |
| | 10,340 |
|
Total stockholders’ equity (deficit) | 1,648 |
| | 1,292 |
| | 692 |
| | 978 |
| | 217 |
| | (3,179 | ) | | 1,648 |
|
Total liabilities and stockholders’ equity (deficit) | $ | 1,671 |
| | $ | 10,787 |
| | $ | 816 |
| | $ | 1,107 |
| | $ | 786 |
| | $ | (3,179 | ) | | $ | 11,988 |
|
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
For the Three Months Ended SeptemberJune 30, 20172019
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Parent | | URNA | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Foreign | | SPV | |
Revenues: | | | | | | | | | | | | | |
Equipment rentals | $ | — |
| | $ | 1,798 |
| | $ | — |
| | $ | 161 |
| | $ | 1 |
| | $ | — |
| | $ | 1,960 |
|
Sales of rental equipment | — |
| | 181 |
| | — |
| | 16 |
| | — |
| | — |
| | 197 |
|
Sales of new equipment | — |
| | 53 |
| | — |
| | 7 |
| | — |
| | — |
| | 60 |
|
Contractor supplies sales | — |
| | 24 |
| | — |
| | 3 |
| | — |
| | — |
| | 27 |
|
Service and other revenues | — |
| | 39 |
| | — |
| | 7 |
| | — |
| | — |
| | 46 |
|
Total revenues | — |
| | 2,095 |
| | — |
| | 194 |
| | 1 |
| | — |
| | 2,290 |
|
Cost of revenues: | | | | | | | | | | | | | |
Cost of equipment rentals, excluding depreciation | — |
| | 692 |
| | — |
| | 76 |
| | 1 |
| | — |
| | 769 |
|
Depreciation of rental equipment | — |
| | 367 |
| | — |
| | 32 |
| | — |
| | — |
| | 399 |
|
Cost of rental equipment sales | — |
| | 108 |
| | — |
| | 8 |
| | — |
| | — |
| | 116 |
|
Cost of new equipment sales | — |
| | 45 |
| | — |
| | 6 |
| | — |
| | — |
| | 51 |
|
Cost of contractor supplies sales | — |
| | 17 |
| | — |
| | 2 |
| | — |
| | — |
| | 19 |
|
Cost of service and other revenues | — |
| | 20 |
| | — |
| | 5 |
| | — |
| | — |
| | 25 |
|
Total cost of revenues | — |
| | 1,249 |
| | — |
| | 129 |
| | 1 |
| | — |
| | 1,379 |
|
Gross profit | — |
| | 846 |
| | — |
| | 65 |
| | — |
| | — |
| | 911 |
|
Selling, general and administrative expenses | (32 | ) | | 259 |
| | — |
| | 32 |
| | 12 |
| | — |
| | 271 |
|
Merger related costs | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Restructuring charge | — |
| | 6 |
| | — |
| | — |
| | — |
| | — |
| | 6 |
|
Non-rental depreciation and amortization | 6 |
| | 91 |
| | — |
| | 8 |
| | — |
| | — |
| | 105 |
|
Operating income (loss) | 26 |
| | 490 |
| | — |
| | 25 |
| | (12 | ) | | — |
| | 529 |
|
Interest (income) expense, net | (17 | ) | | 189 |
| | — |
| | — |
| | 8 |
| | — |
| | 180 |
|
Other (income) expense, net | (187 | ) | | 213 |
| | — |
| | 15 |
| | (43 | ) | | — |
| | (2 | ) |
Income before provision (benefit) for income taxes | 230 |
| | 88 |
| | — |
| | 10 |
| | 23 |
| | — |
| | 351 |
|
Provision (benefit) for income taxes | 53 |
| | 26 |
| | — |
| | (3 | ) | | 5 |
| | — |
| | 81 |
|
Income before equity in net earnings (loss) of subsidiaries | 177 |
| | 62 |
| | — |
| | 13 |
| | 18 |
| | — |
| | 270 |
|
Equity in net earnings (loss) of subsidiaries | 93 |
| | 31 |
| | 10 |
| | — |
| | — |
| | (134 | ) | | — |
|
Net income (loss) | 270 |
| | 93 |
| | 10 |
| | 13 |
| | 18 |
| | (134 | ) | | 270 |
|
Other comprehensive income (loss) | 22 |
| | 22 |
| | 21 |
| | 22 |
| | — |
| | (65 | ) | | 22 |
|
Comprehensive income (loss) | $ | 292 |
| | $ | 115 |
| | $ | 31 |
| | $ | 35 |
| | $ | 18 |
| | $ | (199 | ) | | $ | 292 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Parent | | URNA | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Foreign | | SPV | |
Revenues: | | | | | | | | | | | | | |
Equipment rentals | $ | — |
| | $ | 1,407 |
| | $ | — |
| | $ | 129 |
| | $ | — |
| | $ | — |
| | $ | 1,536 |
|
Sales of rental equipment | — |
| | 118 |
| | — |
| | 21 |
| | — |
| | — |
| | 139 |
|
Sales of new equipment | — |
| | 36 |
| | — |
| | 4 |
| | — |
| | — |
| | 40 |
|
Contractor supplies sales | — |
| | 18 |
| | — |
| | 3 |
| | — |
| | — |
| | 21 |
|
Service and other revenues | — |
| | 27 |
| | — |
| | 3 |
| | — |
| | — |
| | 30 |
|
Total revenues | — |
| | 1,606 |
| | — |
| | 160 |
| | — |
| | — |
| | 1,766 |
|
Cost of revenues: | | | | | | | | | | | | | |
Cost of equipment rentals, excluding depreciation | — |
| | 502 |
| | — |
| | 55 |
| | — |
| | — |
| | 557 |
|
Depreciation of rental equipment | — |
| | 266 |
| | — |
| | 24 |
| | — |
| | — |
| | 290 |
|
Cost of rental equipment sales | — |
| | 73 |
| | — |
| | 11 |
| | — |
| | — |
| | 84 |
|
Cost of new equipment sales | — |
| | 31 |
| | — |
| | 3 |
| | — |
| | — |
| | 34 |
|
Cost of contractor supplies sales | — |
| | 12 |
| | — |
| | 2 |
| | — |
| | — |
| | 14 |
|
Cost of service and other revenues | — |
| | 12 |
| | — |
| | 2 |
| | — |
| | — |
| | 14 |
|
Total cost of revenues | — |
| | 896 |
| | — |
| | 97 |
| | — |
| | — |
| | 993 |
|
Gross profit | — |
| | 710 |
| | — |
| | 63 |
| | — |
| | — |
| | 773 |
|
Selling, general and administrative expenses | 42 |
| | 167 |
| | — |
| | 19 |
| | 9 |
| | — |
| | 237 |
|
Merger related costs | — |
| | 16 |
| | — |
| | — |
| | — |
| | — |
| | 16 |
|
Restructuring charge | — |
| | 8 |
| | — |
| | 1 |
| | — |
| | — |
| | 9 |
|
Non-rental depreciation and amortization | 3 |
| | 54 |
| | — |
| | 6 |
| | — |
| | — |
| | 63 |
|
Operating (loss) income | (45 | ) | | 465 |
| | — |
| | 37 |
| | (9 | ) | | — |
| | 448 |
|
Interest (income) expense, net | (5 | ) | | 133 |
| | 1 |
| | 1 |
| | 3 |
| | (2 | ) | | 131 |
|
Other (income) expense, net | (144 | ) | | 154 |
| | — |
| | 10 |
| | (25 | ) | | — |
| | (5 | ) |
Income (loss) before provision for income taxes | 104 |
| | 178 |
| | (1 | ) | | 26 |
| | 13 |
| | 2 |
| | 322 |
|
Provision for income taxes | 39 |
| | 73 |
| | — |
| | 7 |
| | 4 |
| | — |
| | 123 |
|
Income (loss) before equity in net earnings (loss) of subsidiaries | 65 |
| | 105 |
| | (1 | ) | | 19 |
| | 9 |
| | 2 |
| | 199 |
|
Equity in net earnings (loss) of subsidiaries | 134 |
| | 29 |
| | 19 |
| | — |
| | — |
| | (182 | ) | | — |
|
Net income (loss) | 199 |
| | 134 |
| | 18 |
| | 19 |
| | 9 |
| | (180 | ) | | 199 |
|
Other comprehensive income (loss) | 42 |
| | 42 |
| | 41 |
| | 33 |
| | — |
| | (116 | ) | | 42 |
|
Comprehensive income (loss) | $ | 241 |
| | $ | 176 |
| | $ | 59 |
| | $ | 52 |
| | $ | 9 |
| | $ | (296 | ) | | $ | 241 |
|
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
For the Three Months Ended SeptemberJune 30, 2016
2018
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Parent | | URNA | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Foreign | | SPV | |
Revenues: | | | | | | | | | | | | | |
Equipment rentals | $ | — |
| | $ | 1,507 |
| | $ | — |
| | $ | 124 |
| | $ | — |
| | $ | — |
| | $ | 1,631 |
|
Sales of rental equipment | — |
| | 143 |
| | — |
| | 14 |
| | — |
| | — |
| | 157 |
|
Sales of new equipment | — |
| | 40 |
| | — |
| | 4 |
| | — |
| | — |
| | 44 |
|
Contractor supplies sales | — |
| | 21 |
| | — |
| | 3 |
| | — |
| | — |
| | 24 |
|
Service and other revenues | — |
| | 29 |
| | — |
| | 6 |
| | — |
| | — |
| | 35 |
|
Total revenues | — |
| | 1,740 |
| | — |
| | 151 |
| | — |
| | — |
| | 1,891 |
|
Cost of revenues: | | | | | | | | | | | | | |
Cost of equipment rentals, excluding depreciation | — |
| | 561 |
| | — |
| | 59 |
| | — |
| | — |
| | 620 |
|
Depreciation of rental equipment | — |
| | 298 |
| | — |
| | 25 |
| | — |
| | — |
| | 323 |
|
Cost of rental equipment sales | — |
| | 85 |
| | — |
| | 7 |
| | — |
| | — |
| | 92 |
|
Cost of new equipment sales | — |
| | 34 |
| | — |
| | 4 |
| | — |
| | — |
| | 38 |
|
Cost of contractor supplies sales | — |
| | 14 |
| | — |
| | 2 |
| | — |
| | — |
| | 16 |
|
Cost of service and other revenues | — |
| | 16 |
| | — |
| | 4 |
| | — |
| | — |
| | 20 |
|
Total cost of revenues | — |
| | 1,008 |
| | — |
| | 101 |
| | — |
| | — |
| | 1,109 |
|
Gross profit | — |
| | 732 |
| | — |
| | 50 |
| | — |
| | — |
| | 782 |
|
Selling, general and administrative expenses | (35 | ) | | 242 |
| | — |
| | 23 |
| | 9 |
| | — |
| | 239 |
|
Merger related costs | — |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | 2 |
|
Restructuring charge | — |
| | 4 |
| | — |
| | — |
| | — |
| | — |
| | 4 |
|
Non-rental depreciation and amortization | 4 |
| | 58 |
| | — |
| | 5 |
| | — |
| | — |
| | 67 |
|
Operating income (loss) | 31 |
| | 426 |
| | — |
| | 22 |
| | (9 | ) | | — |
| | 470 |
|
Interest (income) expense, net | (8 | ) | | 115 |
| | — |
| | — |
| | 5 |
| | — |
| | 112 |
|
Other (income) expense, net | (156 | ) | | 172 |
| | — |
| | 13 |
| | (30 | ) | | — |
| | (1 | ) |
Income before provision for income taxes | 195 |
| | 139 |
| | — |
| | 9 |
| | 16 |
| | — |
| | 359 |
|
Provision for income taxes | 43 |
| | 40 |
| | — |
| | 2 |
| | 4 |
| | — |
| | 89 |
|
Income before equity in net earnings (loss) of subsidiaries | 152 |
| | 99 |
| | — |
| | 7 |
| | 12 |
| | — |
| | 270 |
|
Equity in net earnings (loss) of subsidiaries | 118 |
| | 19 |
| | 7 |
| | — |
| | — |
| | (144 | ) | | — |
|
Net income (loss) | 270 |
| | 118 |
| | 7 |
| | 7 |
| | 12 |
| | (144 | ) | | 270 |
|
Other comprehensive (loss) income | (20 | ) | | (20 | ) | | (21 | ) | | (90 | ) | | — |
| | 131 |
| | (20 | ) |
Comprehensive income (loss) | $ | 250 |
| | $ | 98 |
| | $ | (14 | ) | | $ | (83 | ) | | $ | 12 |
| | $ | (13 | ) | | $ | 250 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Parent | | URNA | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Foreign | | SPV | |
Revenues: | | | | | | | | | | | | | |
Equipment rentals | $ | — |
| | $ | 1,208 |
| | $ | — |
| | $ | 114 |
| | $ | — |
| | $ | — |
| | $ | 1,322 |
|
Sales of rental equipment | — |
| | 99 |
| | — |
| | 13 |
| | — |
| | — |
| | 112 |
|
Sales of new equipment | — |
| | 28 |
| | — |
| | 2 |
| | — |
| | — |
| | 30 |
|
Contractor supplies sales | — |
| | 17 |
| | — |
| | 2 |
| | — |
| | — |
| | 19 |
|
Service and other revenues | — |
| | 22 |
| | — |
| | 3 |
| | — |
| | — |
| | 25 |
|
Total revenues | — |
| | 1,374 |
| | — |
| | 134 |
| | — |
| | — |
| | 1,508 |
|
Cost of revenues: | | | | | | | | | | | | | |
Cost of equipment rentals, excluding depreciation | — |
| | 435 |
| | — |
| | 51 |
| | — |
| | — |
| | 486 |
|
Depreciation of rental equipment | — |
| | 227 |
| | — |
| | 23 |
| | — |
| | — |
| | 250 |
|
Cost of rental equipment sales | — |
| | 61 |
| | — |
| | 7 |
| | — |
| | — |
| | 68 |
|
Cost of new equipment sales | — |
| | 23 |
| | — |
| | 2 |
| | — |
| | — |
| | 25 |
|
Cost of contractor supplies sales | — |
| | 11 |
| | — |
| | 2 |
| | — |
| | — |
| | 13 |
|
Cost of service and other revenues | — |
| | 11 |
| | — |
| | (1 | ) | | — |
| | — |
| | 10 |
|
Total cost of revenues | — |
| | 768 |
| | — |
| | 84 |
| | — |
| | — |
| | 852 |
|
Gross profit | — |
| | 606 |
| | — |
| | 50 |
| | — |
| | — |
| | 656 |
|
Selling, general and administrative expenses | 2 |
| | 151 |
| | — |
| | 18 |
| | 8 |
| | — |
| | 179 |
|
Restructuring charge | — |
| | 4 |
| | — |
| | — |
| | — |
| | — |
| | 4 |
|
Non-rental depreciation and amortization | 3 |
| | 52 |
| | — |
| | 6 |
| | — |
| | — |
| | 61 |
|
Operating (loss) income | (5 | ) | | 399 |
| | — |
| | 26 |
| | (8 | ) | | — |
| | 412 |
|
Interest (income) expense, net | (1 | ) | | 109 |
| | 1 |
| | 1 |
| | 2 |
| | (2 | ) | | 110 |
|
Other (income) expense, net | (123 | ) | | 136 |
| | — |
| | 9 |
| | (23 | ) | | — |
| | (1 | ) |
Income (loss) before provision for income taxes | 119 |
| | 154 |
| | (1 | ) | | 16 |
| | 13 |
| | 2 |
| | 303 |
|
Provision for income taxes | 42 |
| | 64 |
| | — |
| | 5 |
| | 5 |
| | — |
| | 116 |
|
Income (loss) before equity in net earnings (loss) of subsidiaries | 77 |
| | 90 |
| | (1 | ) | | 11 |
| | 8 |
| | 2 |
| | 187 |
|
Equity in net earnings (loss) of subsidiaries | 110 |
| | 20 |
| | 11 |
| | — |
| | — |
| | (141 | ) | | — |
|
Net income (loss) | 187 |
| | 110 |
| | 10 |
| | 11 |
| | 8 |
| | (139 | ) | | 187 |
|
Other comprehensive (loss) income | (9 | ) | | (9 | ) | | (9 | ) | | (7 | ) | | — |
| | 25 |
| | (9 | ) |
Comprehensive income (loss) | $ | 178 |
| | $ | 101 |
| | $ | 1 |
| | $ | 4 |
| | $ | 8 |
| | $ | (114 | ) | | $ | 178 |
|
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
For the NineSix Months Ended SeptemberJune 30, 20172019 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Parent | | URNA | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total | Parent | | URNA | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Foreign | | SPV | | Foreign | | SPV | |
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equipment rentals | $ | — |
| | $ | 3,739 |
| | $ | — |
| | $ | 330 |
| | $ | — |
| | $ | — |
| | $ | 4,069 |
| $ | — |
| | $ | 3,436 |
| | $ | — |
| | $ | 318 |
| | $ | 1 |
| | $ | — |
| | $ | 3,755 |
|
Sales of rental equipment | — |
| | 334 |
| | — |
| | 44 |
| | — |
| | — |
| | 378 |
| — |
| | 354 |
| | — |
| | 35 |
| | — |
| | — |
| | 389 |
|
Sales of new equipment | — |
| | 113 |
| | — |
| | 13 |
| | — |
| | — |
| | 126 |
| — |
| | 106 |
