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 September 30, 2017
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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)
___________________________________
| | | | | | | | |
| | |
| Delaware | | 06-1522496 |
| Delaware | | 86-0933835 |
| (States of Incorporation) | | (I.R.S. Employer Identification Nos.) |
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| | |
Delaware
Delaware
| | 06-1522496
86-0933835
|
(States of Incorporation) | | (I.R.S. Employer Identification Nos.) |
| |
100 First Stamford Place, Suite 700
Stamford, Connecticut
| | 06902 |
| Stamford | | |
| Connecticut | | 06902 |
| (Address of Principal Executive Offices) | | (Zip Code) |
Registrants’ Telephone Number, Including Area Code: (203) 622-3131
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
| 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,April 24, 2023, there were 84,574,58968,731,157 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 SEPTEMBER 30, 2017MARCH 31, 2023
INDEX
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| PART I | | |
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PART IItem 1 | | |
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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 impact of global economic conditions (including inflation, increased interest rates, supply chain constraints, potential trade wars and sanctions and other measures imposed in response to the ongoing conflict in Ukraine) and public health crises and epidemics on us, our customers and our suppliers, in the United States and the rest of the world;
the possibility that companies that we have acquired or may acquire,•declines in our specialty business or otherwise, including NES Rentals Holdings II, Inc. (“NES ”) and Neff Corporation ("Neff"), 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,which could adversely impact our revenues and, because many of our costs are fixed, our profitability may beprofitability;
•rates we charge and time utilization we achieve being less than anticipated;
•changes in customer, fleet, geographic and segment mix;
•excess fleet in the equipment rental industry;
•inability to benefit from government spending, including spending associated with infrastructure projects;
•trends in oil and natural gas, including significant increases in the prices of oil or natural gas, could adversely affected;affect the demand for our services and products;
•competition from existing and new competitors;
•the cyclical nature of the industry in which we operate and the industries of our customers, such as those in the construction industry;
•costs we incur being more than anticipated, including as a result of inflation, and the inability to realize expected savings in the amounts or time frames planned;
•our significant indebtedness (which totaled $8.4$11.6 billion at September 30, 2017)March 31, 2023) 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, including as a result of volatility and uncertainty in capital or credit markets or increases in interest rates, 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 the amount of borrowings permitted inunder our debt instruments, which can limit our financial and operational flexibility;
overcapacity of fleet in the equipment rental industry;
•inability to benefitaccess the capital that our businesses or growth plans may require, including as a result of uncertainty in capital or credit markets;
•the possibility that companies that we have acquired or may acquire could have undiscovered liabilities, or that companies or assets that we have acquired or may acquire could involve other unexpected costs, may strain our management capabilities, or may be difficult to integrate, and that we may not realize the expected benefits from government spending, including spending associated with infrastructure projects;an acquisition over the timeframe we expect, or at all;
•incurrence of impairment charges;
•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;
•inability to manage credit risk adequately or to collect on contracts with a large number of customers;
•turnover in our management team and inability to attract and retain key personnel;
costs we incur being more than anticipated, andpersonnel, as well as loss, absenteeism or the inability of employees to realize expected savingswork or perform key functions in the amountslight of public health crises or time frames planned;epidemics;
dependence on key suppliers•inability to obtain equipment and other supplies for our business from our key suppliers on acceptable terms;terms or at all, as a result of supply chain disruptions, insolvency, financial difficulties or other factors;
•increases in our maintenance and replacement costs and/or decreases in the residual value of our equipment;
•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;
•risks related to climate change and climate change regulation;
•risks related to our ability to meet our environmental and social goals, including our greenhouse gas intensity reduction goal;
•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;
•shortfalls in our insurance coverage;
•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 costs of complying with environmental, safety and foreign lawlaws and regulations, as well as other risks associated with non-U.S. operations, including currency exchange risk;risk, and tariffs;
•the outcome or other potential consequences of regulatory matters and commercial litigation;
•labor shortages and/or disputes, work stoppages or other labor difficulties, which may impact our productivity and potential enactment of new legislation or otherincrease our costs, and changes in law affectingthat could affect our labor relations or operations generally; and
increases•the effect of changes in our maintenance and replacement costs and/or decreases in the residual value of our equipment.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, 2016,2022, 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 |
Item 1.Financial Statements
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
| | | | September 30, 2017 | | December 31, 2016 | | March 31, 2023 | | December 31, 2022 |
| | (unaudited) | | | (unaudited) | |
| ASSETS | | | | ASSETS | | | |
| Cash and cash equivalents | $ | 324 |
| | $ | 312 |
| Cash and cash equivalents | $ | 99 | | | $ | 106 | |
| 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 | | Accounts receivable, net | 2,034 | | | 2,004 | |
| Inventory | 82 |
| | 68 |
| Inventory | 222 | | | 232 | |
| Prepaid expenses and other assets | 82 |
| | 61 |
| Prepaid expenses and other assets | 267 | | | 381 | |
| | Total current assets | 1,639 |
| | 1,361 |
| Total current assets | 2,622 | | | 2,723 | |
| Rental equipment, net | 7,391 |
| | 6,189 |
| Rental equipment, net | 13,521 | | | 13,277 | |
| Property and equipment, net | 451 |
| | 430 |
| Property and equipment, net | 801 | | | 839 | |
| Goodwill | 3,493 |
| | 3,260 |
| Goodwill | 5,708 | | | 6,026 | |
| Other intangible assets, net | 759 |
| | 742 |
| Other intangible assets, net | 868 | | | 452 | |
| Operating lease right-of-use assets | | Operating lease right-of-use assets | 1,064 | | | 819 | |
| Other long-term assets | 11 |
| | 6 |
| Other long-term assets | 45 | | | 47 | |
| Total assets | $ | 13,744 |
| | $ | 11,988 |
| Total assets | $ | 24,629 | | | $ | 24,183 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Short-term debt and current maturities of long-term debt | $ | 694 |
| | $ | 597 |
| Short-term debt and current maturities of long-term debt | $ | 156 | | | $ | 161 | |
| Accounts payable | 612 |
| | 243 |
| Accounts payable | 1,117 | | | 1,139 | |
| Accrued expenses and other liabilities | 467 |
| | 344 |
| Accrued expenses and other liabilities | 1,007 | | | 1,145 | |
| Total current liabilities | 1,773 |
| | 1,184 |
| Total current liabilities | 2,280 | | | 2,445 | |
| Long-term debt | 7,677 |
| | 7,193 |
| Long-term debt | 11,492 | | | 11,209 | |
| | Deferred taxes | 2,012 |
| | 1,896 |
| Deferred taxes | 2,703 | | | 2,671 | |
| Operating lease liabilities | | Operating lease liabilities | 857 | | | 642 | |
| Other long-term liabilities | 71 |
| | 67 |
| Other long-term liabilities | 167 | | | 154 | |
| Total liabilities | 11,533 |
| | 10,340 |
| Total liabilities | 17,499 | | | 17,121 | |
| 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, 114,941,392 and 68,934,902 shares issued and outstanding, respectively, at March 31, 2023 and 114,758,508 and 69,356,981 shares issued and outstanding, respectively, at December 31, 2022 | | Common stock—$0.01 par value, 500,000,000 shares authorized, 114,941,392 and 68,934,902 shares issued and outstanding, respectively, at March 31, 2023 and 114,758,508 and 69,356,981 shares issued and outstanding, respectively, at December 31, 2022 | 1 | | | 1 | |
| Additional paid-in capital | 2,322 |
| | 2,288 |
| Additional paid-in capital | 2,598 | | | 2,626 | |
| Retained earnings | 2,108 |
| | 1,654 |
| Retained earnings | 10,003 | | | 9,656 | |
| Treasury stock at cost—27,763,173 shares at September 30, 2017 and December 31, 2016 | (2,077 | ) | | (2,077 | ) | |
| Treasury stock at cost—46,006,490 and 45,401,527 shares at March 31, 2023 and December 31, 2022, respectively | | Treasury stock at cost—46,006,490 and 45,401,527 shares at March 31, 2023 and December 31, 2022, respectively | (5,208) | | | (4,957) | |
| Accumulated other comprehensive loss | (143 | ) | | (218 | ) | Accumulated other comprehensive loss | (264) | | | (264) | |
| Total stockholders’ equity | 2,211 |
| | 1,648 |
| Total stockholders’ equity | 7,130 | | | 7,062 | |
| Total liabilities and stockholders’ equity | $ | 13,744 |
| | $ | 11,988 |
| Total liabilities and stockholders’ equity | $ | 24,629 | | | $ | 24,183 | |
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 |
| | September 30, | | September 30, | | | March 31, |
| | 2017 |
| 2016 | | 2017 | | 2016 | | | 2023 | | 2022 |
| Revenues: | | | | | | | | Revenues: | | | | |
| Equipment rentals | $ | 1,536 |
| | $ | 1,322 |
| | $ | 4,069 |
| | $ | 3,643 |
| Equipment rentals | | $ | 2,740 | | | $ | 2,175 | |
| Sales of rental equipment | 139 |
| | 112 |
| | 378 |
| | 361 |
| Sales of rental equipment | | 388 | | | 211 | |
| Sales of new equipment | 40 |
| | 30 |
| | 126 |
| | 96 |
| Sales of new equipment | | 44 | | | 45 | |
| Contractor supplies sales | 21 |
| | 19 |
| | 60 |
| | 60 |
| Contractor supplies sales | | 34 | | | 29 | |
| Service and other revenues | 30 |
| | 25 |
| | 86 |
| | 79 |
| Service and other revenues | | 79 | | | 64 | |
| Total revenues | 1,766 |
| | 1,508 |
| | 4,719 |
| | 4,239 |
| Total revenues | | 3,285 | | | 2,524 | |
| Cost of revenues: | | | | | | | | Cost of revenues: | | | | |
| Cost of equipment rentals, excluding depreciation | 557 |
| | 486 |
| | 1,556 |
| | 1,391 |
| Cost of equipment rentals, excluding depreciation | | 1,162 | | | 906 | |
| Depreciation of rental equipment | 290 |
| | 250 |
| | 804 |
| | 735 |
| Depreciation of rental equipment | | 575 | | | 435 | |
| Cost of rental equipment sales | 84 |
| | 68 |
| | 225 |
| | 215 |
| Cost of rental equipment sales | | 198 | | | 95 | |
| Cost of new equipment sales | 34 |
| | 25 |
| | 108 |
| | 79 |
| Cost of new equipment sales | | 36 | | | 37 | |
| Cost of contractor supplies sales | 14 |
| | 13 |
| | 42 |
| | 41 |
| Cost of contractor supplies sales | | 24 | | | 20 | |
| Cost of service and other revenues | 14 |
| | 10 |
| | 42 |
| | 32 |
| Cost of service and other revenues | | 49 | | | 39 | |
| Total cost of revenues | 993 |
| | 852 |
| | 2,777 |
| | 2,493 |
| Total cost of revenues | | 2,044 | | | 1,532 | |
| Gross profit | 773 |
| | 656 |
| | 1,942 |
| | 1,746 |
| Gross profit | | 1,241 | | | 992 | |
| Selling, general and administrative expenses | 237 |
| | 179 |
| | 648 |
| | 533 |
| Selling, general and administrative expenses | | 382 | | | 323 | |
| Merger related costs | 16 |
| | — |
| | 32 |
| | — |
| |
| | Restructuring charge | 9 |
| | 4 |
| | 28 |
| | 8 |
| Restructuring charge | | 1 | | | — | |
| Non-rental depreciation and amortization | 63 |
| | 61 |
| | 189 |
| | 192 |
| Non-rental depreciation and amortization | | 118 | | | 97 | |
| Operating income | 448 |
| | 412 |
| | 1,045 |
| | 1,013 |
| Operating income | | 740 | | | 572 | |
| Interest expense, net | 131 |
| | 110 |
| | 338 |
| | 349 |
| Interest expense, net | | 150 | | | 94 | |
| | Other income, net | (5 | ) | | (1 | ) | | (5 | ) | | (3 | ) | Other income, net | | (4) | | | (5) | |
| Income before provision for income taxes | 322 |
| | 303 |
| | 712 |
| | 667 |
| Income before provision for income taxes | | 594 | | | 483 | |
| Provision for income taxes | 123 |
| | 116 |
| | 263 |
| | 254 |
| Provision for income taxes | | 143 | | | 116 | |
| | Net income | $ | 199 |
| | $ | 187 |
| | $ | 449 |
| | $ | 413 |
| Net income | | $ | 451 | | | $ | 367 | |
| | Basic earnings per share | $ | 2.36 |
| | $ | 2.18 |
| | $ | 5.31 |
| | $ | 4.68 |
| Basic earnings per share | | $ | 6.50 | | | $ | 5.07 | |
| | Diluted earnings per share | $ | 2.33 |
| | $ | 2.16 |
| | $ | 5.26 |
| | $ | 4.66 |
| Diluted earnings per share | | $ | 6.47 | | | $ | 5.05 | |
See accompanying notes.
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In millions)
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | | March 31, |
| | | | | | 2023 | | 2022 |
| Net income | | | | | $ | 451 | | | $ | 367 | |
| Other comprehensive (loss) income, net of tax: | | | | | | | |
| Foreign currency translation adjustments (1) | | | | | 1 | | | 17 | |
| Fixed price diesel swaps | | | | | (1) | | | 3 | |
| Other comprehensive (loss) income (1) | | | | | — | | | 20 | |
| Comprehensive income | | | | | $ | 451 | | | $ | 387 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Net income | $ | 199 |
|
| $ | 187 |
| | $ | 449 |
| | $ | 413 |
|
| Other comprehensive income (loss), net of tax: | | | | | | | |
| Foreign currency translation adjustments | 41 |
|
| (9 | ) | | 75 |
| | 51 |
|
| Fixed price diesel swaps | 1 |
|
| — |
| | — |
| | 3 |
|
| Other comprehensive income (loss) | 42 |
| | (9 | ) | | 75 |
| | 54 |
|
| Comprehensive income (1) | $ | 241 |
| | $ | 178 |
| | $ | 524 |
| | $ | 467 |
|
(1)There were no material reclassifications from accumulated other comprehensive loss reflected in other comprehensive income (loss) during 20172023 or 2016. There is2022. There was no material tax impact related to the foreign currency translation adjustments, asadjustments. In 2021, we remitted the cumulative amount of identified cash in our foreign operations in excess of near-term working capital needs. We continue to expect that the remaining balance of our undistributed foreign earnings will be indefinitely reinvested. If we determine that all or a portion of such foreign earnings are considered permanently reinvested.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 20172023 or 2016.2022.
See accompanying notes.
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
| | 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, 2022 | 69 | | | $ | 1 | | | $ | 2,626 | | | $ | 9,656 | | | 45 | | | $ | (4,957) | | | $ | (264) | |
| Net income | | | | | | | 451 | | | | | | | |
| Dividends declared (3) | | | | | | | (104) | | | | | | | |
| Foreign currency translation adjustments | | | | | | | | | | | | | 1 | |
| Fixed price diesel swaps | | | | | | | | | | | | | (1) | |
| | | | | | | | | | | | | |
| Stock compensation expense, net | 1 | | | | | 24 | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Tax withholding for share based compensation | — | | | | | (52) | | | | | | | | | |
| Repurchase of common stock | (1) | | | | | | | | | 1 | | | (251) | | | |
| | | | | | | | | | | | | |
| Balance at March 31, 2023 | 69 | | | $ | 1 | | | $ | 2,598 | | | $ | 10,003 | | | 46 | | | $ | (5,208) | | | $ | (264) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| | 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, 2021 | 72 | | | $ | 1 | | | $ | 2,567 | | | $ | 7,551 | | | 42 | | | $ | (3,957) | | | $ | (171) | |
| Net income | | | | | | | 367 | | | | | | | |
| Foreign currency translation adjustments | | | | | | | | | | | | | 17 | |
| Fixed price diesel swaps | | | | | | | | | | | | | 3 | |
| | | | | | | | | | | | | |
| Stock compensation expense, net | 1 | | | | | 24 | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Tax withholding for share based compensation | — | | | | | (56) | | | | | | | | | |
| Repurchase of common stock | (1) | | | | | | | | | 1 | | | (262) | | | |
| | | | | | | | | | | | | |
| Balance at March 31, 2022 | 72 | | | $ | 1 | | | $ | 2,535 | | | $ | 7,918 | | | 43 | | | $ | (4,219) | | | $ | (151) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | | | | | Treasury Stock | | |
| | Number of Shares (1) | | Amount | | Additional Paid-in Capital | | Retained Earnings | | Number of Shares | | Amount | | Accumulated Other Comprehensive (Loss) Income (2) |
| Balance at December 31, 2016 | 84 |
| | $ | 1 |
| | $ | 2,288 |
| | $ | 1,654 |
| | 28 |
| | $ | (2,077 | ) | | $ | (218 | ) |
| Net income | | | | | | | 449 |
| | | | | | |
| Foreign currency translation adjustments | | | | | | | | | | | | | 75 |
|
| Cumulative effect of a change in accounting for share-based payments (note 1) | | | | | | | 5 |
| | | | | | |
| Stock compensation expense, net | 1 |
| | | | 64 |
| | | | | | | | |
| Exercise of common stock options | | | | | 1 |
| | | | | | | | |
| Shares repurchased and retired | | | | | (26 | ) | | | | | | | | |
| Other | | | | | (5 | ) | | | | | | | | |
| Balance at September 30, 2017 | 85 |
| | $ | 1 |
| | $ | 2,322 |
| | $ | 2,108 |
| | 28 |
| | $ | (2,077 | ) | | $ | (143 | ) |
(1)Common stock outstanding decreased by approximately 8three million net shares during the year ended December 31, 2016.2022.
