10-Q
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 ___________________________________
FORM 10-Q
___________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
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
Delaware
 
06-1522496
86-0933835
(States of Incorporation)
 
(I.R.S. Employer Identification Nos.)
 
 
100 First Stamford Place, Suite 700
Stamford, Connecticut
 
06902
(Address of Principal Executive Offices)
 
(Zip Code)
Registrants’ Telephone Number, Including Area Code: (203) 622-3131 
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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
 
x
Accelerated Filer
 
o
 
 
Non-Accelerated Filer
 
o
Smaller Reporting Company
 
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 19, 2015, there were 92,828,361 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.


Table of Contents


UNITED RENTALS, INC.
UNITED RENTALS (NORTH AMERICA), INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2015
INDEX
 
 
 
Page
PART I
 
 
 
 
Item 1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2
 
 
 
Item 3
 
 
 
Item 4
 
 
 
PART II
 
 
 
 
Item 1
 
 
 
Item 1A
 
 
 
Item 2
 
 
 
Item 6
 
 
 
 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements can be identified by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “seek,” “on-track,” “plan,” “project,” “forecast,” “intend” or “anticipate,” or the negative thereof or comparable terminology, or by discussions of strategy or outlook. You are cautioned that our business and operations are subject to a variety of risks and uncertainties, many of which are beyond our control, and, consequently, our actual results may differ materially from those projected.

Factors that could cause actual results to differ materially from those projected include, but are not limited to, the following:

the possibility that RSC Holdings Inc. ("RSC"), National Pump1 or other companies that we have acquired or may acquire, in our specialty business or otherwise, could have undiscovered liabilities or involve other unexpected costs, may strain our management capabilities or may be difficult to integrate;
a change in the pace of the recovery in our end markets; our business is cyclical and highly sensitive to North American construction and industrial activities as well as the energy sector, in general; if the pace of the recovery slows or construction activity declines, our revenues and, because many of our costs are fixed, our profitability may be adversely affected;
our significant indebtedness (which totaled $8.5 billion at September 30, 2015) 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 at terms that are favorable to us, or at all;
incurrence of additional debt, which could exacerbate the risks associated with our current level of indebtedness;
noncompliance with financial or other covenants in our debt agreements, which could result in our lenders terminating our credit facilities and requiring us to repay outstanding borrowings;
restrictive covenants and amount of borrowings permitted in our debt instruments, which can limit our financial and operational flexibility;
inability to benefit from government spending, including spending associated with infrastructure projects;
fluctuations in the price of our common stock and inability to complete stock repurchases in the time frame and/or on the terms anticipated;
rates we charge and time utilization we achieve being less than anticipated;
inability to manage credit risk adequately or to collect on contracts with a large number of customers;
inability to access the capital that our businesses or growth plans may require;
incurrence of impairment charges;
the fact that our holding company structure requires us to depend in part on distributions from subsidiaries and such distributions could be limited by contractual or legal restrictions;
increases in our loss reserves to address business operations or other claims and any claims that exceed our established levels of reserves;
incurrence of additional expenses (including indemnification obligations) and other costs in connection with litigation, regulatory and investigatory matters;
the outcome or other potential consequences of regulatory matters and commercial litigation;
shortfalls in our insurance coverage;
our charter provisions as well as provisions of certain debt agreements and our significant indebtedness may have the effect of making more difficult or otherwise discouraging, delaying or deterring a takeover or other change of control of us;
turnover in our management team and inability to attract and retain key personnel;
costs we incur being more than anticipated, and the inability to realize expected savings in the amounts or time frames planned;
dependence on key suppliers to obtain equipment and other supplies for our business on acceptable terms;
inability to sell our new or used fleet in the amounts, or at the prices, we expect;
competition from existing and new competitors;

_______________

1.
In April 2014, we acquired assets of the following four entities: National Pump & Compressor, Ltd., Canadian Pump and Compressor Ltd., GulfCo Industrial Equipment, LP and LD Services, LLC (collectively “National Pump”).

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risks related to security breaches, cybersecurity attacks and other significant disruptions in our information technology systems;
the costs of complying with environmental, safety and foreign law and regulations, as well as other risks associated with non-U.S. operations, including currency exchange risk;
labor disputes, work stoppages or other labor difficulties, which may impact our productivity, and potential enactment of new legislation or other changes in law affecting our labor relations or operations generally; and
increases in our maintenance and replacement costs and/or decreases in the residual value of our equipment.

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, 2014, 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.


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PART I. FINANCIAL INFORMATION
 
Item 1.
Financial Statements

UNITED RENTALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
 
 
September 30, 2015
 
December 31, 2014
 
(unaudited)
 
ASSETS
 
 
 
Cash and cash equivalents
$
171

 
$
158

Accounts receivable, net of allowance for doubtful accounts of $48 at September 30, 2015 and $43 at December 31, 2014
994

 
940

Inventory
77

 
78

Prepaid expenses and other assets
58

 
122

Deferred taxes
126

 
248

Total current assets
1,426

 
1,546

Rental equipment, net
6,438

 
6,008

Property and equipment, net
436

 
438

Goodwill
3,257

 
3,272

Other intangible assets, net
948

 
1,106

Other long-term assets
93

 
97

Total assets
$
12,598

 
$
12,467

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Short-term debt and current maturities of long-term debt
$
639

 
$
618

Accounts payable
475

 
285

Accrued expenses and other liabilities
403

 
575

Total current liabilities
1,517

 
1,478

Long-term debt
7,876

 
7,434

Deferred taxes
1,653

 
1,692

Other long-term liabilities
55

 
65

Total liabilities
11,101

 
10,669

Temporary equity

 
2

Common stock—$0.01 par value, 500,000,000 shares authorized, 110,982,341 and 92,827,300 shares issued and outstanding, respectively, at September 30, 2015 and 108,233,686 and 97,877,580 shares issued and outstanding, respectively, at December 31, 2014
1

 
1

Additional paid-in capital
2,235

 
2,168

Retained earnings
919

 
503

Treasury stock at cost—18,155,041 and 10,356,106 shares at September 30, 2015 and December 31, 2014, respectively
(1,440
)
 
(802
)
Accumulated other comprehensive loss
(218
)
 
(74
)
Total stockholders’ equity
1,497

 
1,796

Total liabilities and stockholders’ equity
$
12,598

 
$
12,467

See accompanying notes.