| | — |
| | 16 |
| | — |
| | — |
| | 122 |
|
Contractor supplies sales | — |
| | 53 |
| | — |
| | 7 |
| | — |
| | — |
| | 60 |
| — |
| | 46 |
| | — |
| | 5 |
| | — |
| | — |
| | 51 |
|
Service and other revenues | — |
| | 75 |
| | — |
| | 11 |
| | — |
| | — |
| | 86 |
| — |
| | 78 |
| | — |
| | 12 |
| | — |
| | — |
| | 90 |
|
Total revenues | — |
| | 4,314 |
| | — |
| | 405 |
| | — |
| | — |
| | 4,719 |
| — |
| | 4,020 |
| | — |
| | 386 |
| | 1 |
| | — |
| | 4,407 |
|
Cost of revenues: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost of equipment rentals, excluding depreciation | — |
| | 1,397 |
| | — |
| | 159 |
| | — |
| | — |
| | 1,556 |
| — |
| | 1,349 |
| | — |
| | 161 |
| | 1 |
| | — |
| | 1,511 |
|
Depreciation of rental equipment | — |
| | 738 |
| | — |
| | 66 |
| | — |
| | — |
| | 804 |
| — |
| | 731 |
| | — |
| | 63 |
| | — |
| | — |
| | 794 |
|
Cost of rental equipment sales | — |
| | 202 |
| | — |
| | 23 |
| | — |
| | — |
| | 225 |
| — |
| | 221 |
| | — |
| | 20 |
| | — |
| | — |
| | 241 |
|
Cost of new equipment sales | — |
| | 97 |
| | — |
| | 11 |
| | — |
| | — |
| | 108 |
| — |
| | 91 |
| | — |
| | 14 |
| | — |
| | — |
| | 105 |
|
Cost of contractor supplies sales | — |
| | 37 |
| | — |
| | 5 |
| | — |
| | — |
| | 42 |
| — |
| | 33 |
| | — |
| | 3 |
| | — |
| | — |
| | 36 |
|
Cost of service and other revenues | — |
| | 37 |
| | — |
| | 5 |
| | — |
| | — |
| | 42 |
| — |
| | 41 |
| | — |
| | 7 |
| | — |
| | — |
| | 48 |
|
Total cost of revenues | — |
| | 2,508 |
| | — |
| | 269 |
| | — |
| | — |
| | 2,777 |
| — |
| | 2,466 |
| | — |
| | 268 |
| | 1 |
| | — |
| | 2,735 |
|
Gross profit | — |
| | 1,806 |
| | — |
| | 136 |
| | — |
| | — |
| | 1,942 |
| — |
| | 1,554 |
| | — |
| | 118 |
| | — |
| | — |
| | 1,672 |
|
Selling, general and administrative expenses | 84 |
| | 483 |
| | — |
| | 57 |
| | 24 |
| | — |
| | 648 |
| 21 |
| | 442 |
| | — |
| | 59 |
| | 29 |
| | — |
| | 551 |
|
Merger related costs | — |
| | 32 |
| | — |
| | — |
| | — |
| | — |
| | 32 |
| — |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | 1 |
|
Restructuring charge | — |
| | 27 |
| | — |
| | 1 |
| | — |
| | — |
| | 28 |
| — |
| | 15 |
| | — |
| | (1 | ) | | — |
| | — |
| | 14 |
|
Non-rental depreciation and amortization | 11 |
| | 162 |
| | — |
| | 16 |
| | — |
| | — |
| | 189 |
| 10 |
| | 182 |
| | — |
| | 17 |
| | — |
| | — |
| | 209 |
|
Operating (loss) income | (95 | ) | | 1,102 |
| | — |
| | 62 |
| | (24 | ) | | — |
| | 1,045 |
| (31 | ) | | 914 |
| | — |
| | 43 |
| | (29 | ) | | — |
| | 897 |
|
Interest (income) expense, net | (10 | ) | | 341 |
| | 2 |
| | 1 |
| | 8 |
| | (4 | ) | | 338 |
| (33 | ) | | 348 |
| | — |
| | — |
| | 16 |
| | — |
| | 331 |
|
Other (income) expense, net | (387 | ) | | 419 |
| | — |
| | 33 |
| | (70 | ) | | — |
| | (5 | ) | (359 | ) | | 410 |
| | — |
| | 29 |
| | (85 | ) | | — |
| | (5 | ) |
Income (loss) before provision for income taxes | 302 |
| | 342 |
| | (2 | ) | | 28 |
| | 38 |
| | 4 |
| | 712 |
| |
Provision for income taxes | 102 |
| | 140 |
| | — |
| | 7 |
| | 14 |
| | — |
| | 263 |
| |
Income (loss) before equity in net earnings (loss) of subsidiaries | 200 |
| | 202 |
| | (2 | ) | | 21 |
| | 24 |
| | 4 |
| | 449 |
| |
Income before provision (benefit) for income taxes | | 361 |
| | 156 |
| | — |
| | 14 |
| | 40 |
| | — |
| | 571 |
|
Provision (benefit) for income taxes | | 76 |
| | 42 |
| | — |
| | (2 | ) | | 10 |
| | — |
| | 126 |
|
Income before equity in net earnings (loss) of subsidiaries | | 285 |
| | 114 |
| | — |
| | 16 |
| | 30 |
| | — |
| | 445 |
|
Equity in net earnings (loss) of subsidiaries | 249 |
| | 47 |
| | 21 |
| | — |
| | — |
| | (317 | ) | | — |
| 160 |
| | 46 |
| | 12 |
| | — |
| | — |
| | (218 | ) | | — |
|
Net income (loss) | 449 |
| | 249 |
| | 19 |
| | 21 |
| | 24 |
| | (313 | ) | | 449 |
| 445 |
| | 160 |
| | 12 |
| | 16 |
| | 30 |
| | (218 | ) | | 445 |
|
Other comprehensive income (loss) | 75 |
| | 75 |
| | 75 |
| | 61 |
| | — |
| | (211 | ) | | 75 |
| 43 |
| | 43 |
| | 42 |
| | 41 |
| | — |
| | (126 | ) | | 43 |
|
Comprehensive income (loss) | $ | 524 |
| | $ | 324 |
| | $ | 94 |
| | $ | 82 |
| | $ | 24 |
| | $ | (524 | ) | | $ | 524 |
| $ | 488 |
| | $ | 203 |
| | $ | 54 |
| | $ | 57 |
| | $ | 30 |
| | $ | (344 | ) | | $ | 488 |
|
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
For the NineSix Months Ended SeptemberJune 30, 20162018
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Parent | | URNA | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Foreign | | SPV | |
Revenues: | | | | | | | | | | | | | |
Equipment rentals | $ | — |
| | $ | 2,853 |
| | $ | — |
| | $ | 237 |
| | $ | — |
| | $ | — |
| | $ | 3,090 |
|
Sales of rental equipment | — |
| | 307 |
| | — |
| | 31 |
| | — |
| | — |
| | 338 |
|
Sales of new equipment | — |
| | 77 |
| | — |
| | 9 |
| | — |
| | — |
| | 86 |
|
Contractor supplies sales | — |
| | 36 |
| | — |
| | 6 |
| | — |
| | — |
| | 42 |
|
Service and other revenues | — |
| | 60 |
| | — |
| | 9 |
| | — |
| | — |
| | 69 |
|
Total revenues | — |
| | 3,333 |
| | — |
| | 292 |
| | — |
| | — |
| | 3,625 |
|
Cost of revenues: | | | | | | | | | | | | | |
Cost of equipment rentals, excluding depreciation | — |
| | 1,096 |
| | — |
| | 116 |
| | — |
| | — |
| | 1,212 |
|
Depreciation of rental equipment | — |
| | 595 |
| | — |
| | 50 |
| | — |
| | — |
| | 645 |
|
Cost of rental equipment sales | — |
| | 183 |
| | — |
| | 16 |
| | — |
| | — |
| | 199 |
|
Cost of new equipment sales | — |
| | 67 |
| | — |
| | 8 |
| | — |
| | — |
| | 75 |
|
Cost of contractor supplies sales | — |
| | 24 |
| | — |
| | 4 |
| | — |
| | — |
| | 28 |
|
Cost of service and other revenues | — |
| | 33 |
| | — |
| | 5 |
| | — |
| | — |
| | 38 |
|
Total cost of revenues | — |
| | 1,998 |
| | — |
| | 199 |
| | — |
| | — |
| | 2,197 |
|
Gross profit | — |
| | 1,335 |
| | — |
| | 93 |
| | — |
| | — |
| | 1,428 |
|
Selling, general and administrative expenses | 5 |
| | 407 |
| | — |
| | 42 |
| | 17 |
| | — |
| | 471 |
|
Merger related costs | — |
| | 3 |
| | — |
| | — |
| | — |
| | — |
| | 3 |
|
Restructuring charge | — |
| | 6 |
| | — |
| | — |
| | — |
| | — |
| | 6 |
|
Non-rental depreciation and amortization | 8 |
| | 120 |
| | — |
| | 10 |
| | — |
| | — |
| | 138 |
|
Operating (loss) income | (13 | ) | | 799 |
| | — |
| | 41 |
| | (17 | ) | | — |
| | 810 |
|
Interest (income) expense, net | (15 | ) | | 227 |
| | 1 |
| | (1 | ) | | 10 |
| | (1 | ) | | 221 |
|
Other (income) expense, net | (297 | ) | | 333 |
| | — |
| | 24 |
| | (62 | ) | | — |
| | (2 | ) |
Income (loss) before provision for income taxes | 299 |
| | 239 |
| | (1 | ) | | 18 |
| | 35 |
| | 1 |
| | 591 |
|
Provision for income taxes | 60 |
| | 64 |
| | — |
| | 5 |
| | 9 |
| | — |
| | 138 |
|
Income (loss) before equity in net earnings (loss) of subsidiaries | 239 |
| | 175 |
| | (1 | ) | | 13 |
| | 26 |
| | 1 |
| | 453 |
|
Equity in net earnings (loss) of subsidiaries | 214 |
| | 39 |
| | 13 |
| | — |
| | — |
| | (266 | ) | | — |
|
Net income (loss) | 453 |
| | 214 |
| | 12 |
| | 13 |
| | 26 |
| | (265 | ) | | 453 |
|
Other comprehensive (loss) income | (45 | ) | | (45 | ) | | (46 | ) | | (113 | ) | | — |
| | 204 |
| | (45 | ) |
Comprehensive income (loss) | $ | 408 |
| | $ | 169 |
| | $ | (34 | ) | | $ | (100 | ) | | $ | 26 |
| | $ | (61 | ) | | $ | 408 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Parent | | URNA | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Foreign | | SPV | |
Revenues: | | | | | | | | | | | | | |
Equipment rentals | $ | — |
| | $ | 3,335 |
| | $ | — |
| | $ | 308 |
| | $ | — |
| | $ | — |
| | $ | 3,643 |
|
Sales of rental equipment | — |
| | 320 |
| | — |
| | 41 |
| | — |
| | — |
| | 361 |
|
Sales of new equipment | — |
| | 86 |
| | — |
| | 10 |
| | — |
| | — |
| | 96 |
|
Contractor supplies sales | — |
| | 52 |
| | — |
| | 8 |
| | — |
| | — |
| | 60 |
|
Service and other revenues | — |
| | 69 |
| | — |
| | 10 |
| | — |
| | — |
| | 79 |
|
Total revenues | — |
| | 3,862 |
| | — |
| | 377 |
| | — |
| | — |
| | 4,239 |
|
Cost of revenues: | | | | | | | | | | | | | |
Cost of equipment rentals, excluding depreciation | — |
| | 1,246 |
| | — |
| | 145 |
| | — |
| | — |
| | 1,391 |
|
Depreciation of rental equipment | — |
| | 667 |
| | — |
| | 68 |
| | — |
| | — |
| | 735 |
|
Cost of rental equipment sales | — |
| | 193 |
| | — |
| | 22 |
| | — |
| | — |
| | 215 |
|
Cost of new equipment sales | — |
| | 71 |
| | — |
| | 8 |
| | — |
| | — |
| | 79 |
|
Cost of contractor supplies sales | — |
| | 35 |
| | — |
| | 6 |
| | — |
| | — |
| | 41 |
|
Cost of service and other revenues | — |
| | 30 |
| | — |
| | 2 |
| | — |
| | — |
| | 32 |
|
Total cost of revenues | — |
| | 2,242 |
| | — |
| | 251 |
| | — |
| | — |
| | 2,493 |
|
Gross profit | — |
| | 1,620 |
| | — |
| | 126 |
| | — |
| | — |
| | 1,746 |
|
Selling, general and administrative expenses | 10 |
| | 450 |
| | — |
| | 55 |
| | 18 |
| | — |
| | 533 |
|
Restructuring charge | — |
| | 7 |
| | — |
| | 1 |
| | — |
| | — |
| | 8 |
|
Non-rental depreciation and amortization | 11 |
| | 163 |
| | — |
| | 18 |
| | — |
| | — |
| | 192 |
|
Operating (loss) income | (21 | ) | | 1,000 |
| | — |
| | 52 |
| | (18 | ) | | — |
| | 1,013 |
|
Interest (income) expense, net | (4 | ) | | 348 |
| | 2 |
| | 2 |
| | 5 |
| | (4 | ) | | 349 |
|
Other (income) expense, net | (345 | ) | | 382 |
| | — |
| | 29 |
| | (69 | ) | | — |
| | (3 | ) |
Income (loss) before provision for income taxes | 328 |
| | 270 |
| | (2 | ) | | 21 |
| | 46 |
| | 4 |
| | 667 |
|
Provision for income taxes | 121 |
| | 109 |
| | — |
| | 6 |
| | 18 |
| | — |
| | 254 |
|
Income (loss) before equity in net earnings (loss) of subsidiaries | 207 |
| | 161 |
| | (2 | ) | | 15 |
| | 28 |
| | 4 |
| | 413 |
|
Equity in net earnings (loss) of subsidiaries | 206 |
| | 45 |
| | 15 |
| | — |
| | — |
| | (266 | ) | | — |
|
Net income (loss) | 413 |
| | 206 |
| | 13 |
| | 15 |
| | 28 |
| | (262 | ) | | 413 |
|
Other comprehensive income (loss) | 54 |
| | 54 |
| | 51 |
| | 41 |
| | — |
| | (146 | ) | | 54 |
|
Comprehensive income (loss) | $ | 467 |
| | $ | 260 |
| | $ | 64 |
| | $ | 56 |
| | $ | 28 |
| | $ | (408 | ) | | $ | 467 |
|
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the NineSix Months Ended SeptemberJune 30, 20172019
| | | Parent | | URNA | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total | Parent | | URNA | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
Foreign | | SPV | | Foreign | | SPV | |
Net cash provided by (used in) operating activities | $ | 15 |
| | $ | 1,849 |
| | $ | (2 | ) | | $ | 83 |
| | $ | (179 | ) | | $ | — |
| | $ | 1,766 |
| |
Net cash provided by operating activities | | $ | 9 |
| | $ | 1,457 |
| | $ | — |
| | $ | 83 |
| | $ | 41 |
| | $ | — |
| | $ | 1,590 |
|
Net cash used in investing activities | (15 | ) | | (2,145 | ) | | — |
| | (92 | ) | | — |
| | — |
| | (2,252 | ) | (9 | ) | | (943 | ) | | — |
| | (54 | ) | | — |
| | — |
| | (1,006 | ) |
Net cash provided by (used in) financing activities | — |
| | 298 |
| | 2 |
| | (2 | ) | | 179 |
| | — |
| | 477 |
| |
Effect of foreign exchange rates | — |
| | — |
| | — |
| | 21 |
| | — |
| | — |
| | 21 |
| |
Net increase in cash and cash equivalents | — |
| | 2 |
| | — |
| | 10 |
| | — |
| | — |
| | 12 |
| |
Net cash used in financing activities | | — |
| | (464 | ) | | — |
| | (47 | ) | | (41 | ) | | — |
| | (552 | ) |
Net increase (decrease) in cash and cash equivalents | | — |
| | 50 |
| | — |
| | (18 | ) | | — |
| | — |
| | 32 |
|
Cash and cash equivalents at beginning of period | — |
| | 21 |
| | — |
| | 291 |
| | — |
| | — |
| | 312 |
| — |
| | 1 |
| | — |
| | 42 |
| | — |
| | — |
| | 43 |
|
Cash and cash equivalents at end of period | $ | — |
| | $ | 23 |
| | $ | — |
| | $ | 301 |
| | $ | — |
| | $ | — |
| | $ | 324 |
| $ | — |
| | $ | 51 |
| | $ | — |
| | $ | 24 |
| | $ | — |
| | $ | — |
| | $ | 75 |
|
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the NineSix Months Ended SeptemberJune 30, 20162018
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Parent | | URNA | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| | | | Foreign | | SPV | | |
Net cash provided by (used in) operating activities | $ | 12 |
| | $ | 1,714 |
| | $ | (1 | ) | | $ | (66 | ) | | $ | (10 | ) | | $ | — |
| | $ | 1,649 |
|
Net cash used in investing activities | (12 | ) | | (920 | ) | | — |
| | (73 | ) | | — |
| | — |
| | (1,005 | ) |
Net cash (used in) provided by financing activities | — |
| | (773 | ) | | 1 |
| | (108 | ) | | 10 |
| | — |
| | (870 | ) |
Effect of foreign exchange rates | — |
| | — |
| | — |
| | (9 | ) | | — |
| | — |
| | (9 | ) |
Net increase (decrease) in cash and cash equivalents | — |
| | 21 |
| | — |
| | (256 | ) | | — |
| | — |
| | (235 | ) |
Cash and cash equivalents at beginning of period | — |
| | 23 |
| | — |
| | 329 |
| | — |
| | — |
| | 352 |