(2)The Accumulated Other Comprehensive Loss balance primarily reflects foreign currency translation adjustments.
(3)In January 2023, our Board of Directors approved our first-ever quarterly dividend program (accordingly, there were no dividends declared during 2022). We declared dividends of $1.48 per share during the three months ended March 31, 2023.
See accompanying notes.
UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | | Nine Months Ended | | Three Months Ended |
| | September 30, | | March 31, |
| | 2017 | | 2016 | | 2023 | | 2022 |
| Cash Flows From Operating Activities: | | | | Cash Flows From Operating Activities: | | | |
| Net income | $ | 449 |
| | $ | 413 |
| Net income | $ | 451 | | | $ | 367 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | Adjustments to reconcile net income to net cash provided by operating activities: | |
| Depreciation and amortization | 993 |
| | 927 |
| Depreciation and amortization | 693 | | | 532 | |
| Amortization of deferred financing costs and original issue discounts | 6 |
| | 7 |
| Amortization of deferred financing costs and original issue discounts | 4 | | | 3 | |
| Gain on sales of rental equipment | (153 | ) | | (146 | ) | Gain on sales of rental equipment | (190) | | | (116) | |
| Gain on sales of non-rental equipment | (4 | ) | | (3 | ) | Gain on sales of non-rental equipment | (4) | | | (2) | |
| Insurance proceeds from damaged equipment | | Insurance proceeds from damaged equipment | (9) | | | (7) | |
| Stock compensation expense, net | 64 |
| | 33 |
| Stock compensation expense, net | 24 | | | 24 | |
| Merger related costs | 32 |
| | — |
| |
| | Restructuring charge | 28 |
| | 8 |
| Restructuring charge | 1 | | | — | |
| Loss on repurchase/redemption of debt securities and amendment of ABL facility | 43 |
| | 36 |
| |
| Excess tax benefits from share-based payment arrangements | — |
| | (53 | ) | |
| | Increase in deferred taxes | 97 |
| | 90 |
| Increase in deferred taxes | 35 | | | 37 | |
| Changes in operating assets and liabilities, net of amounts acquired: | | | | Changes in operating assets and liabilities, net of amounts acquired: | |
| (Increase) decrease in accounts receivable | (172 | ) | | 7 |
| (Increase) decrease in accounts receivable | (13) | | | 76 | |
| Increase in inventory | (9 | ) | | (3 | ) | Increase in inventory | (2) | | | (13) | |
| (Increase) decrease in prepaid expenses and other assets | (1 | ) | | 75 |
| |
| Increase in accounts payable | 350 |
| | 137 |
| |
| Increase in accrued expenses and other liabilities | 43 |
| | 102 |
| |
| Decrease in prepaid expenses and other assets | | Decrease in prepaid expenses and other assets | 125 | | | 61 | |
| (Decrease) increase in accounts payable | | (Decrease) increase in accounts payable | (25) | | | 10 | |
| Decrease in accrued expenses and other liabilities | | Decrease in accrued expenses and other liabilities | (151) | | | (86) | |
| Net cash provided by operating activities | 1,766 |
| | 1,630 |
| Net cash provided by operating activities | 939 | | | 886 | |
| Cash Flows From Investing Activities: | | | | Cash Flows From Investing Activities: | |
| Purchases of rental equipment | (1,485 | ) | | (1,145 | ) | Purchases of rental equipment | (797) | | | (482) | |
| Purchases of non-rental equipment | (87 | ) | | (65 | ) | |
| Purchases of non-rental equipment and intangible assets | | Purchases of non-rental equipment and intangible assets | (73) | | | (55) | |
| Proceeds from sales of rental equipment | 378 |
| | 361 |
| Proceeds from sales of rental equipment | 388 | | | 211 | |
| Proceeds from sales of non-rental equipment | 10 |
| | 12 |
| Proceeds from sales of non-rental equipment | 12 | | | 5 | |
| Insurance proceeds from damaged equipment | | Insurance proceeds from damaged equipment | 9 | | | 7 | |
| Purchases of other companies, net of cash acquired | (1,063 | ) | | (28 | ) | Purchases of other companies, net of cash acquired | (299) | | | (77) | |
| Purchases of investments | (5 | ) | | — |
| Purchases of investments | — | | | (3) | |
| Net cash used in investing activities | (2,252 | ) | | (865 | ) | Net cash used in investing activities | (760) | | | (394) | |
| Cash Flows From Financing Activities: | | | | Cash Flows From Financing Activities: | |
| Proceeds from debt | 8,702 |
| | 5,812 |
| Proceeds from debt | 2,330 | | | 1,155 | |
| Payments of debt | (8,156 | ) | | (6,021 | ) | Payments of debt | (2,110) | | | (1,372) | |
| Proceeds from the exercise of common stock options | 1 |
| | — |
| |
| Common stock repurchased | (26 | ) | | (488 | ) | |
| Payments of financing costs | (44 | ) | | (12 | ) | |
| Excess tax benefits from share-based payment arrangements | — |
| | 53 |
| |
| Net cash provided by (used in) financing activities | 477 |
| | (656 | ) | |
| | Common stock repurchased, including tax withholdings for share based compensation | | Common stock repurchased, including tax withholdings for share based compensation | (303) | | | (318) | |
| | Dividends paid | | Dividends paid | (103) | | | — | |
| Net cash used in financing activities | | Net cash used in financing activities | (186) | | | (535) | |
| Effect of foreign exchange rates | 21 |
| | 9 |
| Effect of foreign exchange rates | — | | | — | |
| Net increase in cash and cash equivalents | 12 |
| | 118 |
| |
| Net decrease in cash and cash equivalents | | Net decrease in cash and cash equivalents | (7) | | | (43) | |
| Cash and cash equivalents at beginning of period | 312 |
| | 179 |
| Cash and cash equivalents at beginning of period | 106 | | | 144 | |
| Cash and cash equivalents at end of period | $ | 324 |
| | $ | 297 |
| Cash and cash equivalents at end of period | $ | 99 | | | $ | 101 | |
| Supplemental disclosure of cash flow information: | | | | Supplemental disclosure of cash flow information: | | | |
| Cash paid for income taxes, net | $ | 114 |
| | $ | 14 |
| Cash paid for income taxes, net | $ | 29 | | | $ | 10 | |
| Cash paid for interest | 305 |
| | 294 |
| Cash paid for interest | 178 | | | 149 | |
See accompanying notes.
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share data, unless otherwise indicated)
1.
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 entitiesentities. We primarily operate in the United States and Canada.Canada, and have a limited presence in Europe, Australia and New Zealand. 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, 20162022 (the “2016“2022 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 20162022 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 Financial2. Revenue Recognition
Revenue Recognition 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 (which addresses revenue from contracts with customers) and 2) Topic 840.842 (which addresses lease revenue). 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 discussed above, we expect to adopt Topic 842, an update to Topic 840, when it becomes effective, on January 1, 2019. While our reviewreflected below, most 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, we842. Our contracts with customers generally do not believe that Topic 606 will haveinclude multiple performance obligations. We recognize revenue when we satisfy a significant impact on our financial statements.
We are also evaluatingperformance obligation by transferring control over a product or service to a customer. The amount of revenue recognized reflects 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. Wewe expect to adopt this guidance when effective,be entitled to in exchange for such products or services.
Nature of goods 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 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, and the impact on our financial statements is not currently estimable.
Intra-Entity Transfers of Assets Other Than Inventory. In October 2016, 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. We expect to adopt this guidance when effective, and do not expect the guidance to have a significant impact on our financial statements.
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), the guidance is not expected to have a significant impact on our financial statements.
Guidance Adopted in 2017
Improvements to Employee Share-Based Payment Accounting. In the first quarter of 2017, we adopted guidance that simplified several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. We prospectively adopted the amendments in this guidance that relate 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 deductions in excess of the amounts reported for financial reporting purposes. In the nine months ended September 30, 2017, we recognized $8 of such excess tax benefits, and, pursuant to the adopted guidance, net income increased by $8, or $0.10 per diluted share, reflecting the tax reduction associated with the excess tax benefits. Prior periods have not been adjusted to reflect the new guidance related to the classification of the excess tax benefits, as we have elected to prospectively adopt such guidance. Accordingly, our statement of cash flows for the nine months ended September 30, 2016 reflects $53 of such excess tax benefits within net cash used in financing activities. All of the excess tax benefits for 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 components 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 aspects of the guidance require 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.
services
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
In the following table, revenue is summarized by type and by the applicable accounting standard. 2. Acquisitions | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| | | 2023 | | | | | | 2022 | | | |
| Topic 842 | | Topic 606 | | Total | | Topic 842 | | Topic 606 | | Total | |
| Revenues: | | | | | | | | | | | | |
| Owned equipment rentals | $ | 2,266 | | | $ | — | | | $ | 2,266 | | | $ | 1,797 | | | $ | — | | | $ | 1,797 | | |
| Re-rent revenue | 52 | | — | | 52 | | 49 | | — | | 49 | |
| Ancillary and other rental revenues: | | | | | | | | | | | | |
| Delivery and pick-up | — | | 203 | | 203 | | — | | 157 | | 157 | |
| Other | 165 | | 54 | | 219 | | 124 | | 48 | | 172 | |
| Total ancillary and other rental revenues | 165 | | | 257 | | | 422 | | | 124 | | | 205 | | | 329 | | |
| Total equipment rentals | 2,483 | | | 257 | | | 2,740 | | | 1,970 | | | 205 | | | 2,175 | | |
| Sales of rental equipment | — | | 388 | | 388 | | — | | 211 | | 211 | |
| Sales of new equipment | — | | 44 | | 44 | | — | | 45 | | 45 | |
| Contractor supplies sales | — | | 34 | | 34 | | — | | 29 | | 29 | |
| Service and other revenues | — | | 79 | | 79 | | — | | 64 | | 64 | |
| Total revenues | $ | 2,483 | | | $ | 802 | | | $ | 3,285 | | | $ | 1,970 | | | $ | 554 | | | $ | 2,524 | | |
NES Acquisition
In April 2017, we completed the acquisitionRevenues by reportable segment are presented in note 4 of NES Rentals Holdings II, Inc. (“NES”). NES was a provider of rental equipment with 73 branches located throughout the eastern half of the U.S., 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:
•Increase 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.
The aggregate consideration paid to holders of NES common stock and options was approximately $960. 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 onusing the debt issuances.
revenue captions reflected in our condensed consolidated statements of operations. The following table summarizes the estimated fair valuesmajority of the assets acquired and liabilities assumed as of the acquisition date. The opening balance sheet values assigned to 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 |
|
| Inventory | 4 |
|
| Rental equipment | 571 |
|
| Property and equipment | 48 |
|
| Intangibles (2) | 139 |
|
| Other assets | 7 |
|
| Total identifiable assets acquired | 818 |
|
| Short-term debt and current maturities of long-term debt (3) | (3 | ) |
| Current liabilities | (28 | ) |
| Deferred taxes | (14 | ) |
| Long-term debt (3) | (11 | ) |
| Other long-term liabilities | (5 | ) |
| Total liabilities assumed | (61 | ) |
| Net identifiable assets acquired | 757 |
|
| Goodwill (4) | 203 |
|
| Net assets acquired | $ | 960 |
|
(1) The fair value of accounts receivables acquired was $49, and the gross contractual amount was $53. We estimated that $4 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: |
| | | | |
| | Fair value | Life (years) |
| Customer relationships | $ | 138 |
| 10 |
| Non-compete agreements | 1 |
| 1 |
| Total | $ | 139 |
| |
(3) The acquired debt reflects capital lease obligations.
(4) All of the goodwill was assigned torevenue is recognized in our general rentals segment. segment and in the U.S. (for the three months ended March 31, 2023, 75 percent and 91 percent, 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 disclosures in note 4, depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.
Lease revenues (Topic 842)
The levelaccounting for the types of goodwillrevenue that resultedare accounted for under Topic 842 is discussed below.
Owned equipment rentals represent our most significant revenue type (they accounted for 69 percent of total revenues for the three months ended March 31, 2023) 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 own. We do not generally provide an option for the acquisitionlessee 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 particular 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 primarily reflectivecalculated by dividing the monthly rate of NES's going-concern value,$900 by the valuemonthly term of NES's assembled workforce, new28 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).
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
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 and Topic 606) of $129 and $131 as of March 31, 2023 and December 31, 2022, 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 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, 3) charges for rented equipment that is damaged by our customers and 4) charges for setup and other services performed on rented equipment.
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 probable.
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.
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
Receivables and contract assets and liabilities
As reflected above, most of our equipment rental revenue is accounted for under Topic 842 (such revenue represented 76 percent of our total revenues for the three months ended March 31, 2023). 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 allowance for credit losses address receivables arising from revenues from both Topic 606 and Topic 842.
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 three months ended March 31, 2023, and for each of the last three full years. Our customer with the largest receivable balance represented approximately one percent of total receivables at March 31, 2023 and December 31, 2022. We manage credit risk through credit approvals, credit limits and other monitoring procedures.
Our allowance for credit losses reflects our estimate of the amount of our receivables that we will be unable to collect based on historical write-off experience and, as applicable, current conditions and reasonable and supportable forecasts that affect collectibility. Our estimate could require change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase or decrease our allowance. Trade receivables that have contractual maturities of one year or less are written-off when they are determined to be uncollectible based on the criteria necessary to qualify as a deduction for federal tax purposes. Write-offs of such receivables require management approval based on specified dollar thresholds. See the table below for a rollforward of our allowance for credit losses.
The measurement of expected credit losses is based on relevant information from past events, including historical experiences, current conditions and reasonable and supportable forecasts that affect collectibility. Trade receivables are the only material financial asset we have that is subject to the requirement to measure expected credit losses as noted above, as this requirement does not apply to receivables arising from operating lease revenues. Substantially all of our non-lease trade receivables are due in one year or less. As discussed above, most of our equipment rental revenue is accounted for as lease revenue (such revenue represented 76 percent of our total revenues for the three months ended March 31, 2023, and these revenues account for corresponding portions of the $2.034 billion of net accounts receivable and the associated allowance for credit losses of $146 as of March 31, 2023).
As discussed above, most of our equipment rental revenue is accounted for under Topic 842. 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. The rollforward of our allowance for credit losses (in total, and associated with revenues arising from both Topic 606 and Topic 842) is shown below.
| | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2022 |
| Beginning balance | | | | | $ | 134 | | | $ | 112 | |
| | | | | | | |
| Charged to costs and expenses (1) | | | | | 3 | | | 1 | |
| Charged to revenue (2) | | | | | 13 | | | 8 | |
| Deductions and other (3) | | | | | (4) | | | (5) | |
| Ending balance | | | | | $ | 146 | | | $ | 116 | |
_________________
(1) Reflects bad debt expenses recognized within selling, general and administrative expenses (associated with Topic 606 revenues).
(2) Primarily reflects credit losses associated with lease revenues that were recognized as a reduction to equipment rentals revenue (primarily associated with Topic 842 revenues).
(3) Primarily represents write-offs of accounts, net of immaterial recoveries and other activity.
We do 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 material amounts billed to
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
customers in excess of recognizable revenue. We did not recognize material revenue during the three months ended March 31, 2023 or 2022 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 of such revenue recognized during the three months ended March 31, 2023 and 2022 were not material. We also do not expect to recognize material revenue in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of March 31, 2023.
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 require payment before the products or services are delivered to the 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 of taxes collected from customers, which are subsequently remitted to governmental authorities.
Contract costs
We do not recognize any assets associated with the incremental costs of obtaining a contract with a customer (for example, a sales commission) that we expect to recover. Most of our revenue is recognized at a point-in-time or over a period of one year or less, and we use the practical expedient that allows us to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized 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 following reasons:
•The transaction price is generally fixed and stated in our contracts;
•As noted above, our contracts generally do not include multiple performance obligations, and accordingly do not generally require estimates of the standalone 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 timing of the satisfaction of the applicable 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.
Our revenues accounted for under Topic 842 also generally do not require significant estimates or judgments. We monitor and review our estimated standalone selling prices on a regular basis.