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UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In millions, except per share amounts)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015

2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
Equipment rentals
$
1,326

 
$
1,315

 
$
3,671

 
$
3,499

Sales of rental equipment
141

 
140

 
381

 
388

Sales of new equipment
38

 
42

 
110

 
105

Contractor supplies sales
21

 
23

 
60

 
64

Service and other revenues
24

 
24

 
72

 
65

Total revenues
1,550

 
1,544

 
4,294

 
4,121

Cost of revenues:
 
 
 
 
 
 
 
Cost of equipment rentals, excluding depreciation
470

 
480

 
1,359

 
1,336

Depreciation of rental equipment
249

 
236

 
724

 
682

Cost of rental equipment sales
85

 
82

 
217

 
227

Cost of new equipment sales
31

 
33

 
91

 
84

Cost of contractor supplies sales
15

 
16

 
42

 
44

Cost of service and other revenues
10

 
9

 
29

 
23

Total cost of revenues
860

 
856

 
2,462

 
2,396

Gross profit
690

 
688

 
1,832

 
1,725

Selling, general and administrative expenses
178

 
194

 
534

 
549

Merger related costs

 
4

 
(26
)
 
13

Restructuring charge

 
(2
)
 
1

 
(2
)
Non-rental depreciation and amortization
66

 
70

 
202

 
200

Operating income
446

 
422

 
1,121

 
965

Interest expense, net
107

 
124

 
460

 
436

Other income, net
(1
)
 
(5
)
 
(10
)
 
(10
)
Income before provision for income taxes
340

 
303

 
671

 
539

Provision for income taxes
125

 
111

 
255

 
193

Net income
$
215

 
$
192

 
$
416

 
$
346

Basic earnings per share
$
2.28

 
$
1.95

 
$
4.33

 
$
3.57

Diluted earnings per share
$
2.25

 
$
1.84

 
$
4.27

 
$
3.29

See accompanying notes.

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UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In millions)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 Net income
$
215


$
192

 
$
416

 
$
346

 Other comprehensive loss, net of tax:
 
 
 
 
 
 
 
 Foreign currency translation adjustments
(71
)

(51
)
 
(144
)
 
(54
)
 Fixed price diesel swaps
(1
)


 

 

 Other comprehensive loss
(72
)
 
(51
)
 
(144
)
 
(54
)
 Comprehensive income (1)
$
143

 
$
141

 
$
272

 
$
292


(1)There were no material reclassifications from accumulated other comprehensive loss reflected in other comprehensive loss during 2015 or 2014. There is no tax impact related to the foreign currency translation adjustments, as the earnings are considered permanently reinvested. There were no material taxes associated with other comprehensive loss during 2015 or 2014.


See accompanying notes.


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UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In millions)
 
 
Common Stock
 
 
 
 
 
Treasury Stock
 
 
 
Number of
Shares (1)
 
Amount
 
Additional Paid-in
Capital
 
Retained Earnings
 
Number of
Shares
 
Amount
 
Accumulated Other Comprehensive
Loss (3)
Balance at December 31, 2014
98

 
$
1

 
$
2,168

 
$
503

 
10

 
$
(802
)
 
$
(74
)
Net income
 
 
 
 
 
 
416

 
 
 
 
 
 
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
 
 
(144
)
Stock compensation expense, net
 
 
 
 
37

 
 
 
 
 
 
 
 
Exercise of common stock options
 
 
 
 
1

 
 
 
 
 
 
 
 
4 percent Convertible Senior Notes (2)
3

 
 
 
1

 
 
 
 
 
 
 
 
Shares repurchased and retired
 
 
 
 
(29
)
 
 
 
 
 
 
 
 
Repurchase of common stock
(8
)
 
 
 
 
 
 
 
8

 
(638
)
 
 
Excess tax benefits from share-based payment arrangements, net
 
 
 
 
57

 
 
 
 
 
 
 
 
Balance at September 30, 2015
93

 
$
1

 
$
2,235

 
$
919

 
18

 
$
(1,440
)
 
$
(218
)
 
(1)An aggregate of less than 5 million net shares were issued during the year ended December 31, 2014.
(2)Reflects amortization of the original issue discount on the 4 percent Convertible Senior Notes (an amount equal to the unamortized portion of the original issue discount is reflected as “temporary equity” in our consolidated balance sheet) and the conversion of a portion of the 4 percent Convertible Senior Notes during the nine months ended September 30, 2015.
(3)The Accumulated Other Comprehensive Loss balance primarily reflects foreign currency translation adjustments.



See accompanying notes.