|
Cash and cash equivalents at end of period | $ | — |
| | $ | 44 |
| | $ | — |
| | $ | 73 |
| | $ | — |
| | $ | — |
| | $ | 117 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Parent | | URNA | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| | | | Foreign | | SPV | | |
Net cash provided by (used in) operating activities | $ | 4 |
| | $ | 1,513 |
| | $ | (2 | ) | | $ | 108 |
| | $ | 7 |
| | $ | — |
| | $ | 1,630 |
|
Net cash (used in) provided by investing activities | (4 | ) | | (862 | ) | | — |
| | 1 |
| | — |
| | — |
| | (865 | ) |
Net cash (used in) provided by financing activities | — |
| | (649 | ) | | 2 |
| | (2 | ) | | (7 | ) | | — |
| | (656 | ) |
Effect of foreign exchange rates | — |
| | — |
| | — |
| | 9 |
| | — |
| | — |
| | 9 |
|
Net increase in cash and cash equivalents | — |
| | 2 |
| | — |
| | 116 |
| | — |
| | — |
| | 118 |
|
Cash and cash equivalents at beginning of period | — |
| | 18 |
| | — |
| | 161 |
| | — |
| | — |
| | 179 |
|
Cash and cash equivalents at end of period | $ | — |
| | $ | 20 |
| | $ | — |
| | $ | 277 |
| | $ | — |
| | $ | — |
| | $ | 297 |
|
| |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in millions, except per share data, unless otherwise indicated) |
Executive Overview
We are the largest equipment rental company in the world, with an integrated network of 9501,175 rental locations in the United States, Canada and Canada.Europe. As discussed in note 3 to the condensed consolidated financial statements, in July 2018, we completed the acquisition of BakerCorp, which allowed for our entry into select European markets. Although the equipment rental industry is highly fragmented and diverse, we believe that we are well positioned to take advantage of this environment because, as a larger company, we have more extensive resources and certain competitive advantages. These include a fleet of rental equipment with a total original equipment cost (“OEC”) of $10.8$14.6 billion, and a national branch network that operates in 49 U.S. states and every Canadian province, and serves 99 of the largest 100 metropolitan areas in the U.S. The BakerCorp acquisition discussed above added 11 European locations in France, Germany, the United States. In addition,Kingdom and the Netherlands to our branch network. Our size also gives us greater purchasing power, the ability to provide customers with a broader range of equipment and services, the ability to provide customers with equipment that is more consistently well-maintained and therefore more productive and reliable, and the ability to enhance the earning potential of our assets by transferring equipment among branches to satisfy customer needs.
We offer approximately 3,3004,000 classes of equipment for rent to a diverse customer base that includes construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government entities. Our revenues are derived from the following sources: equipment rentals, sales of rental equipment, sales of new equipment, contractor supplies sales and service and other revenues. Equipment rentals represented 8685 percent of total revenues for the ninesix months ended SeptemberJune 30, 2017.2019.
For the past several years, we have executed a strategy focused on improving the profitability of our core equipment rental business through revenue growth, margin expansion and operational efficiencies. In particular, we have focused on customer segmentation, customer service differentiation, rate management, fleet management and operational efficiency.
In 2017,2019, we have continuedexpect to continue our disciplined focus on increasing our profitability and return on invested capital. In particular, our strategy calls for:
A consistently superior standard of service to customers, often provided through a single point of contact;
The further optimization of our customer mix and fleet mix, with a dual objective: to enhance our performance in serving our current customer base, and to focus on the accounts and customer types that are best suited to our strategy for profitable growth. We believe these efforts will lead to even better service of our target accounts, primarily large construction and industrial customers, as well as select local contractors. Our fleet team's analyses are aligned with these objectives to identify trends in equipment categories and define action plans that can generate improved returns;
The implementation of “Lean” management techniques, including kaizen processes focused on continuous improvement. We have trained over 3,100 employees, over 70 percent of our district managers and approximately 55 percent of our branch managers on the Lean kaizen process. We continue to implement this program across our branch network, with the objectives of: reducing the cycle time associated with renting our equipment to customers; improving invoice accuracy and service quality; reducing the elapsed time for equipment pickup and delivery; and improving the effectiveness and efficiency of our repair and maintenance operations. We achieved the anticipated run rate savings from the Lean initiatives in 2016 and expect to continue to generate savings from these initiatives;
The implementation of Project XL, which is a set of eight specific work streams focused on driving profitable growth through revenue opportunities and generating incremental profitability through cost savings across our business;
The continued expansion of our trench, power and pump footprint, as well as our tools offering, and the cross-selling of these services throughout our network. We believe that the expansion of our trench, power and pump business, as well as our tools offering, will further position United Rentals as a single source provider of total jobsite solutions through our extensive product and service resources and technology offerings; and
The pursuit of strategic acquisitions to continue to expand our core equipment rental business, as exhibited by our recently completed acquisitions of NES and Neff. Strategic acquisitions allow us to invest our capital to expand our business, further driving our ability to accomplish our strategic goals.
For the nine months ended September 30, 2017, equipment rental revenue increased 11.7 percent as compared to the same period in 2016, primarily reflecting a 14.5 percent increase in the volume of OEC on rent, which includes the impact of the NES acquisition discussed in note 2 to the condensed consolidated financial statements, partially offset by a 0.7 percent rental rate decrease. Rental rate changes are calculated based on the year-over-year variance in average contract rates, weighted by the prior period revenue mix. The decreased rental rates reflected the impact of the NES acquisition, pressure from Canada and the impact of industry fleet expansion. On a pro forma basis including NES' standalone, pre-acquisition results, equipment rental revenue increased 6.5 percent year-over-year, primarily reflecting a 6.9 percent increase in the volume of OEC on rent
partially offset by a 0.2 percent rental rate decrease. We believe that the increase in the volume of OEC on rent reflects improving demand in many of our core markets. In particular, we saw improvement in our trench, power and pump segment. The volume of OEC on rent increased 30.6 percent in our trench, power and pump segment, primarily due to continued strength in our Trench Safety and Power and HVAC regions, and improved performance in our Pump Solutions region. The improvement in the Pump Solutions region primarily reflected growth in revenue from i) upstream oil and gas customers, which have experienced significant volatility in recent years, and ii) construction and mining customers. | |
• | A consistently superior standard of service to customers, often provided through a single point of contact; |
| |
• | The further optimization of our customer mix and fleet mix, with a dual objective: to enhance our performance in serving our current customer base, and to focus on the accounts and customer types that are best suited to our strategy for profitable growth. We believe these efforts will lead to even better service of our target accounts, primarily large construction and industrial customers, as well as select local contractors. Our fleet team's analyses are aligned with these objectives to identify trends in equipment categories and define action plans that can generate improved returns; |
| |
• | A continued focus on “Lean” management techniques, including kaizen processes focused on continuous improvement. We continue to implement Lean kaizen processes across our branch network, with the objectives of: reducing the cycle time associated with renting our equipment to customers; improving invoice accuracy and service quality; reducing the elapsed time for equipment pickup and delivery; and improving the effectiveness and efficiency of our repair and maintenance operations; |
| |
• | A continued focus on Project XL, which is a set of eight specific work streams focused on driving profitable growth through revenue opportunities and generating incremental profitability through cost savings across our business; |
| |
• | The continued expansion of our trench, power and fluid solutions footprint, as well as our tools offering, and the cross-selling of these services throughout our network, as exhibited by our acquisition of BakerCorp discussed in note 3 to the condensed consolidated financial statements. We believe that the expansion of our trench, power and fluid solutions business, as well as our tools offering, will further position United Rentals as a single source provider of total jobsite solutions through our extensive product and service resources and technology offerings; and |
| |
• | The pursuit of strategic acquisitions to continue to expand our core equipment rental business, as exhibited by our recently completed acquisitions of NES Rentals Holdings II, Inc. (“NES”), Neff Corporation ("Neff") and BlueLine (which is discussed further in note 3 to the condensed consolidated financial statements). Strategic acquisitions allow us to invest our capital to expand our business, further driving our ability to accomplish our strategic goals. |
Financial Overview
Since January 1, 2016,2018, we have taken the following actions to improve our financial flexibility and liquidity, and to position us to invest the necessary capital in our business:
| |
• | Redeemed allIssued $1.1 billion principal amount of our 86 1/42 percent Senior Notes 7due 2026;
|
| |
• | Issued $750 principal amount of 5 31/84 percent Senior Notes and 6 1/8 percent Senior Notes;due 2030; |
| |
• | Redeemed $1.1 billion principal amountall of our 75 53/84 percent Senior Notes due 2022 (we expect to redeem the remaining $225 principal amount in the fourth quarter of 2017);Notes; |
| |
• | Issued $750 principal amount of 4 5/8 percent Senior Notes due 2025;Entered into a $1 billion term loan facility; |
| |
• | Issued $1.0 billion principal amount of 5 7/8 percent Senior Notes due 2026;
|
| |
• | Issued $1.0 billion principal amount of 5 1/2 percent Senior Notes due 2027;
|
| |
• | Issued $1.675 billion principal amount of 4 7/8 percent Senior Notes due 2028, comprised of separate issuances of $925 in August 2017 and $750 in September 2017, as discussed in note 8 to the condensed consolidated financial statements;
|
Amended and extended our ABL facility, including an increase in the facility size from $3.0 billion to $3.0$3.75 billion; and
Amended and extended our accounts receivable securitization facility, including an increase in the facility size from $775 to $675.$975.
As of SeptemberJune 30, 2017,2019, we had available liquidity of $2.88$2.151 billion, including cash and cash equivalents of $324. As discussed in note 8 to the condensed consolidated financial statements, we used available cash and drawings on the ABL facility to finance the Neff acquisition upon its closing on October 2, 2017.$75.
Net income. Net income and diluted earnings per share for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016 were as follows:2018 are presented below.
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| September 30, | | September 30, | June 30, | | June 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
Net income | $ | 199 |
| | $ | 187 |
| | $ | 449 |
| | $ | 413 |
| $ | 270 |
| | $ | 270 |
| | $ | 445 |
| | $ | 453 |
|
Diluted earnings per share | $ | 2.33 |
| | $ | 2.16 |
| | $ | 5.26 |
| | $ | 4.66 |
| $ | 3.44 |
| | $ | 3.20 |
| | $ | 5.62 |
| | $ | 5.34 |
|
Net income and diluted earnings per share for the three and ninesix months ended SeptemberJune 30, 20172019 and 20162018 include the after-tax impacts of the items below. The tax rates applied to the items below reflect the statutory rates in the applicable entity.