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
3. Acquisitions
On December 7, 2022, we completed the acquisition of assets of Ahern Rentals, Inc. ("Ahern Rentals"), which was accounted for as a business combination. Ahern Rentals was the eighth largest equipment rental company in North America and served customers primarily in the construction and industrial sectors across 30 states. The acquisition:
• Increased capacity in key geographies, with concentrations on both U.S. coasts and in the Gulf region;
• Increased availability of high-demand aerial and material handling equipment for our customers; and
• Created immediate cross-sell opportunities to an expanded customer base.
The aggregate consideration paid to acquire Ahern Rentals was $2.012 billion. The acquisition and related fees and expenses were funded through the issuance of $1.5 billion principal amount of 6 percent Senior Secured Notes and drawings on our senior secured asset-based revolving credit facility (“ABL facility”).
The table below summarizes the fair values of the assets acquired and liabilities assumed. The initial accounting for the acquisition is incomplete, principally related to finalizing 1) the measurement of the acquired net working capital, 2) the valuation of the acquired rental equipment (inclusive of the completion of our usual and customary procedures to validate the existence of the acquired rental fleet) and intangible assets and 3) the associated income tax considerations. All amounts below could change, potentially materially, as there is significant additional information that we must obtain to finalize the valuations of the assets acquired and liabilities assumed, primarily because of the proximity of the acquisition date to the balance sheet date of March 31, 2023. During the three months ended March 31, 2023, we recognized measurement period adjustments primarily to establish preliminary values for intangibles assets and lease assets and liabilities. These adjustments resulted in a substantial reduction to goodwill versus the previously reported amount (see note 6 to the condensed consolidated financial statements for further discussion of goodwill changes). Non-rental depreciation and amortization for the three months ended March 31, 2023 includes $8 of intangible asset amortization that would have been recognized in 2022 if the intangible asset values had been preliminarily established as of December 31, 2022.
| | | | | |
| |
| |
| Inventory | $ | 30 | |
| |
| Rental equipment | 1,290 | |
| Property and equipment | 187 | |
| Intangibles (1) | 450 | |
| Operating lease right-of-use assets | 211 | |
| Other assets | 9 | |
| Total identifiable assets acquired | 2,177 | |
| |
| Accounts payable, accrued expenses and other liabilities | (33) | |
| |
| Operating lease liabilities | (199) | |
| Debt (finance leases) | (38) | |
| Total liabilities assumed | (270) | |
| Net identifiable assets acquired | 1,907 | |
| Goodwill (2) | 105 | |
| Net assets acquired | $ | 2,012 | |
(1)The following table reflects the fair values and useful lives of the acquired intangible assets identified based on our preliminary purchase accounting assessments: | | | | | | | | |
| | |
| Fair value | Life (years) |
| Customer relationships | $ | 260 | | 9 |
| | |
| Non-compete agreements | 190 | | 5 |
| Total | $ | 450 | | |
(2)All of the goodwill was assigned to our general rentals segment. As noted above, we have not yet obtained all the information required to finalize the valuations of the assets acquired and liabilities assumed. As such, goodwill could change from the amount noted above. Once finalized, we expect that the goodwill that results from the acquisition will be primarily reflective of Ahern Rentals' going-concern value, the value of Ahern Rentals' assembled workforce and 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 would not be available to other market participants. $1acquisition. All of the goodwill is expected to be deductible for income tax purposes.purposes (because the acquisition is a purchase of assets, the goodwill that is deductible for income tax purposes equals the total acquired goodwill. As noted above, goodwill could change from the amount above).
The three and nine months ended September 30, 2017 include NES 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 partially 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 toAdditionally, in the condensed consolidated financial statements forfirst quarter of 2023, we initiated a restructuring program following the closing of the Ahern Rentals acquisition. For additional detailinformation on the debt issuances.restructuring charges, which generally involve the closure of a large number of branches over a short period of time, often in periods following a major acquisition, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations-Other costs/(income)-restructuring charges" below.
Since the acquisition date, significant amounts of fleet have been moved between URI locations and the acquired NES locations, and itIt is not practicable to reasonably estimate the amounts of revenue and earnings of NESAhern Rentals since the acquisition date. The impactdate, primarily due to the movement of fleet between URI locations and the NES acquisition onacquired Ahern Rentals locations, as well as our equipment rentals revenue is primarily reflected incorporate structure and the increases in the volumeallocation of OEC on rent of 18.2 percent and 14.5 percent for the three and nine months ended September 30, 2017, respectively.corporate costs.
Pro forma financial information
The pro forma information below gives effect to the NESAhern Rentals acquisition as if it had been completed on January 1, 2016 (“the pro forma acquisition date”).2021. The pro forma information is not necessarily indicative of our results of operations had the acquisition been completed on the above date, nor is it necessarily indicative of our future results. The pro forma information reflects Ahern Rentals’ historic revenue presented in accordance with our revenue mapping, does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisition, and also does not reflect additional revenue opportunities following the acquisition. The pro forma information includes adjustments to record the acquired assets and liabilities of NESAhern Rentals at their respective fair values based on available information and to give effect to the financing for the acquisition and related transactions.acquisition. The pro forma adjustments reflected in the table below are subject to change as additional analysis is performed. The opening balance sheet values assigned topurchase price allocations for the 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 table below presents unaudited pro forma consolidated income statement information as if NESAhern Rentals had been included in our consolidated results for the entire periodsperiod 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 |
| | | | | March 31, |
| | | | | | | 2022 |
| United Rentals historic revenues | | | | | | | $ | 2,524 | |
| Ahern Rentals historic revenues | | | | | | | 203 | |
| Pro forma revenues | | | | | | | 2,727 | |
| United Rentals historic pretax income | | | | | | | 483 | |
| Ahern Rentals historic pretax (loss) income | | | | | | | (9) | |
| Combined pretax income | | | | | | | 474 | |
| Pro forma adjustments to combined pretax income: | | | | | | | |
| Impact of fair value mark-ups/useful life changes on depreciation (1) | | | | | | | (25) | |
| Impact of the fair value mark-up of acquired fleet on cost of rental equipment sales (2) | | | | | | | (10) | |
| Intangible asset amortization (3) | | | | | | | (21) | |
| | | | | | | |
| Interest expense (4) | | | | | | | (25) | |
| Elimination of historic interest (5) | | | | | | | 13 | |
| | | | | | | |
| Elimination of historic legal and financing costs (6) | | | | | | | 2 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Pro forma pretax income | | | | | | | $ | 408 | |
________________
(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 NESAhern Rentals acquisition. The useful lives assigned to such equipment did not change significantly from the lives historically used by NES.
(2) Cost of rental equipment sales was adjusted for the fair value mark-ups, and the changes in useful lives and salvage values, of rental equipment acquired in the NESAhern Rentals acquisition.
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 gainIntangible asset amortization was eliminated as the equity interest that was sold is not a componentadjusted to include amortization of the combined company.acquired intangible assets.
(4) To partially fundAs discussed above, the NES acquisition URNA issued an aggregateand related fees and expenses were funded through the issuance of $500 principal amount of debt, as discussed in note 8 to the condensed consolidated financial statements. Drawingssenior notes and drawings on theour ABL facility were also used to partially fund the purchase price.facility. Interest expense was adjusted to reflect these changes in ourinterest on the debt portfolio.used to finance the acquisition.
(5) NES historicHistoric interest on debt that is not part of the combined entity was eliminated.
(6) Merger relatedReflects legal and financing costs comprised of financial and legal advisory fees associated with the NES acquisition were eliminated as they were assumed to have been recognized priorincurred by Ahern Rentals that do not relate to the pro forma acquisition date. The mergercombined entity (specifically, legal costs related to a particular lawsuit and costs reflectedrelated to an attempted financing).
During 2023 and 2022, we completed other acquisitions that were not significant individually or in ourthe aggregate. See the condensed consolidated statements of income also include costs associated with the acquisition of Neff Corporation (“Neff”) discussed below.
(7) 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,cash flows 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 statementstotal cash outflow for purchases 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 significant additional restructuring charges associated with the acquisition. The 2016 restructuring charges above reflect the total charges recorded asother companies, net of September 30, 2017 recognized on a straight-line basis from the pro forma acquisition date through September 30, 2016.cash acquired.
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)
3.4. Segment Information
Our reportable segments are i) general rentals and ii) trench, powerspecialty. For general rentals, the divisions discussed below, which are our operating segments, are aggregated into the reportable segment. The specialty segment is a single division that is both an operating segment and pump. a reportable segment. We believe that the divisions that are aggregated into our reportable segments have similar economic characteristics, as each division 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 divisions also reflects the management structure that we use for making operating decisions and assessing performance. We evaluate segment performance primarily based on segment equipment rentals gross profit.
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 tenfour geographic regions—Gulf South, Industrial (which serves the geographic Gulf region and has a strong industrial presence), Mid-Atlantic, Mid-Central, Midwest,divisions—Central, Northeast, Pacific West, South, Southeast and Western Canada—West—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, powerspecialty segment, which, as noted above, is a single division that is both an operating segment and pumpa reportable 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,treatment, and agribusiness customers.iv) mobile storage equipment and modular office space. The trench, power and pump segment is comprised of the following regions, each of which primarily rents the corresponding equipment type described above: (i) the Trench Safety region, (ii) the Power and HVAC region, and (iii) the Pump Solutions region. The trench, power and pumpspecialty segment’s customers include construction companies involved in infrastructure projects, municipalities and industrial companies. This segment primarily operates throughoutin the United States and Canada, and has a limited presence in Canada.
These segments align our external segment reporting with how management evaluatesEurope, Australia and allocates resources. We evaluate segment performance based on segment equipment rentals gross profit.New Zealand.
The following tables set forth financial information by segment. | | | | | | | | | | | | | | | | | |
| General
rentals | | Specialty | | Total |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Three Months Ended March 31, 2023 | | | | | |
| Equipment rentals | $ | 2,018 | | | $ | 722 | | | $ | 2,740 | |
| Sales of rental equipment | 350 | | | 38 | | | 388 | |
| Sales of new equipment | 18 | | | 26 | | | 44 | |
| Contractor supplies sales | 21 | | | 13 | | | 34 | |
| Service and other revenues | 72 | | | 7 | | | 79 | |
| Total revenue | 2,479 | | | 806 | | | 3,285 | |
| Depreciation and amortization expense | 577 | | | 116 | | | 693 | |
| Equipment rentals gross profit | 663 | | | 340 | | | 1,003 | |
| Capital expenditures | 683 | | | 187 | | | 870 | |
| Three Months Ended March 31, 2022 | | | | | |
| Equipment rentals | $ | 1,593 | | | $ | 582 | | | $ | 2,175 | |
| Sales of rental equipment | 184 | | | 27 | | | 211 | |
| Sales of new equipment | 29 | | | 16 | | | 45 | |
| Contractor supplies sales | 18 | | | 11 | | | 29 | |
| Service and other revenues | 58 | | | 6 | | | 64 | |
| Total revenue | 1,882 | | | 642 | | | 2,524 | |
| Depreciation and amortization expense | 422 | | | 110 | | | 532 | |
| Equipment rentals gross profit | 575 | | | 259 | | | 834 | |
| Capital expenditures | 394 | | | 143 | | | 537 | |
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 |
| Three Months Ended September 30, 2017 | | | | | |
| Equipment rentals | $ | 1,237 |
| | $ | 299 |
| | $ | 1,536 |
|
| Sales of rental equipment | 130 |
| | 9 |
| | 139 |
|
| Sales of new equipment | 34 |
| | 6 |
| | 40 |
|
| Contractor supplies sales | 17 |
| | 4 |
| | 21 |
|
| Service and other revenues | 26 |
| | 4 |
| | 30 |
|
| Total revenue | 1,444 |
| | 322 |
| | 1,766 |
|
| Depreciation and amortization expense | 306 |
| | 47 |
| | 353 |
|
| Equipment rentals gross profit | 525 |
| | 164 |
| | 689 |
|
| Three Months Ended September 30, 2016 | | | | | |
| Equipment rentals | $ | 1,097 |
| | $ | 225 |
| | $ | 1,322 |
|
| Sales of rental equipment | 103 |
| | 9 |
| | 112 |
|
| Sales of new equipment | 27 |
| | 3 |
| | 30 |
|
| Contractor supplies sales | 16 |
| | 3 |
| | 19 |
|
| Service and other revenues | 23 |
| | 2 |
| | 25 |
|
| Total revenue | 1,266 |
| | 242 |
| | 1,508 |
|
| Depreciation and amortization expense | 266 |
| | 45 |
| | 311 |
|
| Equipment rentals gross profit | 469 |
| | 117 |
| | 586 |
|
| Nine Months Ended September 30, 2017 | | | | | |
| Equipment rentals | $ | 3,357 |
| | $ | 712 |
| | $ | 4,069 |
|
| Sales of rental equipment | 348 |
| | 30 |
| | 378 |
|
| Sales of new equipment | 112 |
| | 14 |
| | 126 |
|
| Contractor supplies sales | 49 |
| | 11 |
| | 60 |
|
| Service and other revenues | 76 |
| | 10 |
| | 86 |
|
| Total revenue | 3,942 |
| | 777 |
| | 4,719 |
|
| Depreciation and amortization expense | 855 |
| | 138 |
| | 993 |
|
| Equipment rentals gross profit | 1,350 |
| | 359 |
| | 1,709 |
|
| Capital expenditures | 1,404 |
| | 168 |
| | 1,572 |
|
| Nine Months Ended September 30, 2016 | | | | | |
| Equipment rentals | $ | 3,067 |
| | $ | 576 |
| | $ | 3,643 |
|
| Sales of rental equipment | 334 |
| | 27 |
| | 361 |
|
| Sales of new equipment | 84 |
| | 12 |
| | 96 |
|
| Contractor supplies sales | 49 |
| | 11 |
| | 60 |
|
| Service and other revenues | 71 |
| | 8 |
| | 79 |
|
| Total revenue | 3,605 |
| | 634 |
| | 4,239 |
|
| Depreciation and amortization expense | 791 |
| | 136 |
| | 927 |
|
| Equipment rentals gross profit | 1,243 |
| | 274 |
| | 1,517 |
|
| Capital expenditures | 1,086 |
| | 124 |
| | 1,210 |
|
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
| | | | September 30,
2017 | | December 31,
2016 | | March 31,
2023 | | December 31,
2022 |
| Total reportable segment assets | | | | Total reportable segment assets | | | |
| General rentals | $ | 12,118 |
| | $ | 10,496 |
| General rentals | $ | 19,944 | | | $ | 19,604 | |
| Trench, power and pump | 1,626 |
| | 1,492 |
| |
| Specialty | | Specialty | 4,685 | | | 4,579 | |
| Total assets | $ | 13,744 |
| | $ | 11,988 |
| Total assets | $ | 24,629 | | | $ | 24,183 | |
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 |
| Nine Months Ended | | | Three Months Ended |
| | September 30, |
| September 30, | | | March 31, |
| | 2017 |
| 2016 |
| 2017 |
| 2016 | | | 2023 | | 2022 |
| Total equipment rentals gross profit | $ | 689 |
| | $ | 586 |
| | $ | 1,709 |
| | $ | 1,517 |
| Total equipment rentals gross profit | | $ | 1,003 | | | $ | 834 | |
| Gross profit from other lines of business | 84 |
| | 70 |
| | 233 |
| | 229 |
| Gross profit from other lines of business | | 238 | | | 158 | |
| Selling, general and administrative expenses | (237 | ) | | (179 | ) | | (648 | ) | | (533 | ) | Selling, general and administrative expenses | | (382) | | | (323) | |
| Merger related costs | (16 | ) | | — |
| | (32 | ) |
| — |
| |
| Restructuring charge | (9 | ) | | (4 | ) | | (28 | ) | | (8 | ) | |
| | Restructuring charge (1) | | Restructuring charge (1) | | (1) | | | — | |
| Non-rental depreciation and amortization | (63 | ) | | (61 | ) | | (189 | ) | | (192 | ) | Non-rental depreciation and amortization | | (118) | | | (97) | |
| Interest expense, net | (131 | ) | | (110 | ) | | (338 | ) | | (349 | ) | Interest expense, net | | (150) | | | (94) | |
| | Other income, net | 5 |
| | 1 |
| | 5 |
| | 3 |
| Other income, net | | 4 | | | 5 | |
| Income before provision for income taxes | $ | 322 |
| | $ | 303 |
|
| $ | 712 |
|
| $ | 667 |
| Income before provision for income taxes | | $ | 594 | | | $ | 483 | |
4. Restructuring Charges
Restructuring Charges
Restructuring charges primarily include(1)Primarily reflects severance costs associated with headcount reductions, as well as branch closure charges which principally relate to continuing lease obligations at vacant facilities. We incur severance costs and branch closure charges inassociated with our restructuring programs. For additional information on the ordinary course of our business. We only include such costs that are partrestructuring charges, which generally involve the closure of a restructuring program as restructuring charges. Since the first such restructuring program was initiatedlarge number of branches over a short period of time, often in 2008, we have completed three restructuring programsperiods following a major acquisition, see "Management’s Discussion and have incurred total restructuring chargesAnalysis of $262.