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UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In millions)
 
Nine Months Ended
 
September 30,
 
2015
 
2014
Cash Flows From Operating Activities:
 
 
 
Net income
$
416

 
$
346

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
926

 
882

Amortization of deferred financing costs and original issue discounts
8

 
14

Gain on sales of rental equipment
(164
)
 
(161
)
Gain on sales of non-rental equipment
(6
)
 
(7
)
Stock compensation expense, net
37

 
48

Merger related costs
(26
)
 
13

Restructuring charge
1

 
(2
)
Loss on repurchase/redemption of debt securities and amendment of ABL facility
123

 
80

Excess tax benefits from share-based payment arrangements
(57
)
 

Increase in deferred taxes
94

 
134

Changes in operating assets and liabilities, net of amounts acquired:
 
 
 
Increase in accounts receivable
(72
)
 
(99
)
Increase in inventory

 
(23
)
Decrease in prepaid expenses and other assets
17

 
10

Increase in accounts payable
195

 
197

Increase in accrued expenses and other liabilities
65

 
34

Net cash provided by operating activities
1,557

 
1,466

Cash Flows From Investing Activities:
 
 
 
Purchases of rental equipment
(1,425
)
 
(1,484
)
Purchases of non-rental equipment
(76
)
 
(84
)
Proceeds from sales of rental equipment
381

 
388

Proceeds from sales of non-rental equipment
14

 
26

Purchases of other companies, net of cash acquired
(86
)
 
(752
)
Net cash used in investing activities
(1,192
)
 
(1,906
)
Cash Flows From Financing Activities:
 
 
 
Proceeds from debt
7,453

 
5,911

Payments of debt
(7,093
)
 
(5,082
)
Payment of contingent consideration
(52
)
 

Proceeds from the exercise of common stock options
1

 
2

Common stock repurchased
(667
)
 
(399
)
Payments of financing costs
(27
)
 
(22
)
Cash received in connection with the 4 percent Convertible Senior Notes and related hedge, net

 
31

Excess tax benefits from share-based payment arrangements
57

 

Net cash (used in) provided by financing activities
(328
)
 
441

Effect of foreign exchange rates
(24
)
 
(8
)
Net increase (decrease) in cash and cash equivalents
13

 
(7
)
Cash and cash equivalents at beginning of period
158

 
175

Cash and cash equivalents at end of period
$
171

 
$
168

Supplemental disclosure of cash flow information:
 
 
 
Cash paid for income taxes, net
$
55

 
$
60

Cash paid for interest
304

 
315

See accompanying notes.

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UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share data, unless otherwise indicated)
1. Organization, Description of Business and Basis of Presentation
United Rentals, Inc. (“Holdings,” “URI” or the “Company”) is principally a holding company and conducts its operations primarily through its wholly owned subsidiary, United Rentals (North America), Inc. (“URNA”), and subsidiaries of URNA. Holdings’ primary asset is its sole ownership of all issued and outstanding shares of common stock of URNA. URNA’s various credit agreements and debt instruments place restrictions on its ability to transfer funds to its shareholder.
We rent equipment to a diverse customer base that includes construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government entities in the United States and Canada. 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, 2014 (the “2014 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 2014 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
Revenue from Contracts with Customers. In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance 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. The FASB has agreed to a one-year deferral of the original effective date of this guidance and as a result it will be effective for fiscal years and interim periods beginning after December 15, 2017. The FASB's update allows entities to apply the new guidance as of the original effective date (for fiscal years and interim periods beginning after December 15, 2016). We expect to adopt this guidance when effective, and the impact on our financial statements is not currently estimable.
Interest—Imputation of Interest. In April 2015, the FASB issued guidance on the presentation of debt issuance costs. This guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. This guidance is effective for fiscal years and interim periods beginning after December 15, 2015, and requires retrospective application. Early adoption is permitted, and we plan to adopt this guidance during the fourth quarter of 2015. We do not expect this guidance to have a significant impact on our financial statements, although it will change the financial statement classification of our debt issuance costs. As of September 30, 2015, $86 of net debt issuance costs were included in total assets in our condensed consolidated balance sheet. Under the new guidance, the net debt issuance costs would reduce the total debt shown on our balance sheet.
Inventory. In July 2015, the FASB issued guidance that requires an entity to measure inventory at the lower of cost or net realizable value. Current GAAP requires that an entity measure inventory at the lower of cost or market, and market under current GAAP could be replacement cost, net realizable value, or net realizable value less a normal profit margin. This guidance is effective for fiscal years and interim periods beginning after December 15, 2016, and requires prospective application. Early adoption is permitted. We expect to adopt this guidance when effective, and do not expect this guidance to have a significant impact on our financial statements.
Business Combinations. In September 2015, the FASB issued guidance to simplify the accounting for adjustments made during the measurement period to provisional amounts recognized in a business combination. This guidance requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the period in which the adjustment amount is determined. The acquirer is required to also record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition the acquirer is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if

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the adjustment to the provisional amounts had been recognized as of the acquisition date. This guidance is effective for fiscal years and interim periods beginning after December 15, 2015, and requires prospective application. Early adoption is permitted. We expect to adopt this guidance when effective, and do not expect this guidance to have a significant impact on our financial statements.
2. Acquisitions
In April 2014, we completed the acquisition of assets of the following four entities: National Pump & Compressor, Ltd., Canadian Pump and Compressor Ltd., GulfCo Industrial Equipment, LP and LD Services, LLC (collectively “National Pump”). National Pump was the second largest specialty pump rental company in North America. National Pump was a leading supplier of pumps for energy and petrochemical customers, with upstream oil and gas customers representing about half of its revenue. National Pump had a total of 35 branches, including four branches in western Canada, and had annual revenues of approximately $210. The acquisition is expected to expand our product offering, and supports our strategy of expanding our presence in industrial and specialty rental markets.
The acquisition date fair value of the consideration transferred consisted of the following:
 Cash consideration (1)
$
773

 Contingent consideration (2)
76

 Total purchase consideration (3)
$
849

(1) Includes a ‘hold back’ of $58 that was paid in April 2015.
(2) Reflects the acquisition date fair value of the contingent consideration that was paid in June 2015 as discussed in note 6 to our condensed consolidated financial statements.
(3) Total purchase consideration excludes $15 of stock which was issued in connection with the acquisition and will be treated as compensation for book purposes but primarily represents deductible goodwill for income tax purposes.
The following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date:
 Accounts receivable, net of allowance for doubtful accounts (1)
$
44

 Inventory
19

 Deferred taxes
6

 Rental equipment
172

 Property and equipment
10

 Intangibles (2)
289

 Other assets
1

 Total identifiable assets acquired
541

 Current liabilities
(25
)
 Total liabilities assumed
(25
)
 Net identifiable assets acquired
516