entities.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
| Nine Months Ended September 30, |
| 2017 |
| 2016 |
| 2017 |
| 2016 |
Tax rate applied to items below | 38.5 | % | | | | 38.6 | % | | | | 38.5 | % | | | | 38.4 | % | | |
| Contribution to net income (after-tax) |
| Impact on diluted earnings per share |
| Contribution to net income (after-tax) |
| Impact on diluted earnings per share |
| Contribution to net income (after-tax) |
| Impact on diluted earnings per share |
| Contribution to net income (after-tax) |
| Impact on diluted earnings per share |
Merger related costs (1) | $ | (10 | ) |
| $ | (0.12 | ) |
| $ | — |
|
| $ | — |
|
| $ | (20 | ) |
| $ | (0.23 | ) |
| $ | — |
|
| $ | — |
|
Merger related intangible asset amortization (2) | (24 | ) |
| (0.27 | ) |
| (24 | ) |
| (0.28 | ) |
| (72 | ) |
| (0.83 | ) |
| (75 | ) |
| (0.85 | ) |
Impact on depreciation related to acquired RSC and NES fleet and property and equipment (3) | (6 | ) |
| (0.07 | ) |
| — |
|
| — |
|
| (4 | ) |
| (0.05 | ) |
| — |
|
| — |
|
Impact of the fair value mark-up of acquired RSC and NES fleet (4) | (15 | ) |
| (0.17 | ) |
| (5 | ) |
| (0.05 | ) |
| (31 | ) |
| (0.36 | ) |
| (16 | ) |
| (0.18 | ) |
Impact on interest expense related to fair value adjustment of acquired RSC indebtedness (5) | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1 |
|
| 0.01 |
|
Restructuring charge (6) | (6 | ) |
| (0.07 | ) |
| (2 | ) |
| (0.02 | ) |
| (18 | ) |
| (0.21 | ) |
| (5 | ) |
| (0.05 | ) |
Asset impairment charge (7) | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (2 | ) |
| (0.02 | ) |
Loss on repurchase/redemption of debt securities and amendment of ABL facility | (18 | ) |
| (0.22 | ) |
| (6 | ) |
| (0.07 | ) |
| (26 | ) |
| (0.31 | ) |
| (22 | ) |
| (0.25 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| 2019 |
| 2018 |
| 2019 |
| 2018 |
Tax rate applied to items below | 25.3 | % | | | | 25.3 | % | | | | 25.4 | % | | | | 25.3 | % | | |
| Contribution to net income (after-tax) |
| Impact on diluted earnings per share |
| Contribution to net income (after-tax) |
| Impact on diluted earnings per share |
| Contribution to net income (after-tax) |
| Impact on diluted earnings per share |
| Contribution to net income (after-tax) |
| Impact on diluted earnings per share |
Merger related costs (1) | $ | (1 | ) |
| $ | — |
|
| $ | (2 | ) |
| $ | (0.02 | ) |
| $ | (1 | ) |
| $ | (0.01 | ) |
| $ | (3 | ) |
| $ | (0.03 | ) |
Merger related intangible asset amortization (2) | (49 | ) |
| (0.64 | ) |
| (30 | ) |
| (0.37 | ) |
| (101 | ) |
| (1.28 | ) |
| (64 | ) |
| (0.76 | ) |
Impact on depreciation related to acquired fleet and property and equipment (3) | (10 | ) |
| (0.12 | ) |
| (7 | ) |
| (0.08 | ) |
| (21 | ) |
| (0.26 | ) |
| (15 | ) |
| (0.17 | ) |
Impact of the fair value mark-up of acquired fleet (4) | (12 | ) |
| (0.15 | ) |
| (12 | ) |
| (0.15 | ) |
| (32 | ) |
| (0.41 | ) |
| (30 | ) |
| (0.36 | ) |
Restructuring charge (5) | (4 | ) |
| (0.06 | ) |
| (2 | ) |
| (0.03 | ) |
| (10 | ) |
| (0.13 | ) |
| (4 | ) |
| (0.05 | ) |
Asset impairment charge (6) | (3 | ) |
| (0.03 | ) |
| — |
|
| — |
|
| (3 | ) |
| (0.03 | ) |
| — |
|
| — |
|
Loss on repurchase/redemption of debt securities and amendment of ABL facility | (24 | ) |
| (0.30 | ) |
| — |
|
| — |
|
| (24 | ) |
| (0.30 | ) |
| — |
|
| — |
|
| |
(1) | This reflects transaction costs associated with the NES and Neff acquisitions that were completed in 2017, and the BakerCorp and BlueLine acquisitions discussed in note 23 to our condensed consolidated financial statements. Merger related costs only include costs associated with major acquisitions that significantly impact our operations. For additional information, see "Results of Operations-Other costs/(income)-merger related costs" below. |
| |
(2) | This reflects the amortization of the intangible assets acquired in the RSC, National Pump, NES, Neff, BakerCorp and NESBlueLine acquisitions. |
| |
(3) | This reflects the impact of extending the useful lives of equipment acquired in the RSC, NES, Neff, BakerCorp and NESBlueLine acquisitions, net of the impact of additional depreciation associated with the fair value mark-up of such equipment. |
| |
(4) | This reflects additional costs recorded in cost of rental equipment sales associated with the fair value mark-up of rental equipment acquired in the RSC, NES, Neff and NESBlueLine acquisitions andthat was subsequently sold. |
| |
(5) | This reflects a reduction of interest expense associated with the fair value mark-up of debt acquired in the RSC acquisition. |
| |
(6) | This primarily reflects severance and branch closure charges associated with our restructuring programs. For additional information, see note 45 to our condensed consolidated financial statements. |
| |
(7)(6) | This reflects write-offs of leasehold improvements and other fixed assets in connection with our restructuring programs.assets. |
EBITDA GAAP Reconciliations. EBITDA represents the sum of net income, provision for income taxes, interest expense, net, depreciation of rental equipment and non-rental depreciation and amortization. Adjusted EBITDA represents EBITDA plus the sum of the merger related costs, restructuring charge, stock compensation expense, net and the impact of the fair value mark-up of the acquired RSC and NES fleet. These items are excluded from adjusted EBITDA internally when evaluating our operating performance and for strategic planning and forecasting purposes, and allow investors to make a more meaningful comparison between our core business operating results over different periods of time, as well as with those of other similar companies. The EBITDA and adjusted EBITDA margins represent EBITDA or adjusted EBITDA divided by total revenue. Management believes that EBITDA and adjusted EBITDA, when viewed with the Company’s results under GAAP
and the accompanying reconciliations, provide useful information about operating performance and period-over-period growth, and provide additional information that is useful for evaluating the operating performance of our core business without regard to potential distortions. Additionally, management believes that EBITDA and adjusted EBITDA help investors gain an understanding of the factors and trends affecting our ongoing cash earnings, from which capital investments are made and debt is serviced. However, EBITDA and adjusted EBITDA are not measures of financial performance or liquidity under GAAP and, accordingly, should not be considered as alternatives to net income or cash flow from operating activities as indicators of operating performance or liquidity.
The table below provides a reconciliation between net income and EBITDA and adjusted EBITDA:
| | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| September 30, | | September 30, | June 30, | | June 30, |
| 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
Net income | $ | 199 |
| | $ | 187 |
| | $ | 449 |
| | $ | 413 |
| $ | 270 |
| | $ | 270 |
| | $ | 445 |
| | $ | 453 |
|
Provision for income taxes | 123 |
| | 116 |
| | 263 |
| | 254 |
| 81 |
| | 89 |
| | 126 |
| | 138 |
|
Interest expense, net | 131 |
| | 110 |
| | 338 |
| | 349 |
| 180 |
| | 112 |
| | 331 |
| | 221 |
|
Depreciation of rental equipment | 290 |
| | 250 |
| | 804 |
| | 735 |
| 399 |
| | 323 |
| | 794 |
| | 645 |
|
Non-rental depreciation and amortization | 63 |
| | 61 |
| | 189 |
| | 192 |
| 105 |
| | 67 |
| | 209 |
| | 138 |
|
EBITDA | $ | 806 |
| | $ | 724 |
| | $ | 2,043 |
| | $ | 1,943 |
| $ | 1,035 |
| | $ | 861 |
| | $ | 1,905 |
| | $ | 1,595 |
|
Merger related costs (1) | 16 |
| | — |
| | 32 |
| | — |
| — |
| | 2 |
| | 1 |
| | 3 |
|
Restructuring charge (2) | 9 |
| | 4 |
| | 28 |
| | 8 |
| 6 |
| | 4 |
| | 14 |
| | 6 |
|
Stock compensation expense, net (3) | 24 |
| | 11 |
| | 64 |
| | 33 |
| 16 |
| | 24 |
| | 31 |
| | 43 |
|
Impact of the fair value mark-up of acquired RSC and NES fleet (4) | 24 |
| | 8 |
| | 50 |
| | 26 |
| |
Impact of the fair value mark-up of acquired fleet (4) | | 16 |
| | 16 |
| | 43 |
| | 40 |
|
Adjusted EBITDA | $ | 879 |
| | $ | 747 |
| | $ | 2,217 |
| | $ | 2,010 |
| $ | 1,073 |
| | $ | 907 |
| | $ | 1,994 |
| | $ | 1,687 |
|
The table below provides a reconciliation between net cash provided by operating activities and EBITDA and adjusted EBITDA:
| | | Nine Months Ended | Six Months Ended |
| September 30, | June 30, |
| 2017 | | 2016 | 2019 | | 2018 |
Net cash provided by operating activities | $ | 1,766 |
| | $ | 1,630 |
| $ | 1,590 |
| | $ | 1,649 |
|
Adjustments for items included in net cash provided by operating activities but excluded from the calculation of EBITDA: | | | | | | |
Amortization of deferred financing costs and original issue discounts | (6 | ) | | (7 | ) | (8 | ) | | (6 | ) |
Gain on sales of rental equipment | 153 |
| | 146 |
| 148 |
| | 139 |
|
Gain on sales of non-rental equipment | 4 |
| | 3 |
| 3 |
| | 3 |
|
Gain on insurance proceeds from damaged equipment | | 12 |
| | 14 |
|
Merger related costs (1) | (32 | ) | | — |
| (1 | ) | | (3 | ) |
Restructuring charge (2) | (28 | ) | | (8 | ) | (14 | ) | | (6 | ) |
Stock compensation expense, net (3) | (64 | ) | | (33 | ) | (31 | ) | | (43 | ) |
Loss on repurchase/redemption of debt securities and amendment of ABL facility | (43 | ) | | (36 | ) | (32 | ) | | — |
|
Excess tax benefits from share-based payment arrangements | — |
| | 53 |
| |
Changes in assets and liabilities | (126 | ) | | (113 | ) | (136 | ) | | (404 | ) |
Cash paid for interest | 305 |
| | 294 |
| 301 |
| | 213 |
|
Cash paid for income taxes, net | 114 |
| | 14 |
| 73 |
| | 39 |
|
EBITDA | $ | 2,043 |
| | $ | 1,943 |
| $ | 1,905 |
| | $ | 1,595 |
|
Add back: | | | | | | |
Merger related costs (1) | 32 |
| | — |
| 1 |
| | 3 |
|
Restructuring charge (2) | 28 |
| | 8 |
| 14 |
| | 6 |
|
Stock compensation expense, net (3) | 64 |
| | 33 |
| 31 |
| | 43 |
|
Impact of the fair value mark-up of acquired RSC and NES fleet (4) | 50 |
| | 26 |
| |
Impact of the fair value mark-up of acquired fleet (4) | | 43 |
| | 40 |
|
Adjusted EBITDA | $ | 2,217 |
| | $ | 2,010 |
| $ | 1,994 |
| | $ | 1,687 |
|
___________________
| |
(1) | This reflects transaction costs associated with the NES and Neff acquisitions that were completed in 2017, and the BakerCorp and BlueLine acquisitions discussed in note 23 to our condensed consolidated financial statements. Merger related costs only include costs associated with major acquisitions that significantly impact our operations. For additional information, see "Results of Operations-Other costs/(income)-merger related costs" below. |
| |
(2) | This primarily reflects severance and branch closure charges associated with our restructuring programs. For additional information, see note 45 to our condensed consolidated financial statements. |
| |
(3) | Represents non-cash, share-based payments associated with the granting of equity instruments. |
| |
(4) | This reflects additional costs recorded in cost of rental equipment sales associated with the fair value mark-up of rental equipment acquired in the RSC, NES, Neff and NESBlueLine acquisitions andthat was subsequently sold. |
For the three months ended SeptemberJune 30, 2017,2019, EBITDA increased $82,$174, or 11.320.2 percent, and adjusted EBITDA increased $132,$166, or 17.718.3 percent. For the three months ended SeptemberJune 30, 2017,2019, EBITDA margin decreased 24030 basis points to 45.645.2 percent, and adjusted EBITDA margin increased 30decreased 110 basis points to 49.846.9 percent. As discussed in note 3 to our condensed consolidated financial statements, we completed the acquisitions of BakerCorp in July 2018 and BlueLine in October 2018, and EBITDA and adjusted EBITDA for 2019 include the impact of BakerCorp and BlueLine. The decrease in the adjusted EBITDA margin primarily reflects i) the impact of the BakerCorp and BlueLine acquisitions and ii) changes in revenue mix.
For the six months ended June 30, 2019, EBITDA increased $310, or 19.4 percent, and adjusted EBITDA increased $307, or 18.2 percent. For the six months ended June 30, 2019, EBITDA margin decreased 80 basis points to 43.2 percent, and adjusted EBITDA margin decreased 130 basis points to 45.2 percent. As discussed in note 3 to our condensed consolidated financial statements, we completed the acquisitions of BakerCorp in July 2018 and BlueLine in October 2018, and EBITDA and adjusted EBITDA for 2019 include the impact of BakerCorp and BlueLine. The decrease in the EBITDA margin primarily reflects i) increased selling, general and administrative ("SG&A") compensation costs, including stock compensation costs, largely due to the impact of the NES acquisition discussed in note 2 to the condensed consolidated financial statements, increased revenue, improved profitability,BakerCorp and increases in our stock price and in the volume of stock awards,BlueLine acquisitions and ii) increased merger related costs primarily associated with the Neff acquisition discussed in note 2 to the condensed consolidated financial statements. The increase in the adjusted EBITDA margin primarily reflects i) increased margins, excluding depreciation, from equipment rentals and ii) increased margins, excluding the impact of the fair value mark-up of acquired RSC and NES fleet, from sales of rental equipment, partially offset by iii) increased SG&A compensation costs largely due to the impact of the NES acquisition discussed in note 2 to the condensed consolidated financial statements, increased revenue and improved profitability.
For the nine months ended September 30, 2017, EBITDA increased $100, or 5.1 percent, and adjusted EBITDA increased $207, or 10.3 percent. For the nine months ended September 30, 2017, EBITDA margin decreased 250 basis points to 43.3 percent, and adjusted EBITDA margin decreased 40 basis points to 47.0 percent. The decrease in the EBITDA margin primarily reflects i) increased selling, general and administrative ("SG&A") compensation costs, including stock compensation costs, largely due to the impact of the NES acquisition, increased revenue, improved profitability, and increases in our stock price and in the volume of stock awards, and ii) increased merger related costs and restructuring charges associated with the NESBakerCorp and NeffBlueLine acquisitions. The decrease in the adjusted EBITDA margin primarily reflects increased SG&A compensation costs largely due to the impact of the NES acquisition,BakerCorp and BlueLine acquisitions.
Revenues were as follows: |
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Equipment rentals* | $ | 1,960 |
| | $ | 1,631 |
| | 20.2 | % | | $ | 3,755 |
| | $ | 3,090 |
| | 21.5 | % |
Sales of rental equipment | 197 |
| | 157 |
| | 25.5 | % | | 389 |
| | 338 |
| | 15.1 | % |
Sales of new equipment | 60 |
| | 44 |
| | 36.4 | % | | 122 |
| | 86 |
| | 41.9 | % |
Contractor supplies sales | 27 |
| | 24 |
| | 12.5 | % | | 51 |
| | 42 |
| | 21.4 | % |
Service and other revenues | 46 |
| | 35 |
| | 31.4 | % | | 90 |
| | 69 |
| | 30.4 | % |
Total revenues | $ | 2,290 |
| | $ | 1,891 |
| | 21.1 | % | | $ | 4,407 |
| | $ | 3,625 |
| | 21.6 | % |
*Equipment rentals variance components: | | | | | | | | | | | |
Year-over-year change in average OEC | | | | | 23.2 | % | | | | | | 23.4 | % |
Assumed year-over-year inflation impact (1) | | | | | (1.5 | )% | | | | | | (1.5 | )% |
Fleet productivity (2) | | | | | (3.1 | )% | | | | | | (2.2 | )% |
Contribution from ancillary and re-rent revenue (3) | | | | | 1.6 | % | | | | | | 1.8 | % |
Total change in equipment rentals | | | | | 20.2 | % | | | | | | 21.5 | % |
*Pro forma equipment rentals variance components (4): | | | | | | | | | | | |
Year-over-year change in average OEC | | | | | 5.5 | % | | | | | | 5.6 | % |
Assumed year-over-year inflation impact (1) | | | | | (1.5 | )% | | | | | | (1.5 | )% |
Fleet productivity (2) | | | | | 0.7 | % | | | | | | 1.4 | % |
Contribution from ancillary and re-rent revenue (3) | | | | | 0.1 | % | | | | | | 0.4 | % |
Total change in equipment rentals | | | | | 4.8 | % | | | | | | 5.9 | % |
___________________
| |
(1) | Reflects the estimated impact of inflation on the revenue productivity of fleet based on OEC, which is recorded at cost. |
| |
(2) | Reflects the combined impact of changes in rental rates, time utilization, and mix that contribute to the variance in owned equipment rental revenue. See note 2 to the condensed consolidated financial statements for a discussion of the different types of equipment rentals revenue. Rental rate changes are calculated based on the year-over-year variance in average contract rates, weighted by the prior period revenue mix. Time utilization is calculated by dividing the amount of time an asset is on rent by the amount of time the asset has been owned during the year. Mix includes the impact of changes in customer, fleet, geographic and segment mix. |
| |
(3) | Reflects the combined impact of changes in the other types of equipment rentals revenue (see note 2 for further detail), excluding owned equipment rental revenue. |
| |
(4) | As discussed in note 3 to the condensed consolidated financial statements, we completed the acquisitions of BakerCorp and BlueLine in July 2018 and October 2018, respectively. The pro forma information includes the standalone, pre-acquisition results of BakerCorp and BlueLine. |
Equipment rentals include our revenues from renting equipment, as well as revenue related to the fees we charge customers: for equipment delivery and pick-up; to protect the customer against liability for damage to our equipment while on rent; for fuel; and for environmental costs. Sales of rental equipment represent our revenues from the sale of used rental equipment. Sales of new equipment represent our revenues from the sale of new equipment. Contractor supplies sales represent our sales of supplies utilized by contractors, which include construction consumables, tools, small equipment and safety supplies. Services and other revenues primarily represent our revenues earned from providing repair and maintenance services on our customers’ fleet (including parts sales). See note 2 to the condensed consolidated financial statements for a discussion of our revenue recognition accounting.