Closed Restructuring Programs
We have three closed restructuring programs. The first was initiated in 2008 in recognitionFinancial Condition and Results of a challenging economic environment and was completed in 2011. The second was initiated following the April 30, 2012 acquisitionOperations-Results of RSC Holdings Inc. ("RSC"), and was completed in 2013. The third was initiated in 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 region 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 this restructuring program was completed in 2016.
NES/Neff/Project XL Restructuring Program
In the second quarter of 2017, we initiated a restructuring program following the closing of the NES acquisition discussed in note 2 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 Neff acquisition that is discussed in note 2 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. We expect
Operations-Other costs/(income)-restructuring charges" below.
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
5. Prepaid Expenses and Other Assets
Prepaid expenses and other assets consist of the following:
| | | | | | | | | | | |
| |
| March 31, 2023 | | December 31, 2022 |
| Equipment (1) | $ | 12 | | | $ | 17 | |
| Insurance | 16 | | | 31 | |
| Advertising reimbursements (2) | 19 | | | 25 | |
| Income taxes (3) | 148 | | | 235 | |
| Other (4) | 72 | | | 73 | |
| | | |
| | | |
| | | |
| | | |
| Prepaid expenses and other assets | $ | 267 | | | $ | 381 | |
_________________
(1) Reflects refundable deposits on expected purchases, primarily of rental equipment, pursuant to complete the restructuring program in the first halfadvance purchase agreements. Such deposits are presented as a component of 2018. The total costs expectedour cash flow from operations when paid.
(2) Reflects reimbursements due for advertising that promotes a vendor’s products or services.
(3) Primarily relates to be incurred in connectiontax depreciation benefits associated with the program are not currently estimable, as we are still identifyingAhern Rentals acquisition discussed in note 3 to the actions that will be undertaken.
condensed consolidated financial statements. The table below provides certain information concerning restructuring activity duringtax depreciation deductions generated by the nine months ended September 30, 2017:
|
| | | | | | | | | | | | | | | | |
| | | 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. GoodwillAhern Rentals acquisition resulted in an income tax receivable associated with U.S. federal and Other Intangible Assets
state tax payments made prior to the acquisition. The following table presentsdecrease reflected above from December 31, 2022 to March 31, 2023 reflects the changes in the carrying amountuse 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 compriseda portion of the following at September 30, 2017receivable to reduce cash paid for income taxes, and December 31, 2016: we expect that the remaining receivable will further reduce the cash paid for income taxes throughout the remainder of 2023.
(4) Includes multiple items, none of which are individually significant.
|
| | | | | | | | | | | | | | | | | | | |
| | 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)
6. Goodwill and Other Intangible Assets
The following table presents the changes in the carrying amount of goodwill for the three months ended March 31, 2023: |
| | | | | | | | | | | | | | | | | | | |
| | 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 |
| |
| | | | | | | | | | | | | | | | | |
| General rentals | | Specialty | | Total |
| Balance at January 1, 2023 (1) | $ | 4,980 | | | $ | 1,046 | | | $ | 6,026 | |
| Goodwill related to acquisitions (2) | (309) | | | (11) | | | (320) | |
| Foreign currency translation and other adjustments | — | | | 2 | | | 2 | |
| Balance at March 31, 2023 (1) | $ | 4,671 | | $ | 1,037 | | $ | 5,708 |
_________________
(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)Includes goodwill adjustments for the effect on goodwill of changes to net assets acquired during the measurement period. The decrease in goodwill related to acquisitions above primarily reflects measurement period adjustments associated with the December 2022 acquisition of Ahern Rentals. For additional detail on the Ahern Rentals acquisition, see note 3 to our condensed consolidated financial statements.
Other intangible assets were comprised of the following at March 31, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Weighted-Average Remaining
Amortization Period | | Gross
Carrying Amount | | Accumulated
Amortization | | Net
Amount |
| Non-compete agreements | 4 years | | | $ | 266 | | | | | $ | 38 | | | | | $ | 228 | | |
| Customer relationships | 6 years | | | $ | 2,647 | | | | | $ | 2,011 | | | | | $ | 636 | | |
| Trade names and associated trademarks | 3 years | | | $ | 14 | | | | | $ | 10 | | | | | $ | 4 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Weighted-Average Remaining
Amortization Period | | Gross
Carrying Amount | | Accumulated
Amortization | | Net
Amount |
| Non-compete agreements | 3 years | | | $ | 69 | | | | | $ | 22 | | | | | $ | 47 | | |
| Customer relationships | 5 years | | | $ | 2,349 | | | | | $ | 1,949 | | | | | $ | 400 | | |
| Trade names and associated trademarks | 3 years | | | $ | 14 | | | | | $ | 9 | | | | | $ | 5 | | |
Our other intangibles assets, net at
September 30, 2017March 31, 2023 include the
following assets
set forth in the table below associated with the acquisition of
NESAhern Rentals that is discussed in note
23 to our condensed consolidated financial statements. No residual value has been assigned to these
assets whichassets. The non-compete agreements are being amortized on a straight-line basis and the customer relationships are being amortized using the sum of the years' digits method,
whichand we believe
that such methods best
reflectsreflect the estimated pattern in which the economic benefits will be consumed.
The intangible asset values are based on preliminary valuations and are subject to change as we obtain additional information during the acquisition measurement period. |
| | | | | | |
| | September 30, 2017 |
| | Weighted-Average Remaining
Amortization Period | | | Net Carrying
Amount |
| Customer relationships | 10 years | | | $ | 125 |
|
| | | | | | | | | | | | | | |
| March 31, 2023 |
| Weighted-Average Remaining
Amortization Period | | | Net Carrying
Amount |
| Non-compete agreements | 5 years | | | $ | 177 | |
| Customer relationships | 9 years | | | 243 | |
| | | | |
Amortization expense for other intangible assets was $41$79 and $42$62 for the three months ended September 30, 2017March 31, 2023 and 2016, respectively, and $125 and $132 for2022, respectively. The year-over-year increase primarily reflects the nine months ended September 30, 2017 and 2016, respectively.impact of the Ahern Rentals acquisition discussed above.
As of September 30, 2017,March 31, 2023, 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 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.
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)
| | | | | | | | | | | |
| 2023 | | $ | 199 | | |
| 2024 | 211 | | |
| 2025 | 172 | | |
| 2026 | 130 | | |
| 2027 | 85 | | |
| Thereafter | 71 | | |
| Total | | $ | 868 | | |
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. |
7.7. Fair Value Measurements
We account for certainAs of March 31, 2023 and December 31, 2022, 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. |
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 facilityvariable rate debt facilities and capitalfinance leases approximated their book values as of September 30, 2017March 31, 2023 and December 31, 2016.2022. The estimated fair values of our other financial instruments, all of which are categorized in Level 1 of the fair value hierarchy, as of September 30, 2017March 31, 2023 and December 31, 20162022 have been calculated based upon available market information, and were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| | Carrying
Amount | | Fair
Value | | Carrying
Amount | | Fair
Value |
| | | | | | | |
| | | | | | | |
| Senior notes | $ | 7,714 | | | $ | 7,311 | | | $ | 7,712 | | | $ | 7,143 | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| | 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. 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 |
|
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Repurchase facility expiring 2023 (1) | $ | 100 | | | $ | 100 | |
| Accounts receivable securitization facility expiring 2024 (1) (2) | 879 | | | 959 | |
| Term loan facility expiring 2025 (1) (3) | 951 | | | 953 | |
| $4.25 billion ABL facility expiring 2027 (1) | 1,838 | | | 1,523 | |
| | | |
| | | |
5 1/2 percent Senior Notes due 2027 | 498 | | | 498 | |
3 7/8 percent Senior Secured Notes due 2027 | 745 | | | 744 | |
4 7/8 percent Senior Notes due 2028 (4) | 1,663 | | | 1,663 | |
| 6 percent Senior Secured Notes due 2029 | 1,486 | | | 1,486 | |
5 1/4 percent Senior Notes due 2030 | 744 | | | 744 | |
| 4 percent Senior Notes due 2030 | 744 | | | 743 | |
3 7/8 percent Senior Notes due 2031 | 1,090 | | | 1,090 | |
3 3/4 percent Senior Notes due 2032 | 744 | | | 744 | |
| | | |
| Finance leases | 166 | | | 123 | |
| | | |
| | | |
| | | |
| | | |
| Total debt | 11,648 | | | 11,370 | |
| Less short-term portion (5) | (156) | | | (161) | |
| Total long-term debt | $ | 11,492 | | | $ | 11,209 | |
___________________
| |
(1) | (1)The table below presents financial information associated with our variable rate indebtedness as of and for the three months ended March 31, 2023. There is no borrowing capacity under the repurchase facility because it is an uncommitted facility. The repurchase facility expires on June 23, 2023 unless extended by the mutual consent of the parties to the repurchase facility agreement. If the facility is not extended, we believe we have sufficient liquidity to repay the outstanding debt under the facility. 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 | | Repurchase facility | | Borrowing capacity, net of letters of credit | $ | 2,336 | | | $ | 220 | | | $ | — | | | | | Letters of credit | 67 | | | | | | | | | Interest rate at March 31, 2023 | 5.9 | % | | 5.7 | % | | 6.6 | % | | 5.9 | % | | Average month-end debt outstanding | 1,750 | | | 966 | | | 957 | | | 100 | | | Weighted-average interest rate on average debt outstanding | 5.7 | % | | 5.6 | % | | 6.4 | % | | 5.7 | % | | Maximum month-end debt outstanding | 1,848 | | | 1,100 | | | 958 | | | 100 | |
(2)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 March 31, 2023, there were $1.348 billion of receivables, net of applicable reserves and other deductions, in the collateral pool. (3)In April 2023, the term loan facility was amended to transition to an interest rate based on the Secured Overnight Financing Rate ("SOFR"). (4)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. As of March 31, 2023, the total above is comprised of two separate 4 7/8 percent Senior Notes, one with a book value of $1.659 billion and one with a book value of $4. (5)Short-term debt primarily reflects borrowings under the repurchase facility and the short-term portion of our finance leases. Loan Covenants and Compliance In August 2017, 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. 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 September 30, 2017, there were $769 of receivables, net of applicable reserves and other deductions, in the collateral pool.
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(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.
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(3) | In June 2017, we redeemed $250 principal amount of our 7 5/8 percent Senior Notes. Upon redemption, we recognized a loss of $12 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.
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(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.
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(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
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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)
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.
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(6) | 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 7/8 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.
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(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 1/2 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. The net proceeds from the issuance were approximately $913 (after deducting offering expenses). The Initial 4 7/8 percent Notes are unsecured and are guaranteed by Holdings and certain domestic subsidiaries of URNA. The Initial 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 Initial 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 Initial 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 Initial 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,
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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.
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(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) | As discussed above, we completed the Neff acquisition on October 2, 2017. The aggregate consideration paid to complete the acquisition was approximately $1.3 billion. Total debt as of September 30, 2017 reflects approximately $1.4 billion of debt issued 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.
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(11) | As of September 30, 2017, our short-term debt primarily reflects $666 of borrowings under our accounts receivable securitization facility. |
Loan Covenants and Compliance
As of September 30, 2017,March 31, 2023, we were in compliance with the covenants and other provisions of the ABL, facility, the accounts receivable securitization, facilityterm loan and repurchase 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 September 30, 2017,March 31, 2023, 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.
9.9. Legal and Regulatory Matters
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)
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.
10.10. 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 |
| | | | March 31, |
| | | | | | 2023 | | 2022 |
| Numerator: | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Net income available to common stockholders | | | | | 451 | | | 367 | |
| Denominator: | | | | | | | |
| Denominator for basic earnings per share—weighted-average common shares | | | | | 69,414 | | | 72,372 | |
| Effect of dilutive securities: | | | | | | | |
| Employee stock options | | | | | 4 | | | 4 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Restricted stock units | | | | | 327 | | | 308 | |
| Denominator for diluted earnings per share—adjusted weighted-average common shares | | | | | 69,745 | | | 72,684 | |
| Basic earnings per share | | | | | $ | 6.50 | | | $ | 5.07 | |
| Diluted earnings per share | | | | | $ | 6.47 | | | $ | 5.05 | |
|
| | | | | | | | | | | | | | | |
| | 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 |
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UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(DollarsItem 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in millions, except per share data, unless otherwise indicated)
Global Economic Conditions
Our operations are impacted by global economic conditions, including inflation, increased interest rates and supply chain constraints, and we take actions to modify our plans to address such economic conditions. In 2022, for example, we intentionally held back on sales of rental equipment to ensure we had sufficient rental capacity for our customers. To date, our supply chain disruptions have been limited, but we may experience more severe supply chain disruptions in the future. Interest rates on our debt instruments have increased recently. For example, in November 2022, URNA issued $1.5 billion aggregate principal amount of senior secured notes at a 6 percent interest rate, while URNA's immediately prior issuance in August 2021 of $750 aggregate principal amount of senior unsecured notes was at a 3 ¾ percent interest rate. Additionally, the weighted average interest rates on our variable debt instruments were 5.9 percent and 1.6 percent for the three months ended March 31, 2023 and 2022, respectively. We have experienced and are continuing to experience inflationary pressures. A portion of inflationary cost increases is passed on to customers. The most significant cost increases that are passed on to customers are for fuel and delivery, and there are other costs for which the pass through to customers is less direct, such as repairs and maintenance, and labor. The impact of inflation and increased interest rates may be significant in the future.
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 assetsWe also continue to monitor any developments 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”coronavirus (“COVID-19”). The receivable assets owned byhealth and safety of our employees and customers has been, and remains, our top priority, and we also implemented a detailed COVID-19 response plan, which we believe helped mitigate the SPVimpact of COVID-19 on our results. The COVID-19 impact on our business was most pronounced in 2020, and we have been sold or contributed by URNAseen evidence of a continuing recovery of activity across our end-markets since 2021. Our Annual Report on Form 10-K for the year ended December 31, 2020 and our Quarterly Reports on Form 10-Q filed in 2021 and 2020 include detailed disclosures addressing the COVID-19 impact on our business.
We continue to assess the economic environment in which we operate and any developments relating to the SPVCOVID-19 pandemic, and are not availabletake appropriate actions to satisfyaddress the obligations of URNA or Parent’seconomic and 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"),challenges 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.face.