 Goodwill (3)
333

 Net assets acquired
$
849

(1) The fair value of accounts receivables acquired was $44, and the gross contractual amount was $47. We estimated that $3 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
$
274

10
 Non-compete agreements
15

6
 Total
$
289

 

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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)


(3) $321 of the goodwill was assigned to our trench, power and pump segment and $12 of the goodwill was assigned to our general rentals segment. The level of goodwill that resulted from the acquisition is primarily reflective of National Pump's going-concern value, the value of National Pump's assembled workforce, new customer relationships expected to arise from the acquisition, and operational synergies that we expect to achieve that would not be available to other market participants. $325 of goodwill is expected to be deductible for income tax purposes. The amount of goodwill that is expected to be deductible for income tax purposes declined during the nine months ended September 30, 2015 due to a decline in the fair value of the contingent cash consideration component of the National Pump purchase price due to lower than expected financial performance compared to agreed upon financial targets, as discussed in note 6 to our condensed consolidated financial statements.
The nine months ended September 30, 2015 includes a National Pump acquisition-related cost reduction of $26. The cost reduction reflects a decline in the fair value of the contingent cash consideration component of the National Pump purchase price due to lower than expected financial performance compared to agreed upon financial targets, as discussed in note 6 to our condensed consolidated financial statements. The cost reduction is included in “Merger related costs” in our condensed consolidated statements of income, which also include costs associated with the 2012 acquisition of RSC Holdings Inc. (“RSC”). The merger related costs are comprised of financial and legal advisory fees, and changes subsequent to the acquisition date to the fair value of the contingent cash consideration component of the National Pump purchase price as discussed in note 6 to our condensed consolidated financial statements. We do not expect to incur significant additional charges in connection with the acquisition subsequent to September 30, 2015. In addition to the acquisition-related costs reflected in our condensed consolidated statements of income, we capitalized $22 of debt issuance costs associated with the issuance of debt to fund the acquisition, which are reflected, net of amortization subsequent to the acquisition date, in other long-term assets in our condensed consolidated balance sheets.
The pro forma information below has been prepared using the purchase method of accounting, giving effect to the National Pump acquisition as if it had been completed on January 1, 2014 (“the pro forma acquisition date”). 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 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 table below presents unaudited pro forma consolidated income statement information as if National Pump had been included in our consolidated results for the entire periods reflected:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2014
United Rentals historic revenues
$
1,544

 
$
4,121

National Pump historic revenues

 
62

Pro forma revenues
1,544

 
4,183

United Rentals historic pretax income
303

 
539

National Pump historic pretax income

 
20

Combined pretax income
303

 
559

Pro forma adjustments to combined pretax income:
 
 
 
Impact of fair value mark-ups/useful life changes on depreciation (1)

 
(1
)
Intangible asset amortization (2)
(1
)
 
(12
)
Interest expense (3)
(4
)
 
58

Elimination of merger costs (4)
(1
)
 
8

Pro forma pretax income
$
297

 
$
612

(1) Depreciation of rental equipment and non-rental depreciation were adjusted for the fair value mark-ups of equipment acquired in the National Pump acquisition. The useful lives assigned to such equipment did not change significantly from the lives historically used by National Pump.
(2) The intangible assets acquired in the National Pump acquisition were amortized.
(3) In connection with the National Pump acquisition, URNA issued $525 principal amount of 6 1/8 percent Senior Notes (as an add on to our existing 6 1/8 percent Senior Notes) and $850 principal amount of 5 3/4 percent Senior Notes, and all our

12

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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)


outstanding 9 1/4 percent Senior Notes were redeemed. Interest expense was adjusted to reflect these changes in our debt portfolio. For the pro forma presentation, the $64 loss recognized upon redemption of the 9 1/4 percent Senior Notes was removed from the nine months ended September 30, 2014 as the loss was assumed to have been recognized prior to the pro forma acquisition date.
(4) Merger related costs, primarily comprised of financial and legal advisory fees, associated with the National Pump acquisition were eliminated as they were assumed to have been recognized prior to the pro forma acquisition date.
For the three and nine months ended September 30, 2015 and 2014 National Pump revenue and pretax income (loss) included in our condensed consolidated financial statements were as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Revenue
$
59

 
$
73

 
$
170

 
$
140

Pretax income (loss) (1)
2

 
16

 
(2
)
 
30


(1) Pretax income (loss) excludes merger related costs which are not allocated to our segments. Pretax income (loss) for the three and nine months ended September 30, 2015 reflects volume and pricing pressure associated with upstream oil and gas customers, and the amortization of the intangible assets acquired in the National Pump acquisition.

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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)


3. Segment Information
Our reportable segments are general rentals and trench, power and pump. The general rentals segment includes the rental of construction, infrastructure, industrial and homeowner equipment and related services and activities. The general rentals segment’s customers include construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government entities. The general rentals segment comprises 11 geographic regions—Eastern Canada, Industrial (which serves the geographic Gulf region and has a strong industrial presence), Mid-Atlantic, Midwest, Mountain West, Northeast, Pacific West, South-Central, South, Southeast and Western Canada—and operates throughout the United States and Canada. The trench, power and pump segment includes the rental of specialty construction products and related services. The trench, power and pump segment is comprised of 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, the Power and HVAC (heating, ventilating and air conditioning) region, which rents power and HVAC equipment such as portable diesel generators, electrical distribution equipment, and temperature control equipment including heating and cooling equipment, and the Pump Solutions region, which rents pumps primarily used by energy and petrochemical customers. The trench, power and pump segment’s customers include construction companies involved in infrastructure projects, municipalities and industrial companies. This segment operates throughout the United States and in Canada. These segments align our external segment reporting with how management evaluates and allocates resources. We evaluate segment performance based on segment equipment rentals gross profit.
 