For the three months ended June 30, 2019, total revenues of $2.290 billion increased 21.1 percent compared with 2018. Equipment rentals and sales of rental equipment are our largest revenue types (together, they accounted for 94 percent of total revenue for the three months ended June 30, 2019). Equipment rentals increased 20.2 percent, primarily due to a 23.2 percent increase in average OEC, which includes the impact of the BakerCorp and BlueLine acquisitions discussed in note 3 to the condensed consolidated financial statements. As explained further above, fleet productivity is a measure of the decisions made to optimize the balance of rental rates, time utilization and mix to produce revenue and improved profitability.drive efficient growth. On a pro forma basis including the standalone, pre-acquisition results of BakerCorp and BlueLine, equipment rentals increased 4.8 percent, primarily due to a 5.5 percent increase in average OEC and a fleet productivity increase of 0.7 percent. Sales of rental
equipment increased 25.5 percent primarily due to increased volume, which included the impact of the BlueLine acquisition, driven by a larger fleet size in a strong used equipment market.
For the six months ended June 30, 2019, total revenues of $4.407 billion increased 21.6 percent compared with 2018. Equipment rentals increased 21.5 percent, primarily due to a 23.4 percent increase in average OEC, which includes the impact of the BakerCorp and BlueLine acquisitions discussed in note 3 to the condensed consolidated financial statements. On a pro forma basis including the standalone, pre-acquisition results of BakerCorp and BlueLine, equipment rentals increased 5.9 percent, primarily due to a 5.6 percent increase in average OEC and a fleet productivity increase of 1.4 percent. Sales of rental equipment increased 15.1 percent primarily due to increased volume, which included the impact of the BlueLine acquisition, driven by a larger fleet size in a strong used equipment market.
Results of Operations
As discussed in note 34 to our condensed consolidated financial statements, our reportable segments are general rentals and trench, power and pump.fluid solutions. The general rentals segment includes the rental of construction, aerial, industrial and homeowner equipment and related services and activities. The general rentals segment’s customers include construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government entities. The general rentals segment operates throughout the United States and Canada. The trench, power and pumpfluid solutions segment is comprised of i) the Trench Safety region, which rents trench safety equipment such as trench shields, aluminum hydraulic shoring systems, slide rails, crossing plates, construction lasers and line testing equipment for underground work, ii) the Power and HVAC region, which rents power and HVAC equipment such as portable diesel generators, electrical distribution equipment, and temperature control equipment including heating and cooling equipment, and iii) the PumpFluid Solutions region,and iv) Fluid Solutions Europe regions, both of which rents pumpsrent equipment primarily used by municipalities, industrial plants,for fluid containment, transfer and mining, construction, and agribusiness customers.treatment. The trench, power and pumpfluid solutions segment’s customers include construction companies involved in infrastructure projects, municipalities and industrial companies. The trench, power and pumpfluid solutions segment operates throughout the United States and in Canada.Canada and Europe.
As discussed in note 34 to our condensed consolidated financial statements, we aggregate our ten11 geographic regions—Carolinas, Gulf South, Industrial (which serves the geographic Gulf region and has a strong industrial presence), Mid-Atlantic, Mid-Central,Mid Central, Midwest, Northeast, Pacific West, South, Southeast and Western Canada—into our general rentals reporting segment. We periodically review the size and geographic scope of our regions, and have occasionally reorganized the regions to create a more balanced and effective structure. Historically, there have been variances in the levels of equipment rentals gross margins achieved by these regions. For the five year period ended SeptemberJune 30, 2017, one2019, three of our general rentals' regions had an equipment rentals gross margin that varied by between 10 percent and 1216 percent from the equipment rentals gross margins of the aggregated general rentals' regions over the same period. The rental industry is cyclical, and there historically have been regions with equipment rentals gross margins that varied by greater than 10 percent from the equipment rentals gross margins of the aggregated general rentals' regions, though the specific regions with margin variances of over 10 percent have fluctuated.
We expect margin convergence going forward given the cyclical nature of the rental industry, and monitor the margin variances and confirm the expectation of future convergence on a quarterly basis. When monitoring for margin convergence, we include projected future results.
We similarly monitor the margin variances for the regions in the trench, power and pumpfluid solutions segment. The Pump Solutions region is primarily comprised oftrench, power and fluid solutions segment includes the locations acquired in the April 2014 National Pump acquisition.July 2018 BakerCorp acquisition discussed in note 3 to the condensed consolidated financial statements. As such, there isn’tis not a long history of the Pump Solutions region'sacquired locations' rental margins included in the trench, power and pump segment. When monitoring for margin convergence, we include projected future results. We monitor the trench, power and pumpfluid solutions segment margin variances and confirm the expectation of future convergence on a quarterly basis. The historic, pre-acquisition margins for the acquired BakerCorp locations are lower than the margins achieved at the other locations in the segment. We expect that the margins at the acquired locations will increase as we realize synergies following the acquisition, as a result of which, we expect future margin convergence.
We believe that the regions that are aggregated into our segments have similar economic characteristics, as each region is capital intensive, offers similar products to similar customers, uses similar methods to distribute its products, and is subject to similar competitive risks. The aggregation of our regions also reflects the management structure that we use for making operating decisions and assessing performance. Although we believe aggregating these regions into our reporting segments for segment reporting purposes is appropriate, to the extent that there are significant margin variances that do not converge, we may be required to disaggregate the regions into separate reporting segments. Any such disaggregation would have no impact on our consolidated results of operations.
These segments align our external segment reporting with how management evaluates and allocates resources. We evaluate segment performance primarily based on segment equipment rentals gross profit. Our revenues, operating results, and financial condition fluctuate from quarter to quarter reflecting the seasonal rental patterns of our customers, with rental activity tending to be lower in the winter.
Revenues by segment were as follows:
| | | General rentals | | Trench, power and pump | | Total | General rentals | | Trench, power and fluid solutions | | Total |
Three Months Ended September 30, 2017 | | | | | | |
Three Months Ended June 30, 2019 | | | | | | |
Equipment rentals | $ | 1,237 |
| | $ | 299 |
| | $ | 1,536 |
| $ | 1,527 |
| | $ | 433 |
| | $ | 1,960 |
|
Sales of rental equipment | 130 |
| | 9 |
| | 139 |
| 180 |
| | 17 |
| | 197 |
|
Sales of new equipment | 34 |
| | 6 |
| | 40 |
| 52 |
| | 8 |
| | 60 |
|
Contractor supplies sales | 17 |
| | 4 |
| | 21 |
| 19 |
| | 8 |
| | 27 |
|
Service and other revenues | 26 |
| | 4 |
| | 30 |
| 40 |
| | 6 |
| | 46 |
|
Total revenue | $ | 1,444 |
| | $ | 322 |
| | $ | 1,766 |
| $ | 1,818 |
| | $ | 472 |
| | $ | 2,290 |
|
Three Months Ended September 30, 2016 | | | | | | |
Three Months Ended June 30, 2018 | | | | | | |
Equipment rentals | $ | 1,097 |
| | $ | 225 |
| | $ | 1,322 |
| $ | 1,332 |
| | $ | 299 |
| | $ | 1,631 |
|
Sales of rental equipment | 103 |
| | 9 |
| | 112 |
| 145 |
| | 12 |
| | 157 |
|
Sales of new equipment | 27 |
| | 3 |
| | 30 |
| 38 |
| | 6 |
| | 44 |
|
Contractor supplies sales | 16 |
| | 3 |
| | 19 |
| 19 |
| | 5 |
| | 24 |
|
Service and other revenues | 23 |
| | 2 |
| | 25 |
| 32 |
| | 3 |
| | 35 |
|
Total revenue | $ | 1,266 |
| | $ | 242 |
| | $ | 1,508 |
| $ | 1,566 |
| | $ | 325 |
| | $ | 1,891 |
|
Nine Months Ended September 30, 2017 | | | | | | |
Six Months Ended June 30, 2019 | | | | | | |
Equipment rentals | $ | 3,357 |
| | $ | 712 |
| | $ | 4,069 |
| $ | 2,950 |
| | $ | 805 |
| | $ | 3,755 |
|
Sales of rental equipment | 348 |
| | 30 |
| | 378 |
| 358 |
| | 31 |
| | 389 |
|
Sales of new equipment | 112 |
| | 14 |
| | 126 |
| 107 |
| | 15 |
| | 122 |
|
Contractor supplies sales | 49 |
| | 11 |
| | 60 |
| 36 |
| | 15 |
| | 51 |
|
Service and other revenues | 76 |
| | 10 |
| | 86 |
| 77 |
| | 13 |
| | 90 |
|
Total revenue | $ | 3,942 |
| | $ | 777 |
| | $ | 4,719 |
| $ | 3,528 |
| | $ | 879 |
| | $ | 4,407 |
|
Nine Months Ended September 30, 2016 | | | | | | |
Six Months Ended June 30, 2018 | | | | | | |
Equipment rentals | $ | 3,067 |
| | $ | 576 |
| | $ | 3,643 |
| $ | 2,533 |
| | $ | 557 |
| | $ | 3,090 |
|
Sales of rental equipment | 334 |
| | 27 |
| | 361 |
| 316 |
| | 22 |
| | 338 |
|
Sales of new equipment | 84 |
| | 12 |
| | 96 |
| 75 |
| | 11 |
| | 86 |
|
Contractor supplies sales | 49 |
| | 11 |
| | 60 |
| 33 |
| | 9 |
| | 42 |
|
Service and other revenues | 71 |
| | 8 |
| | 79 |
| 62 |
| | 7 |
| | 69 |
|
Total revenue | $ | 3,605 |
| | $ | 634 |
| | $ | 4,239 |
| $ | 3,019 |
| | $ | 606 |
| | $ | 3,625 |
|
Equipment rentals. For the three months ended SeptemberJune 30, 2017,2019, equipment rentals of $1.536$1.960 billion increased $214,$329, or 16.220.2 percent, as compared to the same period in 2016,2018, primarily reflecting increases of 18.2due to a 23.2 percent increase in the volume ofaverage OEC, on rent, which includes the impact of the NES acquisitionBakerCorp and BlueLine acquisitions discussed in note 23 to theour condensed consolidated financial statements, and 0.1 percent in rental rates.statements. On a pro forma basis including NES'the standalone, pre-acquisition results of BakerCorp and BlueLine, equipment rental revenue increased 8.94.8 percent year-over-year, primarily reflecting increases of 7.6 percent in the volume of OEC and 0.9 percent in rental rates. We believe that the increase in the volume of OEC on rent reflects improving demand in many of our core markets. Equipment rentals represented 87 percent of total revenues for the three months ended September 30, 2017.
For the nine months ended September 30, 2017, equipment rentals of $4.069 billion increased $426, or 11.7 percent, as compareddue to the same period in 2016, primarily reflecting a 14.55.5 percent increase in average OEC and a fleet productivity increase of 0.7 percent. As explained further above (see "Financial Overview-Revenues"), fleet productivity is a comprehensive measure of the volume of OEC on rent, which includes thecombined impact of the NES acquisition, partially offsetkey decisions made daily by a 0.7 percent rental rate decrease. The decreasedour managers regarding rental rates, reflectedtime utilization and mix on the impact of the NES acquisition, pressure from Canada and the impact of industry fleet expansion. On a pro forma basis including NES' standalone, pre-acquisition results,year-over-year change in owned equipment rental revenue increased 6.5 percent year-over-year, primarily reflecting a 6.9 percent increase in the volume of OEC on rent partially offset by a 0.2 percent rental rate decrease. We believe that the increase in the volume of OEC on rent reflects improving demand in many of our core markets.revenue. Equipment rentals represented 86 percent of total revenues for the ninethree months ended SeptemberJune 30, 2017.2019.
For the threesix months ended SeptemberJune 30, 2017, general rentals2019, equipment rentals of $3.755 billion increased $140,$665, or 12.821.5 percent, as compared to the same period in 2016,2018, primarily reflectingdue to a 16.523.4 percent increase in the volume ofaverage OEC, on rent, which includes the impact of the NES acquisition.BakerCorp and BlueLine acquisitions discussed in note 3 to our condensed consolidated financial statements. On a pro forma basis including NES'the standalone, pre-acquisition results the volume of OEC on rentBakerCorp and BlueLine, equipment rental revenue increased 5.5 percent. We believe that the5.9 percent year-over-year, primarily due to a 5.6 percent increase in average OEC and a fleet productivity increase of 1.4 percent. Equipment rentals represented 85 percent of total revenues for the volume of OEC on rent reflects improving demand insix months ended June 30, 2019.
many of our core markets. For the three months ended SeptemberJune 30, 2017,2019, general rentals equipment rentals increased $195, or 14.6 percent, as compared to the same period in 2018, primarily due to a 19.0 percent increase in average OEC, which includes the impact of
the BlueLine acquisition. The equipment rentals increase was less than the average OEC increase primarily due to the impact of the BlueLine acquisition and decreases in time utilization in certain locations. Additionally, in 2019, we adopted an updated lease accounting standard (see note 8 to the condensed consolidated financial statements for further detail) that requires that we recognize doubtful accounts associated with lease revenues as a reduction to equipment rentals revenue which decreased equipment rentals revenue in 2019. On a pro forma basis including the standalone, pre-acquisition results of BlueLine, equipment rental revenue increased 2.1 percent year-over-year, primarily due to a 4.4 percent increase in average OEC partially offset by a fleet productivity decrease of 1.3 percent. The fleet productivity decrease includes the impact of the change in accounting for doubtful accounts discussed above, and also reflects decreases in time utilization in certain locations. For the three months ended June 30, 2019, equipment rentals represented 8684 percent of total revenues for the general rentals segment.
For the ninesix months ended SeptemberJune 30, 2017,2019, general rentals equipment rentals increased $290,$417, or 9.516.5 percent, as compared to the same period in 2016,2018, primarily reflectingdue to a 13.319.4 percent increase in the volume ofaverage OEC, on rent, which includes the impact of the NES acquisition, partially offset by decreased rental rates.BlueLine acquisition. The decreased rental rates reflectedequipment rentals increase was less than the average OEC increase primarily due to 1) the impact of the NESBlueLine acquisition, pressure from Canada2) decreases in time utilization in certain locations and 3) the impact of industry fleet expansion.the change in accounting for doubtful accounts discussed above. On a pro forma basis including NES'the standalone, pre-acquisition results the volume of OEC on rentBlueLine, equipment rental revenue increased 5.4 percent. We believe that the3.8 percent year-over-year, primarily due to a 4.6 percent increase in the volume of OEC on rent reflects improving demand in many of our core markets.average OEC. For the ninesix months ended SeptemberJune 30, 2017,2019, equipment rentals represented 8584 percent of total revenues for the general rentals segment.
For the three months ended SeptemberJune 30, 2017,2019, trench, power and pumpfluid solutions equipment rentals increased $74,$134, or 32.944.8 percent, as compared to the same period in 2016,2018, primarily reflecting the impact of acquisitions, including BakerCorp, and cold starts. On a 38.6pro forma basis including the standalone, pre-acquisition results of BakerCorp, equipment rental revenue increased 15.4 percent year-over-year, primarily due to a 14.8 percent increase in the volume of OEC on rent. Trench, power and pump average OEC for the three months ended September 30, 2017 increased 16.9 percent as compared to the same period in 2016.OEC. The increase in the volume of OEC on rent significantly exceeded thepro forma increase in average OEC primarily due to improved performance in our Pump Solutions region. The improvement inincludes the Pump Solutions region primarily reflected growth in revenue from i) upstream oilimpact of cold starts and gas customers, which have experienced significant volatility in recent years, and ii) construction and mining customers.acquisitions other than BakerCorp. For the three months ended SeptemberJune 30, 2017, equipment rentals represented 93 percent of total revenues for the trench, power and pump segment.
For the nine months ended September 30, 2017, trench, power and pump equipment rentals increased $136, or 23.6 percent, as compared to the same period in 2016, primarily reflecting a 30.6 percent increase in the volume of OEC on rent. Trench, power and pump average OEC for the nine months ended September 30, 2017 increased 10.4 percent as compared to the same period in 2016. The increase in the volume of OEC on rent significantly exceeded the increase in average OEC primarily due to improved performance in our Pump Solutions region. The improvement in the Pump Solutions region primarily reflected growth in revenue from i) upstream oil and gas customers, which have experienced significant volatility in recent years, and ii) construction and mining customers. For the nine months ended September 30, 2017,2019, equipment rentals represented 92 percent of total revenues for the trench, power and pumpfluid solutions segment.
For the six months ended June 30, 2019, trench, power and fluid solutions equipment rentals increased $248, or 44.5 percent, as compared to the same period in 2018, primarily reflecting the impact of acquisitions, including BakerCorp, and cold starts. On a pro forma basis including the standalone, pre-acquisition results of BakerCorp, equipment rental revenue increased 14.7 percent year-over-year, primarily due to a 14.1 percent increase in average OEC. The pro forma increase in average OEC includes the impact of cold starts and acquisitions other than BakerCorp. For the six months ended June 30, 2019, equipment rentals represented 92 percent of total revenues for the trench, power and fluid solutions segment.