URNA covenants in the ABL facility, accounts receivable securitization facility 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 September 30, 2017, the amount available for distribution under the most restrictive of these covenants was $536. The Company’s total available capacity for making share repurchases and dividend payments includes the intercompany receivable balance of Parent. As of September 30, 2017, 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 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
September 30, 2017
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| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Parent | | URNA | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| | Foreign | | SPV | |
| ASSETS | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | — |
| | $ | 23 |
| | $ | — |
| | $ | 301 |
| | $ | — |
| | $ | — |
| | $ | 324 |
|
| Accounts receivable, net | — |
| | 39 |
| | — |
| | 123 |
| | 989 |
| | — |
| | 1,151 |
|
| Intercompany receivable (payable) | 698 |
| | (481 | ) | | (204 | ) | | (129 | ) | | — |
| | 116 |
| | — |
|
| Inventory | — |
| | 74 |
| | — |
| | 8 |
| | — |
| | — |
| | 82 |
|
| Prepaid expenses and other assets | 6 |
| | 74 |
| | — |
| | 2 |
| | — |
| | — |
| | 82 |
|
| Total current assets | 704 |
| | (271 | ) | | (204 | ) | | 305 |
| | 989 |
| | 116 |
| | 1,639 |
|
| Rental equipment, net | — |
| | 6,819 |
| | — |
| | 572 |
| | — |
| | — |
| | 7,391 |
|
| Property and equipment, net | 38 |
| | 338 |
| | 33 |
| | 42 |
| | — |
| | — |
| | 451 |
|
| Investments in subsidiaries | 1,488 |
| | 1,206 |
| | 1,074 |
| | — |
| | — |
| | (3,768 | ) | | — |
|
| Goodwill | — |
| | 3,226 |
| | — |
| | 267 |
| | — |
| | — |
| | 3,493 |
|
| Other intangible assets, net | — |
| | 709 |
| | — |
| | 50 |
| | — |
| | — |
| | 759 |
|
| Other long-term assets | 4 |
| | 7 |
| | — |
| | — |
| | — |
| | — |
| | 11 |
|
| Total assets | $ | 2,234 |
| | $ | 12,034 |
| | $ | 903 |
| | $ | 1,236 |
| | $ | 989 |
| | $ | (3,652 | ) | | $ | 13,744 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | | | | | | | | | | | | | |
| Short-term debt and current maturities of long-term debt | $ | 1 |
| | $ | 25 |
| | $ | — |
| | $ | 2 |
| | $ | 666 |
| | $ | — |
| | $ | 694 |
|
| Accounts payable | — |
| | 564 |
| | — |
| | 48 |
| | — |
| | — |
| | 612 |
|
| Accrued expenses and other liabilities | — |
| | 415 |
| | 17 |
| | 34 |
| | 1 |
| | — |
| | 467 |
|
| Total current liabilities | 1 |
| | 1,004 |
| | 17 |
| | 84 |
| | 667 |
| | — |
| | 1,773 |
|
| Long-term debt | 1 |
| | 7,555 |
| | 118 |
| | 3 |
| | — |
| | — |
| | 7,677 |
|
| Deferred taxes | 21 |
| | 1,916 |
| | — |
| | 75 |
| | — |
| | — |
| | 2,012 |
|
| Other long-term liabilities | — |
| | 71 |
| | — |
| | — |
| | — |
| | — |
| | 71 |
|
| Total liabilities | 23 |
| | 10,546 |
| | 135 |
| | 162 |
| | 667 |
| | — |
| | 11,533 |
|
| Total stockholders’ equity (deficit) | 2,211 |
| | 1,488 |
| | 768 |
| | 1,074 |
| | 322 |
| | (3,652 | ) | | 2,211 |
|
| Total liabilities and stockholders’ equity (deficit) | $ | 2,234 |
| | $ | 12,034 |
| | $ | 903 |
| | $ | 1,236 |
| | $ | 989 |
| | $ | (3,652 | ) | | $ | 13,744 |
|
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, 2016
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 September 30, 2017
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | 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 September 30, 2016
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | 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 Nine Months Ended September 30, 2017 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | Parent | | URNA | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Foreign | | SPV | |
| Revenues: | | | | | | | | | | | | | |
| Equipment rentals | $ | — |
| | $ | 3,739 |
| | $ | — |
| | $ | 330 |
| | $ | — |
| | $ | — |
| | $ | 4,069 |
|
| Sales of rental equipment | — |
| | 334 |
| | — |
| | 44 |
| | — |
| | — |
| | 378 |
|
| Sales of new equipment | — |
| | 113 |
| | — |
| | 13 |
| | — |
| | — |
| | 126 |
|
| Contractor supplies sales | — |
| | 53 |
| | — |
| | 7 |
| | — |
| | — |
| | 60 |
|
| Service and other revenues | — |
| | 75 |
| | — |
| | 11 |
| | — |
| | — |
| | 86 |
|
| Total revenues | — |
| | 4,314 |
| | — |
| | 405 |
| | — |
| | — |
| | 4,719 |
|
| Cost of revenues: | | | | | | | | | | | | | |
| Cost of equipment rentals, excluding depreciation | — |
| | 1,397 |
| | — |
| | 159 |
| | — |
| | — |
| | 1,556 |
|
| Depreciation of rental equipment | — |
| | 738 |
| | — |
| | 66 |
| | — |
| | — |
| | 804 |
|
| Cost of rental equipment sales | — |
| | 202 |
| | — |
| | 23 |
| | — |
| | — |
| | 225 |
|
| Cost of new equipment sales | — |
| | 97 |
| | — |
| | 11 |
| | — |
| | — |
| | 108 |
|
| Cost of contractor supplies sales | — |
| | 37 |
| | — |
| | 5 |
| | — |
| | — |
| | 42 |
|
| Cost of service and other revenues | — |
| | 37 |
| | — |
| | 5 |
| | — |
| | — |
| | 42 |
|
| Total cost of revenues | — |
| | 2,508 |
| | — |
| | 269 |
| | — |
| | — |
| | 2,777 |
|
| Gross profit | — |
| | 1,806 |
| | — |
| | 136 |
| | — |
| | — |
| | 1,942 |
|
| Selling, general and administrative expenses | 84 |
| | 483 |
| | — |
| | 57 |
| | 24 |
| | — |
| | 648 |
|
| Merger related costs | — |
| | 32 |
| | — |
| | — |
| | — |
| | — |
| | 32 |
|
| Restructuring charge | — |
| | 27 |
| | — |
| | 1 |
| | — |
| | — |
| | 28 |
|
| Non-rental depreciation and amortization | 11 |
| | 162 |
| | — |
| | 16 |
| | — |
| | — |
| | 189 |
|
| Operating (loss) income | (95 | ) | | 1,102 |
| | — |
| | 62 |
| | (24 | ) | | — |
| | 1,045 |
|
| Interest (income) expense, net | (10 | ) | | 341 |
| | 2 |
| | 1 |
| | 8 |
| | (4 | ) | | 338 |
|
| Other (income) expense, net | (387 | ) | | 419 |
| | — |
| | 33 |
| | (70 | ) | | — |
| | (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 |
|
| Equity in net earnings (loss) of subsidiaries | 249 |
| | 47 |
| | 21 |
| | — |
| | — |
| | (317 | ) | | — |
|
| Net income (loss) | 449 |
| | 249 |
| | 19 |
| | 21 |
| | 24 |
| | (313 | ) | | 449 |
|
| Other comprehensive income (loss) | 75 |
| | 75 |
| | 75 |
| | 61 |
| | — |
| | (211 | ) | | 75 |
|
| Comprehensive income (loss) | $ | 524 |
| | $ | 324 |
| | $ | 94 |
| | $ | 82 |
| | $ | 24 |
| | $ | (524 | ) | | $ | 524 |
|
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 Nine Months Ended September 30, 2016
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | 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 Nine Months Ended September 30, 2017
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Parent | | URNA | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Total |
| Foreign | | SPV | |
| Net cash provided by (used in) operating activities | $ | 15 |
| | $ | 1,849 |
| | $ | (2 | ) | | $ | 83 |
| | $ | (179 | ) | | $ | — |
| | $ | 1,766 |
|
| Net cash used in investing activities | (15 | ) | | (2,145 | ) | | — |
| | (92 | ) | | — |
| | — |
| | (2,252 | ) |
| 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 |
|
| Cash and cash equivalents at beginning of period | — |
| | 21 |
| | — |
| | 291 |
| | — |
| | — |
| | 312 |
|
| Cash and cash equivalents at end of period | $ | — |
| | $ | 23 |
| | $ | — |
| | $ | 301 |
| | $ | — |
| | $ | — |
| | $ | 324 |
|
CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Nine Months Ended September 30, 2016
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
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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 9501,525 rental locationslocations. We primarily operate in the United States and Canada.Canada, and have a limited presence in Europe, Australia and New Zealand. 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$20.0 billion, and a nationalNorth American branch network that operates in 49 U.S. states and every Canadian province, and serves 99 of the 100 largest 100 metropolitan areas in the United States. In addition, ourU.S. 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 3,3004,700 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 8683 percent of total revenues for the ninethree months ended September 30, 2017.March 31, 2023.
For the past several years, as we havecontinued to manage the impact of COVID-19, we 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, we have continued our disciplined focus Our general strategy focuses on increasing our profitability and return on invested capital. Incapital, and, in particular, our strategy calls for:
•A consistently superior standard of service to customers, often provided through a single pointlead contact who can coordinate the cross-selling of contact;
the various services we offer throughout our network. We utilize a proprietary software application, Total Control®, which provides our key customers with a single in-house software application that enables them to monitor and manage all their equipment needs. Total Control® is a unique customer offering that enables us to develop strong, long-term relationships with our larger customers. Our digital capabilities, including our Total Control® platform, allow our sales teams to provide contactless end-to-end customer service;•The further optimization of our customer mix and fleet mix, with a dual objective: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•A continued focus on “Lean” management techniques, including kaizen processes focused on continuous improvement. We have trained over 3,100 employees, over 70 percent ofa dedicated team responsible for reducing waste in 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,operational processes, with the objectives of: reducingcondensing the cycle time associated with rentingpreparing equipment for rent; optimizing our equipment to customers; improving invoice accuracyresources for delivery and service quality; reducing the elapsed time for equipment pickup and delivery; andof equipment; improving the effectiveness and efficiency of our repair and maintenance operations. We achieved the anticipated run rate savings from the Lean initiatives in 2016operations; and expect to continue to generate savings from these initiatives;
implementing customer service best practices;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 theseadjacent specialty and services throughoutproducts, which enables us to provide a "one-stop" shop for our networkcustomers. We believe that the expansion of our trench, power and pumpspecialty business, as exhibited by our acquisition of General Finance Corporation ("General Finance") in May 2021, as well as our tools offering,and onsite services offerings, 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 acquisitionsacquisition of NES and Neff.assets of Ahern Rentals, which is discussed 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.
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.
Financial Overview
Since January 1, 2016, we have taken the followingPrior to taking actions pertaining to improve our financial flexibility and liquidity, we assess our available sources and anticipated uses of cash, including, with respect to position us to investsources, cash generated from operations and from the necessary capital in our business:
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• | Redeemed all of our 8 1/4 percent Senior Notes, 7 3/8 percent Senior Notes and 6 1/8 percent Senior Notes;
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• | Redeemed $1.1 billion principal amount of our 7 5/8 percent Senior Notes due 2022 (we expect to redeem the remaining $225 principal amount in the fourth quarter of 2017);
|
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• | Issued $750 principal amount of 4 5/8 percent Senior Notes due 2025;
|
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• | Issued $1.0 billion principal amount of 5 7/8 percent Senior Notes due 2026;
|
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• | Issued $1.0 billion principal amount of 5 1/2 percent Senior Notes due 2027;
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• | 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;
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Amended and extended our ABL facility, including an increase in the facility size to $3.0 billion; and
Amended and extended our accounts receivable securitization facility, including an increase in the facility size to $675.
sale of rental equipment. As of September 30, 2017,March 31, 2023, we had available liquidity of $2.88$2.655 billion, includingcomprised of cash and cash equivalents, of $324. As discussed in note 8 to the condensed consolidated financial statements, we used available cash and drawings onavailability under the ABL facilityand accounts receivable securitization facilities.
In October 2022, our Board of Directors authorized a $1.25 billion share repurchase program. This program was paused through the initial phase of the integration of the Ahern Rentals acquisition, and repurchases began in the first quarter of 2023. We expect to financerepurchase $1.0 billion of common stock under the Neff acquisition upon its closingprogram in 2023, and have repurchased $250 under the program through March 31, 2023. A 1 percent excise tax is imposed on October 2, 2017.“net repurchases” (certain purchases minus certain issuances) of common stock. The repurchases above (as well as the total program size and expected 2023 repurchases) do not include the excise tax, which totaled $1 year-to-date through March 31, 2023.
Our Board of Directors also approved our first-ever quarterly dividend program in January 2023, and the first dividend under the program was paid in February 2023. We did not pay any dividends prior to 2023, and during the three months ended March 31, 2023, we paid dividends totaling $103 ($1.48 per share). On April 26, 2023, our Board of Directors declared a quarterly dividend of $1.48 per share, payable on May 24, 2023 to stockholders of record on May 10, 2023.
Net income. Net income and diluted earnings per share for the three and nine months ended September 30, 2017 and 2016 were as follows:are presented below.
| | | | | | | | | | | | | | | |
| | | Three Months Ended |
| | | | March 31, |
| | | | | | 2023 | | 2022 |
| Net income | | | | | $ | 451 | | | $ | 367 | |
| Diluted earnings per share | | | | | $ | 6.47 | | | $ | 5.05 | |
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Net income | $ | 199 |
| | $ | 187 |
| | $ | 449 |
| | $ | 413 |
|
| Diluted earnings per share | $ | 2.33 |
| | $ | 2.16 |
| | $ | 5.26 |
| | $ | 4.66 |
|
Net income and diluted earnings per share for the three and nine months ended September 30, 2017 and 2016 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.
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 March 31, |
| | | | | | 2023 | | 2022 |
| Tax rate applied to items below | | | | | | | | | 25.3 | % | | | | 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 |
| | | | | | | | | | | | | | | |
| Merger related intangible asset amortization (1) | | | | | | | | | $ | (49) | | | $ | (0.70) | | | $ | (37) | | | $ | (0.52) | |
| Impact on depreciation related to acquired fleet and property and equipment (2) | | | | | | | | | (22) | | | (0.32) | | | (7) | | | (0.10) | |
| Impact of the fair value mark-up of acquired fleet (3) | | | | | | | | | (31) | | | (0.44) | | | (5) | | | (0.06) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Restructuring charge (4) | | | | | | | | | (1) | | | (0.02) | | | — | | | — | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
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(1) | This reflects transaction costs associated with the NES and Neff acquisitions discussed in note 2 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. |
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(2) | This reflects the amortization of the intangible assets acquired in the RSC, National Pump and NES acquisitions. |
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(3) | This reflects the impact of extending the useful lives of equipment acquired in the RSC and NES acquisitions, net of the impact of additional depreciation associated with the fair value mark-up of such equipment. |
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(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 and NES acquisitions and subsequently sold. |
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(5) | This reflects a reduction of interest expense associated with the fair value mark-up of debt acquired in the RSC acquisition. |
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(6) | This primarily reflects severance and branch closure charges associated with our restructuring programs. For additional information, see note 4 to our condensed consolidated financial statements. |
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(7) | This reflects write-offs of fixed assets in connection with our restructuring programs. |
(1)This reflects the amortization of the intangible assets acquired in the major acquisitions that significantly impact our operations (the "major acquisitions," each of which had annual revenues of over $200 prior to acquisition). The increase in 2023 primarily reflects the impact of the Ahern Rentals acquisition.
(2)This reflects the impact of extending the useful lives of equipment acquired in certain major acquisitions, net of the impact of additional depreciation associated with the fair value mark-up of such equipment. The increase in 2023 primarily reflects the impact of the Ahern Rentals acquisition.
(3)This reflects additional costs recorded in cost of rental equipment sales associated with the fair value mark-up of rental equipment acquired in certain major acquisitions that was subsequently sold. The increase in 2023 primarily reflects the impact of the Ahern Rentals acquisition.
(4)This primarily reflects severance and branch closure charges associated with our restructuring programs. For additional information on the restructuring charges, which generally involve the closure of a large number of branches over a short period of time, often in periods following a major acquisition, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations-Other costs/(income)-restructuring charges" below.