The following tables set forth financial information by segment.  

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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)


 
General
rentals
 
Trench, power and  pump
 
Total
Three Months Ended September 30, 2015
 
 
 
 
 
Equipment rentals
$
1,120

 
$
206

 
$
1,326

Sales of rental equipment
132

 
9

 
141

Sales of new equipment
33

 
5

 
38

Contractor supplies sales
18

 
3

 
21

Service and other revenues
23

 
1

 
24

Total revenue
1,326

 
224

 
1,550

Depreciation and amortization expense
272

 
43

 
315

Equipment rentals gross profit
500

 
107

 
607

Three Months Ended September 30, 2014
 
 
 
 
 
Equipment rentals
$
1,127

 
$
188

 
$
1,315

Sales of rental equipment
133

 
7

 
140

Sales of new equipment
31

 
11

 
42

Contractor supplies sales
19

 
4

 
23

Service and other revenues
21

 
3

 
24

Total revenue
1,331

 
213

 
1,544

Depreciation and amortization expense
267

 
39

 
306

Equipment rentals gross profit
496

 
103

 
599

Nine Months Ended September 30, 2015
 
 
 
 
 
Equipment rentals
$
3,144

 
$
527

 
$
3,671

Sales of rental equipment
356

 
25

 
381

Sales of new equipment
94

 
16

 
110

Contractor supplies sales
51

 
9

 
60

Service and other revenues
65

 
7

 
72

Total revenue
3,710

 
584

 
4,294

Depreciation and amortization expense
798

 
128

 
926

Equipment rentals gross profit
1,339

 
249

 
1,588

Capital expenditures
1,325

 
176

 
1,501

Nine Months Ended September 30, 2014
 
 
 
 
 
Equipment rentals
$
3,079

 
$
420

 
$
3,499

Sales of rental equipment
371

 
17

 
388

Sales of new equipment
80

 
25

 
105

Contractor supplies sales
55

 
9

 
64

Service and other revenues
55

 
10

 
65

Total revenue
3,640

 
481

 
4,121

Depreciation and amortization expense
789

 
93

 
882

Equipment rentals gross profit
1,266

 
215

 
1,481

Capital expenditures
1,391

 
177

 
1,568


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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)


 
September 30,
2015
 
December 31,
2014
Total reportable segment assets
 
 
 
General rentals
$
11,019

 
$
10,935

Trench, power and pump
1,579

 
1,532

Total assets
$
12,598

 
$
12,467

 
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
 
September 30,

September 30,
 
2015

2014

2015

2014
Total equipment rentals gross profit
$
607

 
$
599

 
$
1,588

 
$
1,481

Gross profit from other lines of business
83

 
89

 
244

 
244

Selling, general and administrative expenses
(178
)
 
(194
)
 
(534
)
 
(549
)
Merger related costs

 
(4
)
 
26


(13
)
Restructuring charge

 
2

 
(1
)
 
2

Non-rental depreciation and amortization
(66
)
 
(70
)
 
(202
)
 
(200
)
Interest expense, net
(107
)
 
(124
)
 
(460
)
 
(436
)
Other income, net
1

 
5

 
10

 
10

Income before provision for income taxes
$
340

 
$
303


$
671


$
539

4. Restructuring Charges
Closed Restructuring Program
Between 2008 and 2011 and in recognition of a very challenging economic environment, we were intensely focused on reducing our operating costs. During this period, we reduced our employee headcount from approximately 10,900 at January 1, 2008 (the beginning of the restructuring period) to approximately 7,500 at December 31, 2011 (the end of the restructuring period). Additionally, we reduced our branch network from 697 locations at January 1, 2008 to 529 locations at December 31, 2011.
RSC Merger Related Restructuring Program
In the second quarter of 2012, we initiated a restructuring program related to severance costs and branch closure charges associated with the April 2012 acquisition of RSC. The branch closure charges principally relate to continuing lease obligations at vacant facilities closed subsequent to the RSC acquisition. As of September 30, 2015, our employee headcount is approximately 12,700 and our branch network has 900 rental locations. We do not expect to incur significant additional charges in connection with the restructuring, which was complete as of June 30, 2013 (the end of the restructuring period).
The table below provides certain information concerning our restructuring charges for the nine months ended September 30, 2015:
 

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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)


 
 
Reserve Balance at
 
Charged to
Costs and
Expenses (1)
 
Payments
and Other
 
Reserve Balance at
Description 
 
December 31, 2014
 
 
 
September 30, 2015
Closed Restructuring Program
 
 
 
 
 
 
 
 
Branch closure charges
 
$
9

 
$
1

 
$
(3
)
 
$
7

Severance costs
 

 

 

 

Total
 
$
9

 
$
1

 
$
(3
)
 
$
7

RSC Merger Related Restructuring Program
 
 
 
 
 
 
 
 
Branch closure charges
 
$
11

 
$

 
$
(4
)
 
$
7

Severance costs
 

 

 

 

Total
 
$
11

 
$

 
$
(4
)
 
$
7

Total
 
 
 
 
 
 
 
 
Branch closure charges
 
$
20

 
$
1

 
$
(7
)
 
$
14

Severance costs
 

 

 

 

Total
 
$
20

 
$
1

 
$
(7
)
 