Sales of rental equipment. For the ninesix months ended SeptemberJune 30, 2017,2019, sales of rental equipment represented approximately 89 percent of our total revenues. Our general rentals segment accounted for most of these sales. For the three and six months ended SeptemberJune 30, 2017,2019, sales of rental equipment increased 24.125.5 percent and 15.1 percent, respectively, from the same periodperiods in 2016, primarily reflecting increased volume. For the nine months ended September 30, 2017, sales2018. Sales of rental equipment did not change significantly fromfor the same periodthree and six months ended June 30, 2019 increased primarily due to increased volume, which included the impact of the BlueLine acquisition, driven by a larger fleet size in 2016.a strong used equipment market.
Sales of new equipment. For the ninesix months ended SeptemberJune 30, 2017,2019, sales of new equipment represented approximately 3 percent of our total revenues. Our general rentals segment accounted for most of these sales. For the three and ninesix months ended SeptemberJune 30, 2017,2019, sales of new equipment increased 33.336.4 percent and 31.341.9 percent, respectively, from the same periods in 2016,2018 primarily reflectingdue to increased volume and increased sales of larger equipment.driven by broad-based demand.
Contractor supplies sales. Contractor supplies sales represent our revenues associated with selling a variety of supplies, including construction consumables, tools, small equipment and safety supplies. For the ninesix months ended SeptemberJune 30, 2017,2019, contractor supplies sales represented approximately 1 percent of our total revenues. Our general rentals segment accounted for most of these sales. Contractor supplies sales for the three and ninesix months ended SeptemberJune 30, 2017 did not change significantly2019 increased 12.5 percent and 21.4 percent, respectively, from the same periods in 2016.2018 primarily due to the impact of the BakerCorp acquisition.
Service and other revenues. Service and other revenues primarily represent our revenues earned from providing repair and maintenance services on our customers’ fleet (including parts sales). For the ninesix months ended SeptemberJune 30, 2017,2019, service and other revenues represented approximately 2 percent of our total revenues. Our general rentals segment accounted for most of these sales. For the three and six months ended SeptemberJune 30, 2017,2019, service and other revenues increased 20.031.4 percent and 30.4 percent, respectively, from the same periodperiods in 20162018, primarily reflecting the impact of the NES acquisition discussed in note 2 to the condensed consolidated financial statements and an increased emphasis on this line of business. Forbusiness and the nine months ended September 30, 2017, service and other revenues did not change significantly fromimpact of the same period in 2016.BlueLine acquisition.
Segment Equipment Rentals Gross Profit
Segment equipment rentals gross profit and gross margin were as follows:
| | | General rentals | | Trench, power and pump | | Total | General rentals | | Trench, power and fluid solutions | | Total |
Three Months Ended September 30, 2017 | | | | | | |
Three Months Ended June 30, 2019 | | | | | | |
Equipment Rentals Gross Profit | $ | 525 |
| | $ | 164 |
| | $ | 689 |
| $ | 593 |
| | $ | 199 |
| | $ | 792 |
|
Equipment Rentals Gross Margin | 42.4 | % | | 54.8 | % | | 44.9 | % | 38.8 | % | | 46.0 | % | | 40.4 | % |
Three Months Ended September 30, 2016 | | | | | | |
Three Months Ended June 30, 2018 | | | | | | |
Equipment Rentals Gross Profit | $ | 469 |
| | $ | 117 |
| | $ | 586 |
| $ | 543 |
| | $ | 145 |
| | $ | 688 |
|
Equipment Rentals Gross Margin | 42.8 | % | | 52.0 | % | | 44.3 | % | 40.8 | % | | 48.5 | % | | 42.2 | % |
Nine Months Ended September 30, 2017 | | | | | | |
Six Months Ended June 30, 2019 | | | | | | |
Equipment Rentals Gross Profit | $ | 1,350 |
| | $ | 359 |
| | $ | 1,709 |
| $ | 1,094 |
| | $ | 356 |
| | $ | 1,450 |
|
Equipment Rentals Gross Margin | 40.2 | % | | 50.4 | % | | 42.0 | % | 37.1 | % | | 44.2 | % | | 38.6 | % |
Nine Months Ended September 30, 2016 | | | | | | |
Six Months Ended June 30, 2018 | | | | | | |
Equipment Rentals Gross Profit | $ | 1,243 |
| | $ | 274 |
| | $ | 1,517 |
| $ | 969 |
| | $ | 264 |
| | $ | 1,233 |
|
Equipment Rentals Gross Margin | 40.5 | % | | 47.6 | % | | 41.6 | % | 38.3 | % | | 47.4 | % | | 39.9 | % |
General rentals. For the three months ended SeptemberJune 30, 2017,2019, equipment rentals gross profit increased by $56$50, primarily due to increased equipment rentals, including the impact of the BlueLine acquisition. As discussed above, equipment rentals increased 14.6 percent, primarily due to a 19.0 percent increase in average OEC, which includes the impact of the BlueLine acquisition. The equipment rentals increase was less than the average OEC increase primarily due to the impact of the BlueLine acquisition and decreases in time utilization in certain locations. Additionally, in 2019, we adopted an updated lease accounting standard (see note 8 to the condensed consolidated financial statements for further detail) that requires that we recognize doubtful accounts associated with lease revenues as a reduction to equipment rentals revenue which decreased equipment rentals revenue in 2019. Equipment rentals gross margin decreased 200 basis points from 2018, due partially to the impact of the BlueLine acquisition. Depreciation of rental equipment increased 20.6 percent, which exceeded the equipment rentals increase of 14.6 percent, and the BlueLine acquisition was a significant driver of the depreciation increase. Additionally, the change in accounting for doubtful accounts discussed above decreased the equipment rentals gross margin in 2019.
For the six months ended June 30, 2019, equipment rentals gross profit increased by $125, primarily due to increased equipment rentals, including the impact of the BlueLine acquisition. As discussed above, equipment rentals increased 16.5 percent, primarily due to a 19.4 percent increase in average OEC, which includes the impact of the BlueLine acquisition. The equipment rentals increase was less than the average OEC increase primarily due to 1) the impact of the BlueLine acquisition, 2) decreases in time utilization in certain locations and 3) the impact of the change in accounting for doubtful accounts discussed above. Equipment rentals gross margin decreased 120 basis points from 2018, due partially to the impact of the BlueLine acquisition. Depreciation of rental equipment increased 20.2 percent, which exceeded the equipment rentals increase of 16.5 percent, and the BlueLine acquisition was a significant driver of the depreciation increase. Additionally, the change in accounting for doubtful accounts discussed above decreased the equipment rentals gross margin in 2019.
Trench, power and fluid solutions. For the three months ended June 30, 2019, equipment rentals gross profit increased by $54 and equipment rentals gross margin decreased by 40250 basis points from 2016. The gross margin decrease primarily reflects increased benefits costs, including increased bonus costs associated with improved profitability, and increased depreciation costs, partially offset by a 70 basis point increase in time utilization and decreases in certain costs, including fuel and delivery, as a percentage of equipment rentals revenue. The volume of OEC on rent increased 16.5 percent, including the impact of the NES acquisition. On a pro forma basis including NES' standalone, pre-acquisition results, the volume of OEC on rent increased 5.5 percent. We believe that the increase in the volume of OEC on rent reflects improving demand in many of our core markets. Time utilization is calculated by dividing the amount of time an asset is on rent by the amount of time the asset has been owned during the year. For the three months ended September 30, 2017 and 2016, time utilization was 72.2 percent and 71.5 percent, respectively.
For the nine months ended September 30, 2017, equipment rentals gross profit increased by $107 and equipment rentals gross margin decreased by 30 basis points from 2016. The gross margin decrease primarily reflects decreased rental rates and increased delivery costs partially offset by a 130 basis point increase in time utilization. The decreased rental rates reflected the impact of the NES acquisition, pressure from Canada and the impact of industry fleet expansion. The volume of OEC on rent increased 13.3 percent, including the impact of the NES acquisition. On a pro forma basis including NES' standalone, pre-acquisition results, the volume of OEC on rent increased 5.4 percent. We believe that the increase in the volume of OEC on rent reflects improving demand in many of our core markets. While the volume of OEC on rent increased 13.3 percent and equipment rentals increased 9.5 percent, delivery costs increased 18.3 percent due primarily to the increased volume of OEC on rent and increased transfers of equipment among locations in response to, and in anticipation of, customer demand. For the nine months ended September 30, 2017 and 2016, time utilization was 70.1 percent and 68.8 percent, respectively.
Trench, power and pump. For the three months ended September 30, 2017, equipment rentals gross profit increased by $47 and equipment rentals gross margin increased by 280 basis points from 2016.2018. The increase in equipment rentals gross profit primarily reflects increased equipment rentals revenue on a larger fleet. Year-over-year, trench, power and pumpfluid solutions equipment rentals increased 32.944.8 percent and average OEC increased 16.960.2 percent primarily due to the impact of acquisitions, including BakerCorp, and cold starts. The equipment rentals increase was less than the volumeaverage OEC increase primarily due to the impact of OEC on rentthe BakerCorp acquisition. On a pro forma basis including the standalone, pre-acquisition results of BakerCorp, equipment rental revenue increased 38.6 percent. The increase in the volume of OEC on rent significantly exceeded the15.4 percent year-over-year, primarily due to a 14.8 percent increase in average OEC primarily due to improved performanceOEC. The decrease in our Pump Solutions region. The improvement in the Pump Solutions region primarily reflected growth in revenue from i) upstream oil and gas customers, which have experienced significant volatility in recent years, and ii) construction and mining customers. The increase in equipment rentals gross margin reflected decreased compensation, depreciation and property costs as a percentage of revenue. As comparedwas primarily due to the equipment rentals revenue increaseimpact of 32.9 percent, compensation costs increased 18.5 percent due primarily to increased headcount associated with higher rental volume, depreciation of rental equipment increased 13.3 percentacquisitions, including BakerCorp, and property costs were flat. Capitalizing on the demandcold starts. The historic, pre-acquisition margins for the higher margin equipment rented by our trench, power and pumpacquired BakerCorp locations are lower than the margins achieved at the other locations in the segment, has been a key component of our strategy in recent years.although we expect that the margins will improve over time as we realize synergies following the acquisition.
For the ninesix months ended SeptemberJune 30, 2017,2019, equipment rentals gross profit increased by $85$92 and equipment rentals gross margin increaseddecreased by 280320 basis points from 2016.2018. The increase in equipment rentals gross profit primarily reflects increased equipment rentals revenue on a larger fleet. Year-over-year, trench, power and pumpfluid solutions equipment rentals increased 23.644.5 percent and average OEC increased 10.459.9 percent primarily due to the impact of acquisitions, including BakerCorp, and cold starts. The equipment rentals increase was less than the volumeaverage OEC increase primarily due to the impact of OEC on rent the BakerCorp acquisition. On a pro forma basis including the standalone, pre-acquisition results of BakerCorp, equipment rental revenue
increased 30.6 percent. The increase in the volume of OEC on rent significantly exceeded the14.7 percent year-over-year, primarily due to a 14.1 percent increase in average OEC primarily due to improved performanceOEC. The decrease in our Pump Solutions region. The improvement in the Pump Solutions region primarily reflected growth in revenue from i) upstream
oil and gas customers, which have experienced significant volatility in recent years, and ii) construction and mining customers. The increase in equipment rentals gross margin reflected decreased compensation, depreciation and property costs as a percentage of revenue. As comparedwas primarily due to the equipment rentals revenue increaseimpact of 23.6 percent, compensation costs increased 13.1 percent due primarily to increased headcount associated with higher rental volume, depreciation of rental equipment increased 9.1 percentacquisitions, including BakerCorp, and property costs increased 1.0 percent. Capitalizing on the demand for the higher margin equipment rented by our trench, power and pump segment has been a key component of our strategy in recent years.cold starts.
Gross Margin. Gross margins by revenue classification were as follows:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Total gross margin | 43.8 | % | | 43.5 | % | | 30 bps | | 41.2% | | 41.2% | | — | 39.8 | % | | 41.4 | % | | (160) bps | | 37.9% | | 39.4% | | (150) bps |
Equipment rentals | 44.9 | % | | 44.3 | % | | 60 bps | | 42.0% | | 41.6% | | 40 bps | 40.4 | % | | 42.2 | % | | (180) bps | | 38.6% | | 39.9% | | (130) bps |
Sales of rental equipment | 39.6 | % | | 39.3 | % | | 30 bps | | 40.5% | | 40.4% | | 10 bps | 41.1 | % | | 41.4 | % | | (30) bps | | 38.0% | | 41.1% | | (310) bps |
Sales of new equipment | 15.0 | % | | 16.7 | % | | (170) bps | | 14.3% | | 17.7% | | (340) bps | 15.0 | % | | 13.6 | % | | 140 bps | | 13.9% | | 12.8% | | 110 bps |
Contractor supplies sales | 33.3 | % | | 31.6 | % | | 170 bps | | 30.0% | | 31.7% | | (170) bps | 29.6 | % | | 33.3 | % | | (370) bps | | 29.4% | | 33.3% | | (390) bps |
Service and other revenues | 53.3 | % | | 60.0 | % | | (670) bps | | 51.2% | | 59.5% | | (830) bps | 45.7 | % | | 42.9 | % | | 280 bps | | 46.7% | | 44.9% | | 180 bps |
For the three months ended SeptemberJune 30, 2017,2019, total gross margin increased 30decreased 160 basis points as compared tofrom the same period in 2016.2018. Equipment rentals gross margin increased 60decreased 180 basis points primarily reflecting a 160 basis point increaseyear-over-year. The gross margin decrease reflects the impact of acquisitions, including BakerCorp, and cold starts in time utilizationour Trench, power and a 0.1 percent rental rate increase, partially offset by increased compensation costs. For the three months ended September 30, 2017 and 2016, time utilization was 71.9 percent and 70.3 percent, respectively. Time utilization for the three months ended September 30, 2017 was a third quarter record. The volume of OEC on rent increased 18.2 percent, includingfluid solutions reportable segment, as well as the impact of the NES acquisition.BlueLine acquisition on our general rentals reportable segment. Additionally, in 2019, we adopted an updated lease accounting standard (see note 8 to the condensed consolidated financial statements for further detail) that requires that we recognize doubtful accounts associated with lease revenues as a reduction to equipment rentals revenue which decreased equipment rentals gross margin in 2019. On a pro forma basis including NES'the standalone, pre-acquisition results the volume of OEC on rentBakerCorp and BlueLine, equipment rental revenue increased 7.6 percent. We believe that the4.8 percent year-over-year, primarily due to a 5.5 percent increase in the volume ofaverage OEC on rent reflects improving demand in many of our core markets. As compared to the equipment rentals revenueand a fleet productivity increase of 16.2 percent, compensation costs increased 19.1 percent due0.7 percent. As explained further above (see "Financial Overview-Revenues"), fleet productivity is a comprehensive measure of the combined impact of key decisions made daily by our managers regarding rental rates, time utilization and mix on the year-over-year change in part to increased bonuses associated with improved operating results. Grossowned equipment rental revenue. The gross margin fluctuations from sales of new equipment, decreased 170 basis points. Sales of new equipment increased 33.3 percent, primarily reflecting increased volumecontractor supplies sales and increased sales of larger equipment, some of which were at lower margins. Gross margin from service and other revenues decreased 670 basis points. In 2017, asgenerally reflect normal variability, and such margins did not have a resultsignificant impact on total gross margin (gross profit for these revenue types represented 4 percent of our increased focus ontotal gross profit for the service line of business, we increased the allocation of labor to it. Such labor costs were formerly included in cost of equipment rentals.three months ended June 30, 2019).