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,charges, stock compensation expense, net and the impact of the fair value mark-up of the acquired RSC and NES fleet. See below for further detail on each adjusting item. 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 EBITDAnet income and adjusted EBITDA margins represent EBITDAnet income 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 |
| | September 30, | | September 30, | | | March 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | | | 2023 | | 2022 |
| Net income | $ | 199 |
| | $ | 187 |
| | $ | 449 |
| | $ | 413 |
| Net income | | $ | 451 | | | $ | 367 | |
| Provision for income taxes | 123 |
| | 116 |
| | 263 |
| | 254 |
| Provision for income taxes | | 143 | | | 116 | |
| Interest expense, net | 131 |
| | 110 |
| | 338 |
| | 349 |
| Interest expense, net | | 150 | | | 94 | |
| | Depreciation of rental equipment | 290 |
| | 250 |
| | 804 |
| | 735 |
| Depreciation of rental equipment | | 575 | | | 435 | |
| Non-rental depreciation and amortization | 63 |
| | 61 |
| | 189 |
| | 192 |
| Non-rental depreciation and amortization | | 118 | | | 97 | |
| EBITDA | $ | 806 |
| | $ | 724 |
| | $ | 2,043 |
| | $ | 1,943 |
| EBITDA | | $ | 1,437 | | | $ | 1,109 | |
| Merger related costs (1) | 16 |
| | — |
| | 32 |
| | — |
| |
| Restructuring charge (2)(1) | 9 |
| | 4 |
| | 28 |
| | 8 |
| | 1 | | | — | |
Stock compensation expense, net (3)(2) | 24 |
| | 11 |
| | 64 |
| | 33 |
| | 24 | | | 24 | |
| 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 (3) | | Impact of the fair value mark-up of acquired fleet (3) | | 41 | | | 6 | |
| | Adjusted EBITDA | $ | 879 |
| | $ | 747 |
| | $ | 2,217 |
| | $ | 2,010 |
| Adjusted EBITDA | | $ | 1,503 | | | $ | 1,139 | |
| Net income margin | | Net income margin | | 13.7 | % | | 14.5 | % |
| Adjusted EBITDA margin | | Adjusted EBITDA margin | | 45.8 | % | | 45.1 | % |
The table below provides a reconciliation between net cash provided by operating activities and EBITDA and adjusted EBITDA:
| | | | Nine Months Ended | | Three Months Ended |
| | September 30, | | March 31, |
| | 2017 | | 2016 | | 2023 | | 2022 |
| Net cash provided by operating activities | $ | 1,766 |
| | $ | 1,630 |
| Net cash provided by operating activities | $ | 939 | | | $ | 886 | |
| Adjustments for items included in net cash provided by operating activities but excluded from the calculation of EBITDA: | | | | 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 | ) | Amortization of deferred financing costs and original issue discounts | (4) | | | (3) | |
| Gain on sales of rental equipment | 153 |
| | 146 |
| Gain on sales of rental equipment | 190 | | | 116 | |
| Gain on sales of non-rental equipment | 4 |
| | 3 |
| Gain on sales of non-rental equipment | 4 | | | 2 | |
| Merger related costs (1) | (32 | ) | | — |
| |
| Restructuring charge (2) | (28 | ) | | (8 | ) | |
| Stock compensation expense, net (3) | (64 | ) | | (33 | ) | |
| Loss on repurchase/redemption of debt securities and amendment of ABL facility | (43 | ) | | (36 | ) | |
| Excess tax benefits from share-based payment arrangements | — |
| | 53 |
| |
| Insurance proceeds from damaged equipment | | Insurance proceeds from damaged equipment | 9 | | | 7 | |
| | Restructuring charge (1) | | Restructuring charge (1) | (1) | | | — | |
| Stock compensation expense, net (2) | | Stock compensation expense, net (2) | (24) | | | (24) | |
| | Changes in assets and liabilities | (126 | ) | | (113 | ) | Changes in assets and liabilities | 117 | | | (34) | |
| Cash paid for interest | 305 |
| | 294 |
| Cash paid for interest | 178 | | | 149 | |
| Cash paid for income taxes, net | 114 |
| | 14 |
| Cash paid for income taxes, net | 29 | | | 10 | |
| EBITDA | $ | 2,043 |
| | $ | 1,943 |
| EBITDA | $ | 1,437 | | | $ | 1,109 | |
| Add back: | | | | Add back: | |
| Merger related costs (1) | 32 |
| | — |
| |
| Restructuring charge (2) | 28 |
| | 8 |
| |
| Stock compensation expense, net (3) | 64 |
| | 33 |
| |
| Impact of the fair value mark-up of acquired RSC and NES fleet (4) | 50 |
| | 26 |
| |
| | Restructuring charge (1) | | Restructuring charge (1) | 1 | | | — | |
| Stock compensation expense, net (2) | | Stock compensation expense, net (2) | 24 | | | 24 | |
| Impact of the fair value mark-up of acquired fleet (3) | | Impact of the fair value mark-up of acquired fleet (3) | 41 | | | 6 | |
| | Adjusted EBITDA | $ | 2,217 |
| | $ | 2,010 |
| Adjusted EBITDA | $ | 1,503 | | | $ | 1,139 | |
___________________
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(1) | This reflects transaction costs associated with the NES and Neff acquisitions discussed in note 2 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. |
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(2) | This primarily reflects severance and branch closure charges associated with our restructuring programs. For additional information, see note 4 to our condensed consolidated financial statements. |
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(3) | Represents non-cash, share-based payments associated with the granting of equity instruments. |
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(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 and NES acquisitions and subsequently sold. |
(1)This primarily reflects severance and branch closure charges associated with our restructuring programs. For additional information on the restructuring charges, which generally involve the closure of a large number of branches over a short period of time, often in periods following a major acquisition, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations-Other costs/(income)-restructuring charges" below.
(2)Represents non-cash, share-based payments associated with the granting of equity instruments.
(3)This reflects additional costs recorded in cost of rental equipment sales associated with the fair value mark-up of rental equipment acquired in certain major acquisitions that was subsequently sold. The increase in 2023 primarily reflects the impact of the Ahern Rentals acquisition.
For the three months ended September 30, 2017, EBITDAMarch 31, 2023, net income increased $82,$84, or 11.322.9 percent, and adjusted EBITDA increased $132, or 17.7net income margin decreased 80 basis points to 13.7 percent. For the three months ended September 30, 2017,March 31, 2023, adjusted EBITDA margin decreased 240 basis points to 45.6increased $364, or 32.0 percent, and adjusted EBITDA margin increased 3070 basis points to 49.845.8 percent.
The year-over-year decrease in the EBITDAnet income margin primarily reflects i)lower gross margins, primarily due to the Ahern Rentals acquisition, from equipment rentals and sales of rental equipment, and increased net interest expense, partially offset by reductions in selling, general and administrative ("SG&A") compensation costs, including stock compensation costs, largelyexpense and non-rental depreciation and amortization as a percentage of revenue, and revenue mix benefits. Depreciation and repairs and maintenance expenses for the rental equipment acquired in the Ahern Rentals acquisition were higher than for our other rental equipment, which negatively impacted equipment rentals gross margin year-over-year. Net interest expense increased $56, or 59.6 percent, primarily due to increased average debt, including the debt issued to partially fund the Ahern Rentals acquisition, and higher variable debt interest rates (as noted above, the weighted average interest rates on our variable debt instruments were 5.9 percent and 1.6 percent for the three months ended March 31, 2023 and 2022, respectively). The favorable margin impact of the NES acquisition discussed in note 2 to the condensed consolidated financial statements, increased revenue, improved profitability,SG&A expense and increases in our stock pricenon-rental depreciation and in the volume of stock awards, and ii) increased merger related costs primarily associated with the Neff acquisition discussed in note 2 to the condensed consolidated financial statements. amortization both reflect better fixed cost absorption on higher revenue.
The increase in the adjusted EBITDA margin primarily reflects i) increased margins, excludingreduced SG&A expense as a percentage of revenue and revenue mix benefits, partially offset by a 60 basis point decrease in equipment rentals gross margin (excluding depreciation and stock compensation expense).The favorable margin impact of SG&A expense reflects better fixed cost absorption on higher revenue. The decreased gross margin from equipment rentals (excluding depreciation and ii) increased margins, excludingstock compensation expense) primarily reflects the impact of the fair value mark-upAhern Rentals acquisition (in particular, repairs and maintenance expense for the rental equipment acquired in the Ahern Rentals acquisition was higher than for our other rental equipment, which negatively impacted equipment rentals gross margin year-over-year).
Revenues are noted below. Fleet productivity is a comprehensive metric that provides greater insight into the decisions made by our managers in support of acquired RSCequipment rental growth and NES fleet, from salesreturns. Specifically, we seek to optimize the interplay of rental equipment, partially offset by iii) increased SG&A compensation costs largely duerates, time utilization and mix to drive rental revenue. Fleet productivity aggregates, in one metric, the impact of changes in rates, utilization and mix on owned equipment rental revenue. We believe that this metric is useful in assessing the NES acquisition discussedeffectiveness of our decisions on rates, time utilization and mix, particularly as they support the creation of shareholder value. The table below includes the components of the year-over-year change in rental revenue using the fleet productivity methodology.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | | | 2023 | | 2022 | | Change |
| Equipment rentals* | | | | | | | $ | 2,740 | | | $ | 2,175 | | | 26.0 | % |
| Sales of rental equipment | | | | | | | 388 | | | 211 | | | 83.9 | % |
| Sales of new equipment | | | | | | | 44 | | | 45 | | | (2.2) | % |
| Contractor supplies sales | | | | | | | 34 | | | 29 | | | 17.2 | % |
| Service and other revenues | | | | | | | 79 | | | 64 | | | 23.4 | % |
| Total revenues | | | | | | | $ | 3,285 | | | $ | 2,524 | | | 30.2 | % |
| *Equipment rentals variance components: | | | | | | | | | | | |
| Year-over-year change in average OEC | | | | | | | | | | | 25.6 | % |
| Assumed year-over-year inflation impact (1) | | | | | | | | | | | (1.5) | % |
| Fleet productivity (2) | | | | | | | | | | | 2.0 | % |
| Contribution from ancillary and re-rent revenue (3) | | | | | | | | | | | (0.1) | % |
| Total change in equipment rentals | | | | | | | | | | | 26.0 | % |
| *Pro forma equipment rentals variance components (4): | | | | | | | | | | | |
| Year-over-year change in average OEC | | | | | | | | | | | 12.2 | % |
| Assumed year-over-year inflation impact (1) | | | | | | | | | | | (1.5) | % |
| Fleet productivity (2) | | | | | | | | | | | 5.9 | % |
| Contribution from ancillary and re-rent revenue (3) | | | | | | | | | | | — | % |
| Total change in equipment rentals | | | | | | | | | | | 16.6 | % |
___________________
(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 increasedfor 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 improved profitability.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 acquisition of Ahern Rentals in December 2022. The pro forma information includes the standalone, pre-acquisition results of Ahern Rentals.
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 and other miscellaneous costs and services. 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 ninethree months ended September 30, 2017, EBITDAMarch 31, 2023, total revenues of $3.285 billion increased $100, or 5.130.2 percent compared with 2022. Equipment rentals and adjusted EBITDA increased $207, or 10.3 percent. Forsales of rental equipment are our largest revenue types (together, they accounted for 95 percent of total revenue for the ninethree months ended September 30, 2017, EBITDA margin decreased 250 basis pointsMarch 31, 2023). Equipment rentals increased $565, or 26.0 percent, primarily due to 43.3a 25.6 percent and adjusted EBITDA margin decreased 40 basis points to 47.0 percent.increase in average OEC. The decreaseincrease in the EBITDA margin primarily reflects i) increased selling, general and administrative ("SG&A") compensation costs, including stock compensation costs, largely due toaverage OEC includes the impact of the NES acquisition of Ahern Rentals that is discussed in note 3 to the condensed consolidated financial statements, as well as increased revenue, improved profitability,capital expenditures. On a pro forma basis including the pre-acquisition results of Ahern Rentals, year-over-year, equipment rentals increased 16.6 percent, primarily reflecting an increase in average OEC of 12.2 percent and increasesincreased fleet productivity of 5.9 percent. Beginning in 2021 and continuing through March 31, 2023, we have seen evidence of a continuing recovery of activity across our stock price andend-markets. Sales of rental equipment increased 83.9 percent year-over-year, primarily reflecting the normalization of volumes, after we intentionally held back on sales of rental equipment in the volume of stock awards, and ii) increased merger related costs and restructuring charges associated with the NES and Neff acquisitions. The decrease in the adjusted EBITDA margin primarily reflects increased SG&A compensation costs largely due2022 to ensure sufficient rental capacity for our customers, as well as the impact of sales of rental equipment acquired in the NES acquisition, increased revenue and improved profitability.Ahern Rentals acquisition. Pricing on sales of rental equipment remains strong.
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.specialty. 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 rentalsThis segment operates throughout the United States and Canada. The trench, power and pumpspecialty segment is comprisedincludes the rental of specialty construction products such as 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 heatingiii) fluid solutions equipment primarily used for fluid containment, transfer and coolingtreatment, and iv) mobile storage equipment and iii) the Pump Solutions region, which rents pumps primarily used by municipalities, industrial plants, and mining, construction, and agribusiness customers.modular office space. The trench, power and pumpspecialty segment’s customers include construction companies involved in infrastructure projects, municipalities and industrial companies. The trench, power and pumpThis segment primarily operates throughoutin the United States and Canada, and has a limited presence in Canada.Europe, Australia and New Zealand.
As discussed in note 34 to our condensed consolidated financial statements, we aggregate our tenfour geographic regions—Gulf South, Industrial (which serves the geographic Gulf region and has a strong industrial presence), Mid-Atlantic, Mid-Central, Midwest,divisions—Central, Northeast, Pacific West, South, Southeast and Western Canada—West—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 occasionally been variances in the levels of equipment rentals gross margins achieved by these regions. For the five year period ended September 30, 2017, one of our general rentals' regions had an equipment rentals gross margin that varied by betweendivisions, though such variances have generally been small (close to or less than 10 percent, and 12 percent frommeasured versus the equipment rentals gross margins of the aggregated general rentals' regions overdivisions). For the same period.five year period ended March 31, 2023, there was no general rentals' division with an equipment rentals gross margin that differed materially from the equipment rentals gross margin of the aggregated general rentals' divisions. The rental industry is cyclical, and there historically have occasionally been regionsdivisions with equipment rentals gross margins that varied by greater than 10 percent from the equipment rentals gross margins of the aggregated general rentals' regions,divisions, though the specific regionsdivisions with margin variances of over 10 percent have fluctuated.
fluctuated, and such variances have generally not exceeded 10 percent by a significant amount. 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 convergencemargin similarity between divisions on a quarterly basis.
We similarly monitor the margin variances for the regions in the trench, power and pump segment. The Pump Solutions region is primarily comprised
We believe that the regionsdivisions that are aggregated into our segments have similar economic characteristics, as each regiondivision 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 regionsdivisions also reflects the management structure that we use for making operating decisions and assessing performance. Although we believe aggregating these regionsdivisions 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 regionsdivisions into separate reporting segments. Any such disaggregation would have no impact on our consolidated results of operations.
These reporting segments align our external segment reporting with how management evaluates business performance 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 | | Specialty | | Total |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Three Months Ended March 31, 2023 | | | | | |
| Equipment rentals | $ | 2,018 | | | $ | 722 | | | $ | 2,740 | |
| Sales of rental equipment | 350 | | | 38 | | | 388 | |
| Sales of new equipment | 18 | | | 26 | | | 44 | |
| Contractor supplies sales | 21 | | | 13 | | | 34 | |
| Service and other revenues | 72 | | | 7 | | | 79 | |
| Total revenue | $ | 2,479 | | | $ | 806 | | | $ | 3,285 | |
| Three Months Ended March 31, 2022 | | | | | |
| Equipment rentals | $ | 1,593 | | | $ | 582 | | | $ | 2,175 | |
| Sales of rental equipment | 184 | | | 27 | | | 211 | |
| Sales of new equipment | 29 | | | 16 | | | 45 | |
| Contractor supplies sales | 18 | | | 11 | | | 29 | |
| Service and other revenues | 58 | | | 6 | | | 64 | |
| Total revenue | $ | 1,882 | | | $ | 642 | | | $ | 2,524 | |
|
| | | | | | | | | | | |
| | General rentals | | Trench, power and pump | | Total |
| Three Months Ended September 30, 2017 | | | | | |
| Equipment rentals | $ | 1,237 |
| | $ | 299 |
| | $ | 1,536 |
|
| Sales of rental equipment | 130 |
| | 9 |
| | 139 |
|
| Sales of new equipment | 34 |
| | 6 |
| | 40 |
|
| Contractor supplies sales | 17 |
| | 4 |
| | 21 |
|
| Service and other revenues | 26 |
| | 4 |
| | 30 |
|
| Total revenue | $ | 1,444 |
| | $ | 322 |
| | $ | 1,766 |
|
| Three Months Ended September 30, 2016 | | | | | |
| Equipment rentals | $ | 1,097 |
| | $ | 225 |
| | $ | 1,322 |
|
| Sales of rental equipment | 103 |
| | 9 |
| | 112 |
|
| Sales of new equipment | 27 |
| | 3 |
| | 30 |
|
| Contractor supplies sales | 16 |
| | 3 |
| | 19 |
|
| Service and other revenues | 23 |
| | 2 |
| | 25 |
|
| Total revenue | $ | 1,266 |
| | $ | 242 |
| | $ | 1,508 |
|
| Nine Months Ended September 30, 2017 | | | | | |
| Equipment rentals | $ | 3,357 |
| | $ | 712 |
| | $ | 4,069 |
|
| Sales of rental equipment | 348 |
| | 30 |
| | 378 |
|
| Sales of new equipment | 112 |
| | 14 |
| | 126 |
|
| Contractor supplies sales | 49 |
| | 11 |
| | 60 |
|
| Service and other revenues | 76 |
| | 10 |
| | 86 |
|
| Total revenue | $ | 3,942 |
| | $ | 777 |
| | $ | 4,719 |
|
| Nine Months Ended September 30, 2016 | | | | | |
| Equipment rentals | $ | 3,067 |
| | $ | 576 |
| | $ | 3,643 |
|
| Sales of rental equipment | 334 |
| | 27 |
| | 361 |
|
| Sales of new equipment | 84 |
| | 12 |
| | 96 |
|
| Contractor supplies sales | 49 |
| | 11 |
| | 60 |
|
| Service and other revenues | 71 |
| | 8 |
| | 79 |
|
| Total revenue | $ | 3,605 |
| | $ | 634 |
| | $ | 4,239 |
|
Equipment rentals. For the three months ended September 30, 2017, equipment rentals of $1.536 billion increased $214, or 16.2 percent, as compared to the same period in 2016, primarily reflecting increases of 18.2 percent 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, and 0.1 percent in rental rates. On a pro forma basis including NES' standalone, pre-acquisition results, equipment rental revenue increased 8.9 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 8783 percent of total revenues for the three months ended September 30, 2017.
March 31, 2023. For the ninethree months ended September 30, 2017,March 31, 2023, equipment rentals of $4.069$2.740 billion increased $426,$565, or 11.726.0 percent, as compared to the same period in 2016,2022, primarily reflectingdue to a 14.525.6 percent increase in the volume ofaverage OEC. The increase in average OEC on rent, which includes the impact of the NES acquisition partially offset by a 0.7 percent rental rate decrease. The decreased rental rates reflectedof Ahern Rentals that is discussed in note 3 to the impact of the NES acquisition, pressure from Canada and the impact of industry fleet expansion.condensed consolidated financial statements, as well as increased capital expenditures. On a pro forma basis including NES' standalone,the pre-acquisition results of Ahern Rentals, year-over-year, equipment rental revenuerentals increased 6.516.6 percent, year-over-year, primarily reflecting a 6.9 percentan increase in average OEC of 12.2 percent and increased fleet productivity of 5.9 percent. Beginning in 2021 and continuing through March 31, 2023, we have seen evidence of a continuing recovery of activity across our end-markets.