$
14

 
_________________
(1)
Reflected in our condensed consolidated statements of income as “Restructuring charge.” These charges are not allocated to our reportable segments. 
5. 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. For derivative instruments that are designated and qualify as hedging instruments, we designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge or a cash flow hedge. As of September 30, 2015, we do not have any outstanding derivative instruments designated as fair value hedges. The effective portion of the changes in fair value of derivatives that are designated as cash flow hedges is recorded as a component of accumulated other comprehensive income. Amounts included in accumulated other comprehensive income for cash flow hedges are reclassified into earnings in the same period that the hedged item is recognized in earnings. The ineffective portion of changes in the fair value of derivatives designated as cash flow hedges is recorded currently in earnings. For derivative instruments that do not qualify for hedge accounting, we recognize gains or losses due to changes in fair value in our condensed consolidated statements of income during the period in which the changes in fair value occur. As of September 30, 2015, we do not have any derivative instruments that do not qualify for hedge accounting.
We are exposed to certain risks related to our ongoing business operations. During the nine months ended September 30, 2015 and 2014, the primary risks we managed using derivative instruments were diesel price risk and foreign currency exchange rate risk. At September 30, 2015, 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, 2015, 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. At September 30, 2015 and December 31, 2014, there were no outstanding forward contracts to purchase Canadian dollars. The outstanding forward contracts on diesel purchases were designated and qualify as cash flow hedges and the forward contracts to purchase Canadian dollars represented derivative instruments not designated as hedging instruments.
Fixed Price Diesel Swaps
The fixed price swap contracts on diesel purchases that were outstanding at September 30, 2015 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, 2015, we had outstanding fixed price swap contracts covering 9.5 million gallons of diesel which will be purchased throughout 2015 and 2016.

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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)


Foreign Currency Forward Contracts
The forward contracts to purchase Canadian dollars, which were all settled as of September 30, 2015, 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 condensed consolidated statements of income during the period in which the changes in fair value occurred. During the three and nine months ended September 30, 2015, forward contracts were used to purchase $221 Canadian dollars, 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, 2015. 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, 2015 and December 31, 2014, immaterial amounts ($4 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, 2015 and 2014 was as follows:
 
 
 
 
Three Months Ended September 30, 2015
 
Three Months Ended September 30, 2014
 
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)
 
(2
)
 
$
(7
)
 
*

 
$
(10
)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts (4)
Other income
(expense), net
 
(5
)
 
5

 
(3
)
 
3

 
 
 
Nine Months Ended September 30, 2015
 
Nine Months Ended September 30, 2014
 
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)
 
(5
)
 
$
(23
)
 
*

 
$
(32
)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts (4)
Other income
(expense), net
 
(5
)
 
5

 
(3
)
 
3

*
Amounts are insignificant (less than $1).

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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)


(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 2.8 million and 2.6 million gallons of diesel covered by the fixed price swaps during the three months ended September 30, 2015 and 2014, respectively, and the use of 8.2 million gallons of diesel covered by the fixed price swaps during the nine months ended September 30, 2015 and 2014. 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.
6. Fair Value Measurements
We account for certain assets and liabilities at fair value. We categorize each of our fair value measurements in one of the following three levels based on the lowest level input that is significant to the fair value measurement in its entirety:
Level 1- Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2- Observable inputs other than quoted prices in active markets for identical assets or liabilities include:
a)
quoted prices for similar assets or liabilities in active markets;
b)
quoted prices for identical or similar assets or liabilities in inactive markets;
c)
inputs other than quoted prices that are observable for the asset or liability;
d)
inputs that are derived principally from or corroborated by observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3- Inputs to the valuation methodology are unobservable (i.e., supported by little or no market activity) and significant to the fair value measure.
Assets and Liabilities Measured at Fair Value
Our fixed price diesel swaps contracts are Level 2 derivatives measured at fair value on a recurring basis. As of September 30, 2015 and December 31, 2014, immaterial amounts ($4 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 5 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, 2015, we have fixed price swap contracts that mature throughout 2015 and 2016 covering 9.5 million gallons of diesel which we will buy at the average contract price of $3.06 per gallon, while the average forward price for the hedged gallons was $2.65 per gallon as of September 30, 2015.
The fair value of the contingent cash consideration component of the National Pump purchase price discussed in note 2 to our condensed consolidated financial statements was $0 as of September 30, 2015 and $78 as of December 31, 2014. In June 2015, we paid the contingent consideration and were relieved of further liabilities associated therewith. The contingent consideration was recorded in accrued expenses and other liabilities in our condensed consolidated balance sheets, and was a Level 3 liability that was measured at fair value on a recurring basis. Fair value was determined using a probability weighted discounted cash flow methodology. Key inputs to the valuation included: (i) discrete scenarios of potential payouts; (ii) probability weightings assigned to each of the scenarios; and (iii) a rate of return with which to discount the probability weighted payouts to present value. Changes to the fair value of the contingent cash consideration are reflected in our condensed consolidated statements of income as “Merger related costs” which included a $26 fair value reduction for the nine months ended September 30, 2015. In June 2015, we paid the liability remaining after recognizing the decline in fair value, and were relieved of further liabilities associated therewith. The decline in the fair value of the contingent cash consideration primarily relates to lower than expected financial performance compared to agreed upon financial targets.
 

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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)


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 senior secured asset-based revolving credit facility (“ABL facility”), accounts receivable securitization facility and capital leases approximate their book values as of September 30, 2015 and December 31, 2014. The estimated fair values of our financial instruments as of September 30, 2015 and December 31, 2014 have been calculated based upon available market information, and are presented below by level in the fair value hierarchy: 
 
September 30, 2015
 
December 31, 2014
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Level 1:
 
 
 
 
 
 
 
Senior and senior subordinated notes
$
5,989

 
$
5,949

 
$
6,063

 
$
6,390

Level 2:
 
 
 
 
 
 
 
4 percent Convertible Senior Notes (1)
8

 
8

 
32

 
33

___________________ 
(1)
The fair value of the 4 percent Convertible Senior Notes is based on the market value of comparable notes. Consistent with the carrying amount, the fair value excludes the equity component of the notes. To exclude the equity component and calculate the fair value, we used an effective interest rate of 7.3 percent. As discussed below (see Item 3- Quantitative and Qualitative Disclosures about Market Risk), the total cost to settle the notes based on the closing price of our common stock on September 30, 2015 would be $41.
7. Debt
Debt consists of the following: 
 