For the ninesix months ended SeptemberJune 30, 2017,2019, total gross margin was flat withdecreased 150 basis points from the same period in 2016.2018. Equipment rentals gross margin increased 40decreased 130 basis points primarily reflecting a 190 basis point increaseyear-over-year. The gross margin decrease reflects the impact of acquisitions, including BakerCorp, and cold starts in time utilization partially offset by a 0.7 percent rental rate decrease. The decreased rental rates reflectedour Trench, power and fluid solutions reportable segment, as well as the impact of the NESBlueLine acquisition pressure from Canada andon our general rentals reportable segment. Additionally, the impact of industry fleet expansion. Forchange in accounting for doubtful accounts discussed above decreased the nine months ended September 30, 2017 and 2016, time utilization was 69.3 percent and 67.4 percent, respectively. The volume of OEC on rent increased 14.5 percent, including the impact of the NES acquisition.equipment rentals gross margin in 2019. On a pro forma basis including NES'the standalone, pre-acquisition results the volume of OEC on rentBakerCorp and BlueLine, equipment rental revenue increased 6.9 percent. We believe that the5.9 percent year-over-year, primarily due to a 5.6 percent increase in the volumeaverage OEC and a fleet productivity increase of OEC on rent reflects improving demand in many of our core markets.1.4 percent. Gross margin from sales of newrental equipment decreased 340310 basis points. Salespoints from the same period in 2018 primarily due to lower margin sales of fleet acquired in the BlueLine acquisition. The gross margin fluctuations from sales of new equipment, increased 31.3 percent, primarily reflecting increased volume and increased sales of larger equipment, some of which were at lower margins. Gross margin from contractor supplies sales decreased 170 basis points, primarily due to the impact of some large volume sales at lower margins. Gross margin fromand service and other revenues decreased 830 basis points. In 2017, asgenerally reflect normal variability, and such margins did not have a resultsignificant impact on total gross margin (gross profit for these revenue types represented 4 percent of our increased focus ontotal gross profit for the service line of business, we increased the allocation of labor to it. Such labor costs were formerly included in cost of equipment rentals.six months ended June 30, 2019).
Other costs/(income)
The table below includes the other costs/(income) in our condensed consolidated statements of income, as well as key associated metrics, for the three and ninesix months ended SeptemberJune 30, 20172019 and 2016: 2018:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2017 | | 2016 | Change | | 2017 | | 2016 | Change | 2019 | | 2018 | Change | | 2019 | | 2018 | Change |
Selling, general and administrative ("SG&A") expense | $237 | | $179 | 32.4% | | $648 | | $533 | 21.6% | $271 | | $239 | 13.4% | | $551 | | $471 | 17.0% |
SG&A expense as a percentage of revenue | 13.4% | | 11.9% | 150 bps | | 13.7% | | 12.6% | 110 bps | 11.8% | | 12.6% | (80) bps | | 12.5% | | 13.0% | (50) bps |
Merger related costs | 16 | | — | —% | | 32 | | — | —% | — | | 2 | (100.0)% | | 1 | | 3 | (66.7)% |
Restructuring charge | 9 | | 4 | 125.0% | | 28 | | 8 | 250.0% | 6 | | 4 | 50.0% | | 14 | | 6 | 133.3% |
Non-rental depreciation and amortization | 63 | | 61 | 3.3% | | 189 | | 192 | (1.6)% | 105 | | 67 | 56.7% | | 209 | | 138 | 51.4% |
Interest expense, net | 131 | | 110 | 19.1% | | 338 | | 349 | (3.2)% | 180 | | 112 | 60.7% | | 331 | | 221 | 49.8% |
Other income, net | (5) | | (1) | 400.0% | | (5) | | (3) | 66.7% | (2) | | (1) | 100.0% | | (5) | | (2) | 150.0% |
Provision for income taxes | 123 | | 116 | 6.0% | | 263 | | 254 | 3.5% | 81 | | 89 | (9.0)% | | 126 | | 138 | (8.7)% |
Effective tax rate | 38.2% | | 38.3% | (10) bps | | 36.9% | | 38.1% | (120) bps | 23.1% | | 24.8% | (170) bps | | 22.1% | | 23.4% | (130) bps |
SG&A expense primarily includes sales force compensation, information technology costs, third party professional fees, management salaries, bad debt expense and clerical and administrative overhead. The increases in SG&A expense as a percentage of revenue for the three and ninesix months ended SeptemberJune 30, 20172019 decreased from the same periods in 2018 primarily reflect increased compensation costs, includingdue to a reduction in stock compensation costs, largely due to the impactand bonuses as a percentage of the NES acquisition discussed in note 2 to the condensed consolidated financial statements, improved profitability, and increases in our stock price and in the volume of stock awards.revenue.
The merger related costs reflect transaction costs associated with the NES and Neff acquisitions that were completed in 2017, and the BakerCorp and BlueLine acquisitions discussed in note 23 to our condensed consolidated financial statements. We have made a number of acquisitions in the past and may continue to make acquisitions in the future. Merger related costs only include costs associated with major acquisitions that significantly impact our operations. The historic acquisitions that have included merger related costs are RSC, which had annual revenues of approximately $1.5 billion prior to the acquisition, and National Pump, which had annual revenues of over $200 prior to the acquisition. As discussed in note 2 to our condensed consolidated financial statements, NES had annual revenues of approximately $369 and Neff had annual revenues of approximately $413. As discussed in note 3 to our condensed consolidated financial statements, BakerCorp had annual revenues of approximately $295 and BlueLine had annual revenues of approximately $786.
The restructuring charges primarily reflect severance and branch closure charges associated with our restructuring programs. In the secondthird quarter of 2017,2018, we initiated a restructuring program following the closing of the NESBakerCorp acquisition discussed in note 23 to the condensed consolidated financial statements. The restructuring program also includes actions undertaken associated with Project XL,the BlueLine acquisition, which is a set of eight specific work streams focused on driving profitable growth through revenue opportunities and generating incremental profitability through cost savings across our business. Additionally, following the closing of the Neff acquisition that isalso discussed in note 23. For additional information, see note 5 to the condensed consolidated financial statements on October 2, 2017, the restructuring program will include actions that we expect to undertake associated with the Neff acquisition. For additional information, see note 4 to our condensed consolidated financial statements.
Non-rental depreciation and amortization includes (i)i) the amortization of other intangible assets and (ii)ii) depreciation expense associated with equipment that is not offered for rent (such as computers and office equipment) and amortization expense associated with leasehold improvements. Our other intangible assets consist of customer relationships, non-compete agreements and non-compete agreements.
Interest expense, nettrade names and associated trademarks. The year-over-year increases in non-rental depreciation and amortization for the three and ninesix months ended SeptemberJune 30, 2017 includes losses2019 primarily reflect the impact of $31the BakerCorp and $43, respectively, associated with the redemptions of $250 principal amount of our 7 5/8 percent Senior Notes and all of our 6 1/8 percent Senior Notes, asBlueLine acquisitions discussed in note 83 to the condensed consolidated financial statements.
Interest expense, net for the three and six months ended June 30, 2019 included a loss of $32 primarily associated with the full redemption of our 5 3/4 percent Senior Notes. Excluding the impact of this loss, interest expense, net for the three and ninesix months ended SeptemberJune 30, 20162019 increased year-over-year primarily due to the impact of higher average debt. The year-over-year increase in average debt includes aggregate losses of $10 and $36, respectively, associated with the redemptions of all of our 8 1/4 percent Senior Notes and 7 3/8 percent Senior Notes, and an amendment to our ABL facility. Excluding the impact of the debt redemption losses, interest expense, net forused to finance the three months ended September 30, 2017 was flat dueBakerCorp and BlueLine acquisitions discussed in note 3 to increased average debt offset by a lower average cost of debt. Excluding the impact of the debt redemption losses, interest expense, net for the nine months ended September 30, 2017 decreased primarily due to a lower average cost of debt.condensed consolidated financial statements.
The differences between the 20172019 and 20162018 effective tax rates and the U.S. federal statutory income tax rate of 3521 percent primarily reflect the geographical mix of income between foreign and domestic operations, and the impact of state and local taxes, and certain deductible and nondeductible charges. Additionally, the effective tax rate for the nine months ended September 30, 2017 includes a tax reduction of $8 associated with excess tax benefits from share-based payment arrangements, as
Balance sheet. As discussed in note 1 to our condensed consolidated financial statements.
Balance sheet. Accounts receivable, net increased by $231, or 25.1 percent, from December 31, 2016 to September 30, 2017 primarily due to increased revenue, which included the impact of the NES acquisition discussed in note 28 to the condensed consolidated financial statements. Rental equipment, netstatement, in 2019, we adopted an updated lease accounting standard that resulted in the recognition of operating lease right-of-use assets and lease liabilities. We adopted this standard using a transition method that does not require application to periods prior to adoption. Accounts payable increased by $1.202 billion,$216, or 19.440.3 percent, from December 31, 20162018 to SeptemberJune 30, 20172019, primarily due to the impact of the NES acquisition and increaseda seasonal increase in capital expenditures in response to a strong operating environment. Accounts payable increased by $369, or 151.9 percent, from December 31, 2016 to September 30, 2017 primarily due to increased capital expenditures due to seasonality and a strong operating environment. Accrued expenses and other liabilities increased by $123, or 35.8 percent, from December 31, 2016 to September 30, 2017 primarily due to (i) increased incentive compensation accruals associated with improved profitability and (ii) accrued income taxes.expenditures.
Liquidity and Capital Resources
We manage our liquidity using internal cash management practices, which are subject to (i) the policies and cooperation of the financial institutions we utilize to maintain and provide cash management services, (ii) the terms and other requirements of the agreements to which we are a party and (iii) the statutes, regulations and practices of each of the local jurisdictions in which we operate. See "Financial Overview" above for a summary of recent capital structure actions taken to improve our financial flexibility and liquidity.
Since 2012, we have repurchased a total of $1.450$2.45 billion of Holdings' common stock under threefour completed share repurchase programs. Additionally, in July 2015,April 2018, our Board authorized a $1new $1.25 billion share repurchase program, which commenced in November 2015.July 2018. As of October 16, 2017,June 30, 2019, we have repurchased $627$840 of Holdings' common stock under the $1 billion share repurchase program. In October 2016, we paused repurchases under the program as we evaluated potential acquisition opportunities. As discussed in note 2 to the condensed consolidated financial statements, we completed the acquisitions of NES in April 2017 and Neff in October 2017. In October 2017, our Board authorized the resumption of the $1$1.25 billion share repurchase program, andwhich we intend to complete the program in 2018.2019.
Our principal existing sources of cash are cash generated from operations and from the sale of rental equipment, and borrowings available under our ABL facility and accounts receivable securitization facility. As of SeptemberJune 30, 2017,2019, we had cash and cash equivalents of $32475. Cash equivalents at SeptemberJune 30, 20172019 consist of direct obligations of financial institutions rated A or better. We believe that our existing sources of cash will be sufficient to support our existing operations over the next 12 months. The table below presents financial information associated with our principal sources of cash as of and for the ninesix months ended SeptemberJune 30, 2017:2019:
|
| | | |
ABL facility: | |
Borrowing capacity, net of letters of credit | $ | 2,545 |
|
Outstanding debt, net of debt issuance costs (1) | 408 |
|
Interest rate at September 30, 2017 | 2.8 | % |
Average month-end debt outstanding (1) | 1,243 |
|
Weighted-average interest rate on average debt outstanding | 2.6 | % |
Maximum month-end debt outstanding (1) | 1,802 |
|
Accounts receivable securitization facility: | |
Borrowing capacity | 9 |
|
Outstanding debt, net of debt issuance costs | 666 |
|
Interest rate at September 30, 2017 | 2.0 | % |
Average month-end debt outstanding | 584 |
|
Weighted-average interest rate on average debt outstanding | 1.8 | % |
Maximum month-end debt outstanding | 667 |
|
_________________
(1) The average and maximum month-end debt outstanding under the ABL facility exceeded the amount outstanding as of September 30, 2017 primarily due to the pay down of borrowings under the ABL facility using the net proceeds from debt issued in the third quarter of 2017. Following the closing of the Neff acquisition on October 2, 2017, we used borrowings under the ABL facility to partially fund the Neff acquisition. For additional detail, see note 8 to the condensed consolidated financial statements. |
| | | |
ABL facility: | |
Borrowing capacity, net of letters of credit | $ | 2,046 |
|
Outstanding debt, net of debt issuance costs | 1,646 |
|
Interest rate at June 30, 2019 | 3.9 | % |
Average month-end principal amount of debt outstanding | 1,558 |
|
Weighted-average interest rate on average debt outstanding | 4.0 | % |
Maximum month-end principal amount of debt outstanding | 1,691 |
|
Accounts receivable securitization facility: | |
Borrowing capacity | 30 |
|
Outstanding debt, net of debt issuance costs | 945 |
|
Interest rate at June 30, 2019 | 3.2 | % |
Average month-end principal amount of debt outstanding | 898 |
|
Weighted-average interest rate on average debt outstanding | 3.3 | % |
Maximum month-end principal amount of debt outstanding | 958 |
|
We expect that our principal needs for cash relating to our operations over the next 12 months will be to fund (i) operating activities and working capital, (ii) the purchase of rental equipment and inventory items offered for sale, (iii) payments due under operating leases, (iv) debt service, (v) share repurchases and (vi) acquisitions. We plan to fund such
cash requirements from our existing sources of cash. In addition, we may seek additional financing through the securitization of some of our real estate, the use of additional operating leases or other financing sources as market conditions permit.
To access the capital markets, we rely on credit rating agencies to assign ratings to our securities as an indicator of credit quality. Lower credit ratings generally result in higher borrowing costs and reduced access to debt capital markets. Credit ratings also affect the costs of derivative transactions, including interest rate and foreign currency derivative transactions. As a result, negative changes in our credit ratings could adversely impact our costs of funding. Our credit ratings as of October 16, 2017July 15, 2019 were as follows:
|
| | | |
| Corporate Rating | | Outlook |
Moody’s | Ba2 | | Stable |
Standard & Poor’s | BB-BB | | PositiveStable |
A security rating is not a recommendation to buy, sell or hold securities. There is no assurance that any rating will remain in effect for a given period of time or that any rating will not be revised or withdrawn by a rating agency in the future.
Loan Covenants and Compliance. As of SeptemberJune 30, 20172019, we were in compliance with the covenants and other provisions of the ABL, facility, the accounts receivable securitization facilityand term loan facilities and the senior notes. Any failure to be in compliance with any material provision or covenant of these agreements could have a material adverse effect on our liquidity and operations.
The only financial maintenance covenant that currently exists under the ABL facility is the fixed charge coverage ratio. Subject to certain limited exceptions specified in the ABL facility, the fixed charge coverage ratio covenant under the ABL facility will only apply in the future if specified availability under the ABL facility falls below 10 percent of the maximum revolver amount under the ABL facility. When certain conditions are met, cash and cash equivalents and borrowing base collateral in excess of the ABL facility size may be included when calculating specified availability under the ABL facility. As of SeptemberJune 30, 2017,2019, specified availability under the ABL facility exceeded the required threshold and, as a result, this financial maintenance covenant was inapplicable. Under our accounts receivable securitization facility, we are required, among other things, to maintain certain financial tests relating to: (i) the default ratio, (ii) the delinquency ratio, (iii) the dilution ratio and (iv) days sales outstanding. The accounts receivable securitization facility also requires us to comply with the fixed charge coverage ratio under the ABL facility, to the extent the ratio is applicable under the ABL facility.
URNA’s payment capacity is restricted under the covenants in the ABL facilityand term loan facilities and the indentures governing its outstanding indebtedness. Although this restricted capacity limits our ability to move operating cash flows to Holdings, because of certain intercompany arrangements, we do not expect any material adverse impact on Holdings’ ability to meet its cash obligations.
Sources and Uses of Cash. During the ninesix months ended SeptemberJune 30, 2017,2019, we (i) generated cash from operating activities of $1.766$1.590 billion and (ii) generated cash from the sale of rental and non-rental equipment of $388 and (iii) received cash from debt proceeds, net of payments, of $546.$404. We used cash during this period principally to (i) purchase rental and non-rental equipment of $1.572$1.226 billion, (ii) purchase other companies for $1.063 billion,$195, (iii) make debt payments, net of proceeds, of $89 and (iv) purchase shares of our common stock for $26 and (iv) pay financing costs of $44.$454. During the ninesix months ended SeptemberJune 30, 2016,2018, we (i) generated cash from operating activities of $1.630$1.649 billion and (ii) generated cash from the sale of rental and non-rental equipment of $373.$346. We used cash during this period principally to (i) purchase rental and non-rental equipment of $1.210$1.306 billion, (ii) make debt payments, net of proceeds, of $209$476, (iii) purchase other companies for $58 and (iii)(iv) purchase shares of our common stock for $488.$395.