For 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. Equipmentthree months ended March 31, 2023, equipment rentals represented 8681 percent of total revenues for the nine months ended September 30, 2017.
general rentals segment. For the three months ended September 30, 2017,March 31, 2023, general rentals equipment rentals increased $140,$425, or 12.826.7 percent, as compared to the same period in 2016,2022, primarily reflecting a 16.5 percent increase indue to the volumecontinuing recovery of activity across our end-markets and increased average OEC, on rent, which includes the impact of the NES acquisition.Ahern Rentals acquisition as well as increased capital expenditures. On a pro forma basis including NES' standalone,the pre-acquisition results the volume of Ahern Rentals, year-over-year, equipment rentals increased 14.3 percent, primarily reflecting increases in average OEC on rent increased 5.5 percent. We believe that the increaseand fleet productivity. As noted above, beginning in the volume2021 and continuing through March 31, 2023, we have seen evidence of OEC on rent reflects improving demand ina continuing recovery of activity across our end-markets.
many of our core markets. For the three months ended September 30, 2017,March 31, 2023, equipment rentals represented 8690 percent of total revenues for the general rentalsspecialty segment.
For the ninethree months ended September 30, 2017, general rentalsMarch 31, 2023, specialty equipment rentals increased $290,$140, or 9.524.1 percent, as compared to the same period in 2016,2022, primarily reflectingdue to the continuing recovery of activity across our end-markets and increased average OEC. As noted above, beginning in 2021 and continuing through March 31, 2023, we have seen evidence of a 13.3 percent increase in the volumecontinuing recovery of OEC on rent, which includes the impactactivity across our end-markets.
Sales of the NES acquisition, partially offset by decreased rental rates. 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, 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. For the nine months ended September 30, 2017, equipment rentals represented 85 percent of total revenues for the general rentals segment.
.For the three months ended September 30, 2017, trench, power and pump equipment rentals increased $74, or 32.9 percent, as compared to the same period in 2016, primarily reflecting a 38.6 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. 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 three months ended September 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, equipment rentals represented 92 percent of total revenues for the trench, power and pump segment.
Sales of rental equipment. For the nine months ended September 30, 2017,March 31, 2023, sales of rental equipment represented approximately 812 percent of our total revenues. Our general rentals segment accounted for most of these sales. For the three months ended September 30, 2017,March 31, 2023, sales of rental equipment increased 24.1
83.9 percent from the same period in 2016,year-over-year, primarily reflecting increased volume. For the nine months ended September 30, 2017,normalization of volumes, after we intentionally held back on sales of rental equipment did not change significantly fromin 2022 to ensure sufficient rental capacity for our customers, as well as the same periodimpact of sales of rental equipment acquired in 2016.the Ahern Rentals acquisition. Pricing on sales of rental equipment remains strong.
Sales of new equipment. For the ninethree months ended September 30, 2017,March 31, 2023, sales of new equipment represented approximately 31 percent of our total revenues. Our general rentals segment accounted for most of these sales. For the three and nine months ended September 30, 2017,March 31, 2023, sales of new equipment increased 33.3 percent and 31.3 percent, respectively, from the same periods in 2016, primarily reflecting increased volume and increased sales of larger equipment.did not change significantly year-over-year.
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 ninethree months ended September 30, 2017,March 31, 2023, contractor supplies sales represented approximately 1 percent of our total revenues. Our general rentals segment accounted for most of these sales. ContractorFor the three months ended March 31, 2023, contractor supplies sales for the three and nine months ended September 30, 2017 did not change significantly from the same periods in 2016.year-over-year.
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 ninethree months ended September 30, 2017,March 31, 2023, 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 months ended September 30, 2017,March 31, 2023, service and other revenues increased 20.023.4 percent from the same period in 2016year-over-year, primarily reflecting the impact of the NES acquisition discussed in note 2due to the condensed consolidated financial statements and an increased emphasis on this line of business. For the nine months ended September 30, 2017, service and other revenues did not change significantly from the same period in 2016.growth initiatives.
Segment Equipment Rentals Gross Profit
Segment equipment rentals gross profit and gross margin were as follows:
| | | | | | | | | | | | | | | | | |
| General
rentals | | Specialty | | Total |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Three Months Ended March 31, 2023 | | | | | |
| Equipment Rentals Gross Profit | $ | 663 | | | $ | 340 | | | $ | 1,003 | |
| Equipment Rentals Gross Margin | 32.9 | % | | 47.1 | % | | 36.6 | % |
| Three Months Ended March 31, 2022 | | | | | |
| Equipment Rentals Gross Profit | $ | 575 | | | $ | 259 | | | $ | 834 | |
| Equipment Rentals Gross Margin | 36.1 | % | | 44.5 | % | | 38.3 | % |
|
| | | | | | | | | | | |
| | General rentals | | Trench, power and pump | | Total |
| Three Months Ended September 30, 2017 | | | | | |
| Equipment Rentals Gross Profit | $ | 525 |
| | $ | 164 |
| | $ | 689 |
|
| Equipment Rentals Gross Margin | 42.4 | % | | 54.8 | % | | 44.9 | % |
| Three Months Ended September 30, 2016 | | | | | |
| Equipment Rentals Gross Profit | $ | 469 |
| | $ | 117 |
| | $ | 586 |
|
| Equipment Rentals Gross Margin | 42.8 | % | | 52.0 | % | | 44.3 | % |
| Nine Months Ended September 30, 2017 | | | | | |
| Equipment Rentals Gross Profit | $ | 1,350 |
| | $ | 359 |
| | $ | 1,709 |
|
| Equipment Rentals Gross Margin | 40.2 | % | | 50.4 | % | | 42.0 | % |
| Nine Months Ended September 30, 2016 | | | | | |
| Equipment Rentals Gross Profit | $ | 1,243 |
| | $ | 274 |
| | $ | 1,517 |
|
| Equipment Rentals Gross Margin | 40.5 | % | | 47.6 | % | | 41.6 | % |
General rentals. For the three months ended September 30, 2017,March 31, 2023, equipment rentals gross profit increased by $56$88, and equipment rentals gross margin decreased by 40320 basis points, from 2016. The gross margin decrease2022, 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, includingdue to the impact of the NESAhern Rentals acquisition. OnAs a pro forma basis including NES' standalone, pre-acquisition results,percentage of revenue, depreciation and repairs and maintenance expenses for the volume of OEC on rent increased 5.5 percent. We believe that the increaserental equipment acquired in the volume of OEC on rent reflects improving demand in many ofAhern Rentals acquisition were higher than for 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.other rental equipment, which negatively impacted equipment rentals gross margin year-over-year.
Specialty. 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,March 31, 2023, 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$81, and equipment rentals gross margin increased by 280260 basis points, from 2016. The increase in equipment rentals gross profit primarily reflects2022. Gross margin increased equipment rentals revenue on a larger fleet. Year-over-year, trench, power and pump equipment rentals increased 32.9 percent, average OEC increased 16.9 percent and the volume of OEC on rent increased 38.6 percent. The increase in the volume of OEC on rent significantly exceeded the increase in average OEC primarily due to improvedbetter cost 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. The increase in equipment rentals gross margin reflected decreased compensation, depreciation and property costs as a percentage offixed cost absorption on higher revenue. As compared to the equipment rentals revenue increase 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 percent and property costs were flat. 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.
For the nine months ended September 30, 2017, equipment rentals gross profit increased by $85 and equipment rentals gross margin increased by 280 basis points from 2016. The increase in equipment rentals gross profit primarily reflects increased equipment rentals revenue on a larger fleet. Year-over-year, trench, power and pump equipment rentals increased 23.6 percent, average OEC increased 10.4 percent and the volume of OEC on rent increased 30.6 percent. 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. The increase in equipment rentals gross margin reflected decreased compensation, depreciation and property costs as a percentage of revenue. As compared to the equipment rentals revenue increase 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 percent 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.
Gross Margin. Gross margins by revenue classification were as follows:
| | | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change | | | 2023 | | 2022 | | Change |
| Total gross margin | 43.8 | % | | 43.5 | % | | 30 bps | | 41.2% | | 41.2% | | — | Total gross margin | | 37.8% | | 39.3% | | (150) bps |
| Equipment rentals | 44.9 | % | | 44.3 | % | | 60 bps | | 42.0% | | 41.6% | | 40 bps | Equipment rentals | | 36.6% | | 38.3% | | (170) bps |
| Sales of rental equipment | 39.6 | % | | 39.3 | % | | 30 bps | | 40.5% | | 40.4% | | 10 bps | Sales of rental equipment | | 49.0% | | 55.0% | | (600) bps |
| Sales of new equipment | 15.0 | % | | 16.7 | % | | (170) bps | | 14.3% | | 17.7% | | (340) bps | Sales of new equipment | | 18.2% | | 17.8% | | 40 bps |
| Contractor supplies sales | 33.3 | % | | 31.6 | % | | 170 bps | | 30.0% | | 31.7% | | (170) bps | Contractor supplies sales | | 29.4% | | 31.0% | | (160) bps |
| Service and other revenues | 53.3 | % | | 60.0 | % | | (670) bps | | 51.2% | | 59.5% | | (830) bps | Service and other revenues | | 38.0% | | 39.1% | | (110) bps |
For the three months ended September 30, 2017,March 31, 2023, total gross margin increased 30decreased 150 basis points as compared tofrom the same period in 2016.2022. Equipment rentals gross margin increased 60 basis points, primarily reflecting a 160 basis point increase in time utilization 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, 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 7.6 percent. We believe that the increase in the volume of OEC on rent reflects improving demand in many of our core markets. As compared to the equipment rentals revenue increase of 16.2 percent, compensation costs increased 19.1 percent due in part to increased bonuses associated with improved operating results. Gross margin from sales of new equipment decreased 170 basis points. Sales of new equipment increased 33.3 percent, primarily reflecting increased volume 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, as a result of our increased focus on the service line of business, we increased the allocation of labor to it. Such labor costs were formerly included in cost of equipment rentals.
For the nine months ended September 30, 2017, total gross margin was flat with the same period in 2016. Equipment rentals gross margin increased 40 basis points, primarily reflecting a 190 basis point increase in time utilization partially offset by a 0.7 percent rental rate decrease. The decreased rental rates reflected the impact of the NES acquisition, pressure from Canada and the impact of industry fleet expansion. For 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. On a pro forma basis including NES' standalone, pre-acquisition results, the volume of OEC on rent increased 6.9 percent. We believe that the increase in the volume of OEC on rent reflects improving demand in many of our core markets. Gross margin from sales of new equipment decreased 340 basis points. 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 from 2022, primarily due to the impact of some large volume sales at lower margins.the Ahern Rentals acquisition. As a percentage of revenue, depreciation and repairs and maintenance expenses for the rental equipment acquired in the Ahern Rentals acquisition were higher than for our other rental equipment, which negatively impacted equipment rentals gross margin year-over-year. Gross margin from sales of rental equipment decreased 600 basis points from the same period in 2022, primarily due to the impact of lower margin sales of rental equipment acquired in the Ahern Rentals acquisition. The equipment acquired in the Ahern Rentals acquisition was recorded at fair value as of the December 2022 acquisition date, and
the gross margins on the sale of such acquired equipment were less than the gross margins achieved upon the sale of other rental equipment. As reflected in the above gross margin, pricing on sales of rental equipment remains strong. The gross margin fluctuations from sales of new equipment, contractor supplies sales and service and other revenues decreased 830 basis points. In 2017, asgenerally reflect normal variability, and such revenue types did not account for a resultsignificant portion of our increased focus ontotal gross profit (gross profit for these revenue types represented 4 percent of total 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 March 31, 2023).
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 nine months ended September 30, 2017 and 2016: metrics:
| | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
| | | | | | | 2023 | | 2022 | Change |
| Selling, general and administrative ("SG&A") expense | | | | | | $382 | | $323 | 18.3% |
| SG&A expense as a percentage of revenue | | | | | | 11.6% | | 12.8% | (120) bps |
| | | | | | | | | |
| Restructuring charge | | | | | | 1 | | — | —% |
| Non-rental depreciation and amortization | | | | | | 118 | | 97 | 21.6% |
| Interest expense, net | | | | | | 150 | | 94 | 59.6% |
| Other income, net | | | | | | (4) | | (5) | (20.0)% |
| Provision for income taxes | | | | | | 143 | | 116 | 23.3% |
| Effective tax rate | | | | | | 24.1% | | 24.0% | 10 bps |
| | | | | | | | | |
|
| | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2017 | | 2016 | Change | | 2017 | | 2016 | Change |
| Selling, general and administrative ("SG&A") expense | $237 | | $179 | 32.4% | | $648 | | $533 | 21.6% |
| SG&A expense as a percentage of revenue | 13.4% | | 11.9% | 150 bps | | 13.7% | | 12.6% | 110 bps |
| Merger related costs | 16 | | — | —% | | 32 | | — | —% |
| Restructuring charge | 9 | | 4 | 125.0% | | 28 | | 8 | 250.0% |
| Non-rental depreciation and amortization | 63 | | 61 | 3.3% | | 189 | | 192 | (1.6)% |
| Interest expense, net | 131 | | 110 | 19.1% | | 338 | | 349 | (3.2)% |
| Other income, net | (5) | | (1) | 400.0% | | (5) | | (3) | 66.7% |
| Provision for income taxes | 123 | | 116 | 6.0% | | 263 | | 254 | 3.5% |
| Effective tax rate | 38.2% | | 38.3% | (10) bps | | 36.9% | | 38.1% | (120) 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 nine months ended September 30, 2017March 31, 2023 decreased from the same period in 2022 primarily reflect increased compensation costs, including stock compensation costs, largely due to the impactbetter fixed cost absorption on higher revenue (in particular, salaries and benefits declined 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 discussed in note 2 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.
The restructuring charges primarily reflect severance and branch closure charges associated with our restructuring programs. 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. The designated restructuring programs generally involve the closure of a large number of branches over a short period of time, often in periods following a major acquisition, and result in significant costs that we would not normally incur absent a major acquisition or other triggering event that results in the initiation of a restructuring program. Since the first such program was initiated in 2008, we have completed six restructuring programs and have incurred total restructuring charges of $353.
In the secondfirst quarter of 2017,2023, we initiated a restructuring program following the closing of the NESAhern Rentals acquisition discussed in note 2above. We expect 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 Neff acquisition that is discussed in note 2 to the condensed consolidated financial statements on October 2, 2017,complete the restructuring program will include actions thatin 2023, and we currently expect to undertakeincur approximately $15 of additional expenses under the program. As of March 31, 2023, the total liability associated with the Neff acquisition. For additional information, see note 4 to our condensed consolidated financial statements.open and closed restructuring programs was $6.
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, net for the threetrade names and nine months ended September 30, 2017 includes losses of $31associated trademarks. The year-over-year increase in non-rental depreciation 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, as discussed in note 8 to the condensed consolidated financial statements. Interest expense, net for the three and nine months ended September 30, 2016 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. Excludingamortization primarily reflects the impact of the debt redemption losses, interestAhern Rentals acquisition discussed above.
Interest expense, net for the three months ended September 30, 2017 was flatMarch 31, 2023 increased 59.6 percent year-over-year, primarily due to increased average debt, offset by a lower average cost of debt. Excluding the impact ofincluding the debt redemption losses,issued to partially fund the Ahern Rentals acquisition discussed above, and higher variable debt interest expense, netrates. The weighted average interest rates on our variable debt instruments were 5.9 percent and 1.6 percent for the ninethree months ended September 30, 2017 decreasedMarch 31, 2023 and 2022, respectively.
Other (income) expense, net primarily includes i) currency gains and losses, ii) finance charges, iii) gains and losses on sales of non-rental equipment and iv) other miscellaneous items.
The effective tax rates for 2023 and 2022 differed from the federal statutory rate of 21 percent primarily due to a lower average cost of debt.
The differences between the 2017 and 2016 effective tax rates and the U.S. federal statutory income tax rate of 35 percent primarily reflect the geographical mix of income between foreign and domestic operations, and the impact of state and local taxes, stock compensation, other deductible and certain nondeductible charges. Additionally, theThe effective income tax rate for the ninethree months ended September 30, 2017 includesMarch 31, 2023 did not change significantly year-over-year.