September 30, 2015
 
December 31, 2014
URNA and subsidiaries debt:
 
 
 
Accounts Receivable Securitization Facility (1)
$
594

 
$
548

$2.5 billion ABL Facility (2)
1,829

 
1,304

3/4 percent Senior Secured Notes (3)

 
750

3/8 percent Senior Notes
750

 
750

8 3/8 percent Senior Subordinated Notes (3)

 
750

8 1/4 percent Senior Notes (4)
315

 
687

7 5/8 percent Senior Notes
1,325

 
1,325

6 1/8 percent Senior Notes
949

 
951

5/8 percent Senior Secured Notes (5)
1,000

 

3/4 percent Senior Notes
850

 
850

1/2 percent Senior Notes (6)
800

 

Capital leases
95

 
105

Total URNA and subsidiaries debt
8,507

 
8,020

Holdings:
 
 
 
4 percent Convertible Senior Notes (7)
8

 
32

Total debt
8,515

 
8,052

Less short-term portion (8)
(639
)
 
(618
)
Total long-term debt
$
7,876

 
$
7,434

 ___________________

(1)
In September 2015, 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

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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)


under the accounts receivable securitization facility. The size of the facility was increased to $625. The amended facility expires on August 30, 2016. At September 30, 2015, $21 was available under our accounts receivable securitization facility. The interest rate applicable to the accounts receivable securitization facility was 0.8 percent at September 30, 2015. During the nine months ended September 30, 2015, the monthly average amount outstanding under the accounts receivable securitization facility was $490, and the weighted-average interest rate thereon was 0.8 percent. The maximum month-end amount outstanding under the accounts receivable securitization facility during the nine months ended September 30, 2015 was $594. 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, exceeds the outstanding loans. As of September 30, 2015, there were $614 of receivables, net of applicable reserves, in the collateral pool.
(2)
At September 30, 2015, $622 was available under our ABL facility, net of $49 of letters of credit. The interest rate applicable to the ABL facility was 1.8 percent at September 30, 2015. During the nine months ended September 30, 2015, the monthly average amount outstanding under the ABL facility was $1.4 billion, and the weighted-average interest rate thereon was 1.9 percent. The maximum month-end amount outstanding under the ABL facility during the nine months ended September 30, 2015 was $1.8 billion. In March 2015, the ABL facility was amended, primarily to increase the facility size and to extend the maturity date. The size of the facility was increased to $2.5 billion. All amounts borrowed under the ABL facility must be repaid on or before March 2020.
(3)
In April 2015, we redeemed all of our 5 3/4 percent Senior Secured Notes and 8 3/8 percent Senior Subordinated Notes. Upon redemption, we recognized an aggregate loss of $106 in interest expense, net. The loss represented the difference between the net carrying amount and the total purchase price of the notes.
(4)
In April 2015, we redeemed $350 principal amount of our 8 1/4 percent Senior Notes. Upon redemption, we recognized a loss of $15 in interest expense, net. The loss represented the difference between the net carrying amount and the total purchase price of the redeemed notes.
(5)
In March 2015, URNA issued $1.0 billion aggregate principal amount of 4 5/8 percent Senior Secured Notes (the “4 5/8 percent Notes”) which are due July 15, 2023. The net proceeds from issuance were approximately $990 (after deducting offering expenses). The 4 5/8 percent Notes are guaranteed by Holdings and certain domestic subsidiaries of URNA and are secured on a second-priority basis by liens on substantially all of URNA’s and the guarantors’ assets that secure the ABL facility, subject to certain exceptions. The 4 5/8 percent Notes may be redeemed on or after July 15, 2018, at specified redemption prices that range from 103.469 percent in 2018, to 100 percent in 2021 and thereafter, 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) additional indebtedness; (iii) mergers, consolidations and acquisitions; (iv) sales, transfers and other dispositions of assets; (v) loans and other investments; (vi) dividends and other distributions, stock repurchases and redemptions and other restricted payments; (vii) restrictions affecting subsidiaries; (viii) transactions with affiliates; and (ix) designations of unrestricted subsidiaries, as well as a requirement to timely file periodic reports with the SEC. The indenture also includes covenants relating to the grant of and maintenance of liens for the benefit of the notes collateral agent. 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. 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.
(6)
In March 2015, URNA issued $800 aggregate principal amount of 5 1/2 percent Senior Notes (the “5 1/2 percent Notes”) which are due July 15, 2025. The net proceeds from the issuance were approximately $792 (after deducting offering expenses). The 5 1/2 percent Notes are unsecured and are guaranteed by Holdings and certain domestic subsidiaries of URNA. The 5 1/2 percent Notes may be redeemed on or after July 15, 2020, at specified redemption prices that range from 102.75 percent in 2020, to 100 percent in 2023 and thereafter, plus accrued and unpaid interest, if any. The indenture governing the 5 1/2 percent Notes contains certain restrictive covenants, including, among others, limitations on (i) liens; (ii) additional indebtedness; (iii) mergers, consolidations and acquisitions; (iv) sales, transfers and other dispositions of assets; (v) loans and other investments; (vi) dividends and other distributions, stock repurchases and redemptions and other restricted payments; (vii) restrictions affecting subsidiaries; (viii) transactions with affiliates; and (ix) 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. 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 5 1/2 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.
(7)
During the nine months ended September 30, 2015, $26 of our 4 percent Convertible Senior Notes were redeemed. We recognized a loss of approximately $1 in interest expense, net upon redemption. The loss represented the difference