Free Cash Flow GAAP Reconciliation. We define “free cash flow” as (i) net cash provided by operating activities less (ii) purchases of, rental and non-rental equipment plus (iii) proceeds from, sales of rentalequipment. The equipment purchases and non-rental equipment and excess tax benefitsproceeds are included in cash flows from share-based payment arrangements.investing activities. Management believes that free cash flow provides useful additional information concerning cash flow available to meet future debt service obligations and working capital requirements. However, free cash flow is not a measure of financial performance or liquidity under GAAP. Accordingly, free cash flow should not be considered an alternative to net income or cash flow from operating activities as an indicator of operating performance or liquidity. The table below provides a reconciliation between net cash provided by operating activities and free cash flow.
| | | Nine Months Ended | Six Months Ended |
| September 30, | June 30, |
| 2017 | | 2016 | 2019 | | 2018 |
Net cash provided by operating activities | $ | 1,766 |
| | $ | 1,630 |
| $ | 1,590 |
| | $ | 1,649 |
|
Purchases of rental equipment | (1,485 | ) | | (1,145 | ) | (1,129 | ) | | (1,226 | ) |
Purchases of non-rental equipment | (87 | ) | | (65 | ) | (97 | ) | | (80 | ) |
Proceeds from sales of rental equipment | 378 |
| | 361 |
| 389 |
| | 338 |
|
Proceeds from sales of non-rental equipment | 10 |
| | 12 |
| 15 |
| | 8 |
|
Excess tax benefits from share-based payment arrangements (1) | — |
| | 53 |
| |
Insurance proceeds from damaged equipment | | 12 |
| | 14 |
|
Free cash flow | $ | 582 |
| | $ | 846 |
| $ | 780 |
| | $ | 703 |
|
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(1) | As discussed in note 1 to our condensed consolidated financial statements, we adopted accounting guidance in the first quarter of 2017 that changed the cash flow presentation of excess tax benefits from share-based payment arrangements. In the table above, the excess tax benefits from share-based payment arrangements for 2017 are presented as a component of net cash provided by operating activities, while, for 2016, they are presented as a separate line item. Because we historically included the excess tax benefits from share-based payment arrangements in the free cash flow calculation, the adoption of this guidance did not change the calculation of free cash flow. |
Free cash flow for the ninesix months ended SeptemberJune 30, 20172019 was $582, a decrease$780, an increase of $264$77 as compared to $846$703 for the ninesix months ended SeptemberJune 30, 2016.2018. Free cash flow decreasedincreased primarily due to increaseddecreased purchases of rental equipment. Net rental capital expenditures (defined as purchases of rental equipment partially offset by increased cash provided by operating activities.less the proceeds from sales of rental equipment) decreased $148, or 17 percent, year-over-year.
Certain Information Concerning Contractual Obligations. The table below provides certain information concerning the payments coming due under certain categories of our existing contractual obligations as of September 30, 2017:
|
| | | | | | | | | | | | | | | | | | | | | |
| 2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total |
Debt and capital leases (1) | $ | 7 |
| $ | 698 |
| $ | 18 |
| $ | 5 |
| $ | 644 |
| $ | 7,080 |
| $ | 8,452 |
|
Interest due on debt (2) | 101 |
| 398 |
| 388 |
| 388 |
| 378 |
| 1,566 |
| 3,219 |
|
Operating leases (1): | | | | | | | |
Real estate | 27 |
| 101 |
| 82 |
| 63 |
| 46 |
| 55 |
| 374 |
|
Non-rental equipment | 11 |
| 41 |
| 34 |
| 28 |
| 18 |
| 11 |
| 143 |
|
Service agreements (3) | 4 |
| 13 |
| 3 |
| 1 |
| — |
| — |
| 21 |
|
Purchase obligations (4) | 301 |
| 20 |
| — |
| — |
| — |
| — |
| 321 |
|
Total (5) | $ | 451 |
| $ | 1,271 |
| $ | 525 |
| $ | 485 |
| $ | 1,086 |
| $ | 8,712 |
| $ | 12,530 |
|
_________________
| |
(1) | The payments due with respect to a period represent (i) in the case of debt and capital leases, the scheduled principal payments due in such period, and (ii) in the case of operating leases, the minimum lease payments due in such period under non-cancelable operating leases. We have given notice of our intention to redeem the remaining $225 principal amount of our 7 5/8 percent Senior Notes in October 2017 using borrowings available under our ABL facility. The 7 5/8 percent Senior Notes are reflected in the table above using the 2021 maturity date of the ABL facility.
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(2) | Estimated interest payments have been calculated based on the principal amount of debt and the applicable interest rates as of September 30, 2017. As discussed above, in October 2017, we expect to redeem the remaining $225 principal amount of our 7 5/8 percent Senior Notes using borrowings available under our ABL facility. Interest on the 7 5/8 percent Senior Notes is reflected in the table above using the interest rate on the ABL facility and the 2021 maturity date of the ABL facility.
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(3) | These primarily represent service agreements with third parties to provide wireless and network services. |
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(4) | As of September 30, 2017, we had outstanding purchase orders, which were negotiated in the ordinary course of business, with our equipment and inventory suppliers. These purchase commitments can generally be cancelled by us with 30 days notice and without cancellation penalties. The equipment and inventory receipts from the suppliers for these purchases and related payments to the suppliers are expected to be completed throughout 2017 and 2018. |
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(5) | This information excludes $4 of unrecognized tax benefits. It is not possible to estimate the time period during which these unrecognized tax benefits may be paid to tax authorities. |
Relationship between Holdings and URNA. Holdings is principally a holding company and primarily conducts its operations through its wholly owned subsidiary, URNA, and subsidiaries of URNA. Holdings licenses its tradename and other intangibles and provides certain services to URNA in connection with its operations. These services principally include:
(i) senior management services; (ii) finance and tax-related services and support; (iii) information technology systems and support; (iv) acquisition-related services; (v) legal services; and (vi) human resource support. In addition, Holdings leases certain equipment and real property that are made available for use by URNA and its subsidiaries.
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
Our exposure to market risk primarily consists of (i) interest rate risk associated with our variable and fixed rate debt and (ii) foreign currency exchange rate risk associated with our Canadianforeign operations.
Interest Rate Risk. As of SeptemberJune 30, 20172019, we had an aggregate of $1.1$3.6 billion of indebtedness that bears interest at variable rates, comprised of borrowings under the ABL, facility and the accounts receivable securitization facility.and term loan facilities. The amount of variable rate indebtedness outstanding under the ABL facility and accounts receivable securitization facilitythese facilities may fluctuate significantly. See "Liquidity and Capital Resources" abovenote 7 to the condensed consolidated financial statements for the amounts outstanding, and the interest rates thereon, as of SeptemberJune 30, 20172019 under the ABL facility and the accounts receivable securitization facility.these facilities. As of SeptemberJune 30, 2017,2019, based upon the amount of our variable rate debt outstanding, our annual after-tax earnings would decrease by approximately $7$27 for each one percentage point increase in the interest rates applicable to our variable rate debt.
At SeptemberJune 30, 2017,2019, we had an aggregate of $7.3$8.1 billion of indebtedness that bears interest at fixed rates. A one percentage point decrease in market interest rates as of SeptemberJune 30, 20172019 would increase the fair value of our fixed rate indebtedness by approximately seven percent.six percent. For additional information concerning the fair value of our fixed rate debt, see note 76 (see “Fair Value of Financial Instruments”) to our condensed consolidated financial statements.
Currency Exchange Risk. The functional currencyWe operate in the U.S., Canada and Europe. As discussed in note 3 to the condensed consolidated financial statements, in July 2018, we completed the acquisition of BakerCorp, which allowed for our Canadian operations isentry into select European markets. During the Canadian dollar. As a result,six months ended June 30, 2019, our future earnings could be affected by fluctuations in the exchange rate between the U.S. and Canadian dollars. Based upon the levelforeign subsidiaries accounted for $386, or 9 percent, of our Canadiantotal revenue of $4.407 billion, and $14, or 2 percent, of our total pretax income of $571. Based on the size of our foreign operations during 2016 relative to the Company as a whole, we do not believe that a 10 percent change in this exchange raterates would causehave a material impact on our annual after-tax earnings to change by approximately $5.earnings. We do not engage in purchasing forward exchange contracts for speculative purposes.
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Item 4. | Controls and Procedures |
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
The Company’s management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a–15(e) and 15d–15(e) of the Exchange Act, as of SeptemberJune 30, 20172019. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of SeptemberJune 30, 20172019.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended SeptemberJune 30, 20172019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
The information set forth under note 9 to our unaudited condensed consolidated financial statements of this quarterly report on Form 10-Q is incorporated by reference in answer to this item. Such information is limited to certain recent developments.
Our results of operations and financial condition are subject to numerous risks and uncertainties described in our 20162018 Form 10-K, which risk factors are incorporated herein by reference. You should carefully consider these risk factors in conjunction with the other information contained in this report. Should any of these risks materialize, our business, financial condition and future prospects could be negatively impacted.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
(c) The following table provides information about purchases of Holdings’ common stock by Holdings during the thirdsecond quarter of 2017:2019:
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| | | | | | | | | | | | | |
Period | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | | Maximum Dollar Amount of Shares That May Yet Be Purchased Under the Program (2) |
July 1, 2017 to July 31, 2017 | 619 |
| (1) | $ | 91.80 |
| | — |
| | — |
|
August 1, 2017 to August 31, 2017 | 17,452 |
| (1) | $ | 116.54 |
| | — |
| | — |
|
September 1, 2017 to September 30, 2017 | 923 |
| (1) | $ | 73.09 |
| | — |
| | — |
|
Total | 18,994 |
| | $ | 113.62 |
| | — |
| | $ | 372,997,032 |
|
|
| | | | | | | | | | | | | |
Period | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | | Maximum Dollar Amount of Shares That May Yet Be Purchased Under the Program (2) |
April 1, 2019 to April 30, 2019 | 539,461 |
| (1) | $ | 130.07 |
| | 538,236 |
| | — |
|
May 1, 2019 to May 31, 2019 | 519,482 |
| (1) | $ | 135.13 |
| | 518,138 |
| | — |
|
June 1, 2019 to June 30, 2019 | 550,711 |
| (1) | $ | 127.45 |
| | 549,182 |
| | — |
|
Total | 1,609,654 |
| | $ | 130.81 |
| | 1,605,556 |
| | $ | 410,071,656 |
|
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(1) | ReflectsIn April 2019, May 2019 and June 2019, 1,225, 1,344 and 1,529 shares, respectively, were withheld by Holdings to satisfy tax withholding obligations upon the vesting of restricted stock unit awards. These shares were not acquired pursuant to any repurchase plan or program. |
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(2) | On July 21, 2015,April 17, 2018, our Board authorized a $1$1.25 billion share repurchase program which commenced in November 2015. In October 2016, we paused repurchases under the program as we evaluated potential acquisition opportunities. As discussed in note 2 to the condensed consolidated financial statements, we completed the acquisitions of NES in April 2017 and Neff in October 2017. In October 2017, our Board authorized the resumption of the share repurchase program, and weJuly 2018. We intend to complete the program in 2018.2019. |
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2(a) | Agreement and Plan of Merger, dated as of August 16, 2017,June 30, 2018, by and among United Rentals, (North America), Inc., UR Merger Sub IIIIV Corporation and Neff CorporationBakerCorp International Holdings, Inc. (incorporated herein by reference to Exhibit 2.1 of the United Rentals, Inc. and United Rentals (North America), Inc. Current Report on Form 8-K filed on July 2, 2018) |
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2(b) | Agreement and Plan of Merger, dated as of September 10, 2018, by and among United Rentals, Inc., UR Merger Sub V Corporation, Vander Holding Corporation and Platinum Equity Advisors, LLC, solely in its capacity as the initial Holder Representative thereunder (incorporated by reference to Exhibit 2.1 of the United Rentals, Inc. and United Rentals (North America), Inc. Current Report on Form 8-K filed on August 17, 2017September 10, 2018) |
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3(a) | |
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3(b) | |
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3(c) | |
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3(d) | |
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4(a)4 | Indenture for the 4 7/8 percent5.25% Senior Notes due 2028,2030, dated as of August 11, 2017,May 10, 2019, among United Rentals (North America), Inc., United Rentals, Inc., each of United RentalsRental (North America), Inc.’s subsidiaries named therein and Wells Fargo Bank, National Association, as Trustee (including the Formform of 2028 Note)note) (incorporated by reference to Exhibit 4.1 of the United Rentals, Inc. and United Rentals (North America), Inc. Current Report on Form 8-K filed on August 11, 2017May 10, 2019) |
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4(b) | Indenture for the 4 5/8 percent Notes due 2025, dated as of September 22, 2017, among United Rentals (North America), Inc., United Rentals, Inc., each of United Rentals (North America), Inc.’s subsidiaries named therein and Wells Fargo Bank, National Association, as Trustee (including the Form of 2025 Note) (incorporated by reference to Exhibit 4.1 of the United Rentals, Inc. and United Rentals (North America), Inc. Current Report on Form 8-K filed on September 22, 2017) |
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4(c) | Indenture for the 4 7/8 percent Notes due 2028, dated as of September 22, 2017, among United Rentals (North America), Inc., United Rentals, Inc., each of United Rentals (North America), Inc.’s subsidiaries named therein and Wells Fargo Bank, National Association, as Trustee (including the Form of 2028 Note) (incorporated by reference to Exhibit 4.2 of the United Rentals, Inc. and United Rentals (North America), Inc. Current Report on Form 8-K filed on September 22, 2017) |
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10(a)* | |
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10(b)* | |
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10(c)* | |
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10(d) | Assignment and Acceptance Agreement and Amendment No. 610 to Third Amended and Restated Receivables Purchase Agreement and Amendment No. 46 to Third Amended and Restated Purchase and Contribution Agreement, dated as of August 29, 2017,June 28, 2019, by and among United Rentals (North America), Inc., United Rentals Receivables LLC II, United Rentals, Inc., Liberty Street Funding LLC, Gotham Funding Corporation, Fairway Finance Company, LLC, The Bank of Nova Scotia, PNC Bank, National Association, SunTrust Bank, TheMUFG Bank, Ltd. (formerly known as the Bank of Tokyo-Mitsubishi UFJ, Ltd.), New York Branch, Bank of Montreal and The Toronto-Dominion Bank (incorporated by reference to Exhibit 10.1 of the United Rentals, Inc. and United Rentals (North America), Inc. Current Report on Form 8-K filed on August 29, 2017June 28, 2019) |
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10(b) | Lender Joinder Agreement, dated as of September 29, 2017, among United Rentals, Inc., United Rentals (North America), Inc., United Rentals of Canada, Inc., United Rentals Financing Limited Partnership and certain other subsidiaries of United Rentals, Inc. and Bank of America, N.A., as agent and the lenders party thereto (incorporated by reference to Exhibit 10.1 of the United Rentals, Inc. and United Rentals (North America), Inc. Current Report on Form 8-K filed on September 29, 2017) |
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12* | |
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31(a)* | |
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31(b)* | |
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32(a)** | |
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32(b)** | |
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101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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101.SCH | XBRL Taxonomy Extension Schema Document |
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101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
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101101.DEF | The following materials from the Quarterly Report on Form 10-Q for United Rentals, Inc. and United Rentals (North America), Inc., for the quarter ended September 30, 2017 filed on October 18, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statement of Stockholders' Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Unaudited Condensed Consolidated Financial Statements.Taxonomy Extension Definition Linkbase Document |
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101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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** | Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K under the Exchange Act. |
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‡ | Management contract, compensatory plan or arrangement. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | | |
| | UNITED RENTALS, INC. |
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Dated: | October 18, 2017July 17, 2019 | By: | | /S/ JESSICA T. GRAZIANO ANDREW B. LIMOGES |
| | | | Jessica T. Graziano
SeniorAndrew B. Limoges Vice President, Controller and Principal Accounting Officer
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| | UNITED RENTALS (NORTH AMERICA), INC. |
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Dated: | October 18, 2017July 17, 2019 | By: | | /S/ JESSICA T. GRAZIANOANDREW B. LIMOGES |
| | | | Jessica T. Graziano
SeniorAndrew B. Limoges Vice President, Controller and Principal Accounting Officer |
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