Balance sheet. Prepaid expenses and other assets decreased by $114, or 29.9 percent, from December 31, 2022 to March 31, 2023, primarily due to the use of a portion of a tax reduction of $8receivable associated with excess tax benefitsthe Ahern Rentals acquisition to reduce
cash paid for income taxes (see note 5 to the condensed consolidated financial statements for further detail). Accrued expenses and other liabilities decreased by $138, or 12.1 percent, from share-basedDecember 31, 2022 to March 31, 2023, primarily due to the payment arrangements,of accrued bonuses. Operating lease right-of-use assets increased by $245, or 29.9 percent, and operating lease liabilities increased by $215, or 33.5 percent, from December 31, 2022 to March 31, 2023, and both increases primarily reflect the impact of the Ahern Rentals acquisition, 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 23 to the condensed consolidated financial statements. Rental equipment, net increased by $1.202 billion, or 19.4 percent, from December 31, 2016 to September 30, 2017 primarily dueSee the condensed consolidated statements of cash flows for further information on changes in cash and cash equivalents, the condensed consolidated statements of stockholders’ equity for further information on changes in stockholders’ equity and note 8 to the impactcondensed consolidated financial statements for further information on debt changes.
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"
On October 24, 2022, our Board of Directors authorized a $1.25 billion share repurchase program. This program was paused through the initial phase of the integration of the Ahern Rentals acquisition, and repurchases began in the first quarter of 2023. We expect to repurchase $1.0 billion of common stock under the program in 2023, and have repurchased $250 under the program through March 31, 2023. A 1 percent excise tax is imposed on “net repurchases” (certain purchases minus certain issuances) of common stock. The repurchases above for a summary of recent capital structure actions taken to improve our financial flexibility(as well as the total program size and liquidity.
expected 2023 repurchases) do not include the excise tax, which totaled $1 year-to-date through March 31, 2023. Since 2012, we have repurchased a total of $1.450$5.208 billion (inclusive of immaterial excise taxes, which were first imposed in 2023) of Holdings' common stock under three completedour share repurchase programs. Additionally,programs (comprised of seven programs that have ended and the current program).
Our Board of Directors also approved our first-ever quarterly dividend program in July 2015, our Board authorized a $1 billion share repurchase program which commenced in November 2015. As of October 16, 2017, we have repurchased $627 of Holdings' common stock underJanuary 2023, and the $1 billion share repurchase program. In October 2016, we paused repurchasesfirst dividend under the program aswas paid in February 2023. We did not pay any dividends prior to 2023, and during the three months ended March 31, 2023, we evaluated potential acquisition opportunities. As discussed in note 2 to the condensed consolidated financial statements, we completed the acquisitions of NES inpaid dividends totaling $103 ($1.48 per share). On April 2017 and Neff in October 2017. In October 2017,26, 2023, our Board authorized the resumption of the $1 billionDirectors declared a quarterly dividend of $1.48 per share, repurchase program, and we intendpayable on May 24, 2023 to complete the program in 2018.stockholders of record on May 10, 2023.
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 September 30, 2017,March 31, 2023, we had cash and cash equivalents of $324. Cash equivalents at September 30, 2017 consist of direct obligations of financial institutions rated A or better.$99. 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 ninethree months ended September 30, 2017:March 31, 2023:
|
| | | |
| 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 | $ | 2,336 | |
| Outstanding debt, net of debt issuance costs | 1,838 | |
| Interest rate at March 31, 2023 | 5.9 | % |
| Average month-end principal amount of debt outstanding | 1,750 | |
| Weighted-average interest rate on average debt outstanding | 5.7 | % |
| Maximum month-end principal amount of debt outstanding | 1,848 | |
| Accounts receivable securitization facility: | |
| Borrowing capacity | 220 | |
| Outstanding debt, net of debt issuance costs | 879 | |
| Interest rate at March 31, 2023 | 5.7 | % |
| Average month-end principal amount of debt outstanding | 966 | |
| Weighted-average interest rate on average debt outstanding | 5.6 | % |
| Maximum month-end principal amount of debt outstanding | 1,100 | |
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, (vi) dividends and (vi)(vii) 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, 2017April 24, 2023 were as follows:
|
| | | | | | | | | | |
| Corporate Rating | | Outlook |
| Moody’s | Ba2Ba1 | | 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 September 30, 2017,March 31, 2023, we were in compliance with the covenants and other provisions of the ABL, facility, the accounts receivable securitization, facilityterm loan and repurchase 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 September 30, 2017,March 31, 2023, 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 ninethree months ended September 30, 2017,March 31, 2023, we (i) generated cash from operating activities of $1.766 billion,$939, (ii) generated cash from the sale of rental and non-rental equipment of $388$400 and (iii) received cash from debt proceeds, net of payments, of $546.$220. We used cash during this period principally to (i) purchase rental and non-rental equipment and intangible assets of $1.572 billion,$870, (ii) purchase other companies for $1.063 billion,$299 (iii) purchase shares of our common stock for $26$303 and (iv) pay financing costsdividends of $44.$103. During the ninethree months ended September 30, 2016,March 31, 2022, we (i) generated cash from operating activities of $1.630 billion$886 and (ii) generated cash from the sale of rental and non-rental equipment of $373.$216. We used cash during this period principally to (i) purchase rental and non-rental equipment and intangible assets of $1.210 billion,$537, (ii) purchase other companies for $77, (iii) make debt payments, net of proceeds, of $209$217 and (iii)(iv) purchase shares of our common stock for $488.$318.
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 rental and non-rental equipment and excess tax benefitsintangible assets. The equipment and intangible asset purchases and proceeds 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.
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| | | | | | | |
| | Nine Months Ended |
| | September 30, |
| | 2017 | | 2016 |
| Net cash provided by operating activities | $ | 1,766 |
| | $ | 1,630 |
|
| Purchases of rental equipment | (1,485 | ) | | (1,145 | ) |
| Purchases of non-rental equipment | (87 | ) | | (65 | ) |
| Proceeds from sales of rental equipment | 378 |
| | 361 |
|
| Proceeds from sales of non-rental equipment | 10 |
| | 12 |
|
| Excess tax benefits from share-based payment arrangements (1) | — |
| | 53 |
|
| Free cash flow | $ | 582 |
| | $ | 846 |
|
| |
(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. |
| | | | | | | | | | | |
| Three Months Ended |
| | March 31, |
| | 2023 | | 2022 |
| Net cash provided by operating activities | $ | 939 | | | $ | 886 | |
| Purchases of rental equipment | (797) | | | (482) | |
| Purchases of non-rental equipment and intangible assets | (73) | | | (55) | |
| Proceeds from sales of rental equipment | 388 | | | 211 | |
| Proceeds from sales of non-rental equipment | 12 | | | 5 | |
| Insurance proceeds from damaged equipment | 9 | | | 7 | |
| | | |
| Free cash flow | $ | 478 | | | $ | 572 | |
Free cash flow for the ninethree months ended September 30, 2017March 31, 2023 was $582,$478, a decrease of $264$94 as compared to $846$572 for the ninethree months ended September 30, 2016.March 31, 2022. Free cash flow decreased primarily due to increased purchasesnet rental capital expenditures (purchases of rental equipment less the proceeds from sales of rental equipment), partially offset by increased net cash provided by operating activities. Net rental capital expenditures increased $138 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.
|
| |
(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.
|
| |
(3) | These primarily represent service agreements with third parties to provide wireless and network services. |
| |
(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. |
| |
(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.
Information Regarding Guarantors of URNA Indebtedness
URNA is 100 percent owned by Holdings and has certain outstanding indebtedness that is guaranteed by both Holdings 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”), captive insurance subsidiary and immaterial subsidiaries acquired in connection with the General Finance acquisition, all of URNA’s U.S. subsidiaries (the “guarantor subsidiaries”). Other than the guarantee by our Canadian subsidiary of URNA's indebtedness under the ABL facility, none of URNA’s indebtedness is guaranteed by URNA's foreign subsidiaries, the SPV, captive insurance subsidiary or immaterial subsidiaries acquired in connection with the General Finance acquisition (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 Holdings’ other subsidiaries. Holdings consolidates each of URNA and the guarantor subsidiaries in its consolidated financial statements. URNA and the guarantor subsidiaries are all 100 percent-owned and controlled by Holdings. Holdings’ guarantees of URNA’s indebtedness are full and unconditional, except that the guarantees may be automatically released and relieved upon satisfaction of the requirements for legal defeasance or covenant defeasance under the applicable indenture being met. The Holdings 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 Holdings will not exceed the maximum amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws.
The guarantees of Holdings and the guarantor subsidiaries are made on a joint and several basis. The guarantees of the guarantor subsidiaries 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 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. Like the Holdings guarantees, the guarantees of the guarantor subsidiaries are 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.
All of the existing guarantees by Holdings and the guarantor subsidiaries rank equally in right of payment with all of the guarantors' existing and future senior indebtedness. The secured indebtedness of Holdings and the guarantor subsidiaries (including guarantees of URNA’s existing and future secured indebtedness) will rank effectively senior to guarantees of any unsecured indebtedness to the extent of the value of the assets securing such indebtedness. Future guarantees of subordinated indebtedness will rank junior to any existing and future senior indebtedness of the guarantors. The guarantees of URNA’s indebtedness are effectively junior to any indebtedness of our subsidiaries that are not guarantors, including our foreign subsidiaries. As of March 31, 2023, the indebtedness of our non-guarantors was comprised of (i) $879 of outstanding borrowings by the SPV in connection with the Company’s accounts receivable securitization facility, (ii) $117 of outstanding borrowings under the ABL facility by non-guarantor subsidiaries and (iii) $8 of finance leases of our non-guarantor subsidiaries.
Covenants in the ABL facility, accounts receivable securitization and term loan facilities, and the other agreements governing our debt, impose operating and financial restrictions on URNA, Holdings and the guarantor subsidiaries, including limitations on the ability to make share repurchases and dividend payments. As of March 31, 2023, the amount available for distribution under the most restrictive of these covenants was $1.158 billion. The Company’s total available capacity for making share repurchases and dividend payments includes the intercompany receivable balance of Holdings. As of March 31, 2023, 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 Holdings, was $6.185 billion.
Based on our understanding of Rule 3-10 of Regulation S-X ("Rule 3-10"), we believe that Holdings’ guarantees of URNA indebtedness comply with the conditions set forth in Rule 3-10, which enable us to present summarized financial information for Holdings, URNA and the consolidated guarantor subsidiaries in accordance with Rule 13-01 of Regulation S-X. The summarized financial information excludes the financial information of the non-guarantor subsidiaries. In accordance with Rule 3-10, separate financial statements of the guarantor subsidiaries have not been presented. Our presentation below excludes the investment in the non-guarantor subsidiaries and the related income from the non-guarantor subsidiaries.
The summarized financial information of Holdings, URNA and the guarantor subsidiaries on a combined basis is as follows:
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| March 31, 2023 |
| Current receivable from non-guarantor subsidiaries | $23 |
| Other current assets | 466 |
| Total current assets | 489 |
| Long-term receivable from non-guarantor subsidiaries | 100 |
| Other long-term assets | 20,168 |
| Total long-term assets | 20,268 |
| Total assets | 20,757 |
| Current liabilities | 1,998 |
| Long-term liabilities | 13,981 |
| Total liabilities | 15,979 |
| Three Months Ended March 31, 2023 |
| Total revenues | $2,983 |
| Gross profit | 1,126 |
| Net income | 387 |
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
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 September 30, 2017,March 31, 2023, we had an aggregate of $1.1$3.8 billion of indebtedness that bears interest at variable rates, comprised of borrowings under the ABL, facility and the accounts receivable securitization, facility.term loan and repurchase 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 8 to the condensed consolidated financial statements for the amounts outstanding, and the interest rates thereon, as of September 30, 2017March 31, 2023 under the ABL facility and the accounts receivable securitization facility.these facilities. As of September 30, 2017,March 31, 2023, based upon the amount of our variable rate debt outstanding, our annual after-tax earnings would decrease by approximately $7$28 for each one percentage point increase in the interest rates applicable to our variable rate debt.
At September 30, 2017,March 31, 2023, we had an aggregate of $7.3$7.9 billion of indebtedness that bears interest at fixed rates. A one percentage point decrease in market interest rates as of September 30, 2017March 31, 2023 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 7 (see “Fair Value of Financial Instruments”) to our condensed consolidated financial statements.
Currency Exchange Risk. The functional currency for our Canadian operations is the Canadian dollar. As a result, our future earnings could be affected by fluctuationsWe primarily operate in the exchange rate between the U.S. and Canadian dollars. Based uponCanada, and have a limited presence in Europe, Australia and New Zealand. During the levelthree months ended March 31, 2023, our foreign subsidiaries accounted for $301, or 9 percent, of our Canadiantotal revenue of $3.285 billion, and $57, or 10 percent, of our total pretax income of $594. 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 |
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 September 30, 2017.March 31, 2023. 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 September 30, 2017.March 31, 2023.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2017March 31, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1.Legal Proceedings
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.
Item 1A.Risk Factors
Our results of operations and financial condition are subject to numerous risks and uncertainties described in our 20162022 Form 10-K, which risk factors are incorporated herein by reference. You should carefully consider thesethe risk factors in our 2022 Form 10-K 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 |
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 thirdfirst quarter of 2017:2023:
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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) |
| January 1, 2023 to January 31, 2023 | 63,945 | | (1) | $ | 391.95 | | | — | | | |
| February 1, 2023 to February 28, 2023 | 110,898 | | (1) | $ | 450.63 | | | 109,836 | | | |
| March 1, 2023 to March 31, 2023 | 553,458 | | (1) | $ | 411.01 | | | 495,127 | | | |
| Total | 728,301 | | | $ | 415.37 | | | 604,963 | | | $ | 1,000,001,111 | |
(1)In January 2023, February 2023 and March 2023, 63,945, 1,062 and 58,331 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.
(2)On October 24, 2022, our Board authorized a $1.25 billion share repurchase program, which was paused through the initial phase of the integration of the Ahern Rentals acquisition that is discussed in note 3 to the condensed consolidated financial statements. Repurchases under the program began in the first quarter of 2023, and we expect to repurchase $1.0 billion of common stock under the program in 2023. A 1 percent excise tax is imposed on “net repurchases” (certain purchases minus certain issuances) of common stock. The repurchases above (as well as the total program size and expected 2023 repurchases) do not include the excise tax, which totaled $1 million year-to-date through March 31, 2023.
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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 |
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| August 1, 2017 to August 31, 2017 | 17,452 |
| (1) | $ | 116.54 |
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| September 1, 2017 to September 30, 2017 | 923 |
| (1) | $ | 73.09 |
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| Total | 18,994 |
| | $ | 113.62 |
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| | $ | 372,997,032 |
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(1) | Reflects shares 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, our Board authorized a $1 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 we intend to complete the program in 2018. |
Item 6.Exhibits
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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, Inc., UR Merger Sub IV Corporation and BakerCorp International Holdings, Inc. (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 July 2, 2018) |
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| 2(b) | Asset Purchase Agreement, dated as of November 11, 2022, by and among United Rentals (North America), Inc., UR Merger Sub III CorporationAhern Rentals, Inc., and Neff CorporationXtreme Re-Rental, LLC (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 August 17, 2017November 14, 2022)) |
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4(a)10 | Indenture for the 4 7/8 percent Notes due 2028, datedEmployment Agreement, effective as of August 11, 2017, among United Rentals (North America), Inc.,July 29, 2022, between 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)William Edward Grace (incorporated by reference to Exhibit 4.110.1 to the Current Report on Form 8-K filed by United Rentals, Inc. on July 22, 2022) |
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4(b)31(a)* | 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) | Assignment and Acceptance Agreement and Amendment No. 6 to Third Amended and Restated Receivables Purchase Agreement and Amendment No. 4 to Third Amended and Restated Purchase and Contribution Agreement, dated as of August 29, 2017, 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, 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, 2017) |
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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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31(a)* | |
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| 32(b)** | |
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101101.INS | The following materials fromXBRL Instance Document - the Quarterly Report on Form 10-Q for United Rentals, Inc. and United Rentals (North America), Inc., forinstance document does not appear in the quarter ended September 30, 2017 filed on October 18, 2017, formatted inInteractive Data File because its 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 totags are embedded within the Unaudited Condensed Consolidated Financial Statements.Inline XBRL document |
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*101.SCH | Filed herewith.XBRL Taxonomy Extension Schema Document |
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**101.CAL | Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K under the Exchange Act.XBRL Taxonomy Extension Calculation Linkbase Document |
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| 101.DEF | XBRL 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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| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith.
** Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K under the Exchange Act.
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: | April 26, 2023 | By: | | /S/ ANDREW B. LIMOGES |
| | | | Andrew 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, 2017April 26, 2023 | By: | | /S/ JESSICA T. GRAZIANO ANDREW B. LIMOGES |
| | | | Jessica T. Graziano
Senior Andrew 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, 2017 | By: | | /S/ JESSICA T. GRAZIANO
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| | | | Jessica T. Graziano
Senior Vice President, Controller and Principal Accounting Officer |
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