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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)


between the net carrying amount and the fair value of the debt component of the notes. The 4 percent Convertible Senior Notes are due November 15, 2015.
(8)
As of September 30, 2015, our short-term debt primarily reflects $594 of borrowings under our accounts receivable securitization facility.
Convertible Note Hedge Transactions
In connection with the November 2009 issuance of $173 aggregate principal amount of 4 percent Convertible Senior Notes, Holdings entered into convertible note hedge transactions with option counterparties. The convertible note hedge transactions cost $26, and decreased additional paid-in capital by $17, net of taxes, in our accompanying condensed consolidated statements of stockholders’ equity. The convertible note hedge transactions cover, subject to anti-dilution adjustments, 0.7 million shares of our common stock. The convertible note hedge transactions are intended to reduce, subject to a limit, the potential dilution with respect to our common stock upon conversion of the 4 percent Convertible Senior Notes. The effect of the convertible note hedge transactions is to increase the effective conversion price to $15.56 per share, equal to an approximately 75 percent premium over the $8.89 closing price of our common stock at issuance. The effective conversion price is subject to change in certain circumstances. In the event the market value of our common stock exceeds the effective conversion price per share, the settlement amount received from such transactions will only partially offset the potential dilution. For example, if, at the time of exercise of the conversion right, the price of our common stock was $65.00 per share, assuming an effective conversion price of $15.56 per share, on a net basis, we would issue 0.5 million shares. The 4 percent Convertible Senior Notes are due November 15, 2015.
Loan Covenants and Compliance
As of September 30, 2015, we were in compliance with the covenants and other provisions of the ABL facility, the accounts receivable securitization facility 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 covenant which currently exists under the ABL facility relates to the fixed charge coverage ratio. As of September 30, 2015, specified availability under the ABL facility exceeded the required threshold and, as a result, this maintenance covenant is inapplicable. 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. 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 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.
8. Legal and Regulatory Matters
In addition to the disclosures provided in note 14 to our consolidated financial statements for the year ended December 31, 2014 filed on Form 10-K on January 21, 2015, we are also 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.
9. 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): 

22

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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)


 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Numerator:
 
 
 
 
 
 
 
Net income available to common stockholders
$
215

 
$
192

 
416

 
346

Denominator:
 
 
 
 
 
 
 
Denominator for basic earnings per share—weighted-average common shares
94,213

 
98,485

 
95,992

 
96,916

Effect of dilutive securities:
 
 
 
 
 
 
 
Employee stock options and warrants
291

 
376

 
311

 
407

4 percent Convertible Senior Notes
574

 
4,748

 
786

 
7,606

Restricted stock units
113

 
467

 
196

 
465

Denominator for diluted earnings per share—adjusted weighted-average common shares
95,191

 
104,076

 
97,285

 
105,394

Basic earnings per share
$
2.28

 
$
1.95

 
$
4.33

 
$
3.57

Diluted earnings per share
$
2.25

 
$
1.84

 
$
4.27

 
$
3.29


23

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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)


10. Condensed Consolidating Financial Information of Guarantor Subsidiaries
URNA is 100 percent owned by Holdings (“Parent”) and has outstanding (i) certain indebtedness that is guaranteed by Parent, (ii) certain indebtedness that is guaranteed by both Parent and, with the exception of its U.S. special purpose vehicle which holds receivable assets relating to the Company’s accounts receivable securitization facility (the “SPV”), all of URNA’s U.S. subsidiaries (the “guarantor subsidiaries”) and (iii) certain indebtedness that is guaranteed only by the guarantor subsidiaries (specifically, the 8 1/4 percent Senior Notes). Other than the guarantee by certain Canadian subsidiaries of URNA's indebtedness under the ABL facility, none of URNA’s indebtedness is guaranteed by URNA's foreign subsidiaries or the SPV (together, the “non-guarantor subsidiaries”). The receivable assets owned by the SPV have been sold by URNA to the SPV and are not available to satisfy the obligations of URNA or Parent’s other subsidiaries. The guarantor subsidiaries are all 100 percent-owned and the guarantees are made on a joint and several basis. The guarantees are not full and unconditional because a guarantor subsidiary can be automatically released and relieved of its obligations under certain circumstances, including sale of the guarantor subsidiary, the sale of all or substantially all of the guarantor subsidiary's assets, the requirements for legal defeasance or covenant defeasance under the applicable indenture being met or designating the guarantor subsidiary as an unrestricted subsidiary for purposes of the applicable covenants. The guarantees are also subject to subordination provisions (to the same extent that the obligations of the issuer under the relevant notes are subordinated to other debt of the issuer) and to a standard limitation which provides that the maximum amount guaranteed by each guarantor will not exceed the maximum amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws. Based on our understanding of Rule 3-10 of Regulation S-X ("Rule 3-10"), we believe that the guarantees of the guarantor subsidiaries comply with the conditions set forth in Rule 3-10 and therefore continue to utilize Rule 3-10 to present condensed consolidating financial information for Holdings, URNA, the guarantor subsidiaries and the non-guarantor subsidiaries. Separate consolidated financial statements of the guarantor subsidiaries have not been presented because management believes that such information would not be material to investors. However, condensed consolidating financial information is presented.
URNA 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 restricted payments, which include share repurchases and dividend payments. As of September 30, 2015, the amount available for distribution under the most restrictive of these covenants was $298. The Company’s total available capacity for making restricted payments includes the intercompany receivable balance of Parent. As of September 30, 2015, the total available capacity for making restricted payments was $494.
The condensed consolidating financial information of Parent and its subsidiaries is as follows:

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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)


CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2015  
 
Parent
 
URNA
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
 
Foreign
 
SPV
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
16

 
$

 
$
155

 
$

 
$

 
$
171

Accounts receivable, net

 
41

 

 
116

 
837

 

 
994

Intercompany receivable (payable)
196

 
22

 
(183
)
 
(143
)
 

 
108

 

Inventory

 
70

 

 
7

 

 

 
77

Prepaid expenses and other assets

 
48

 
1

 
9

 

 

 
58

Deferred taxes

 
125

 

 
1

 

 

 
126

Total current assets
196

 
322

 
(182
)
 
145

 
837

 
108

 
1,426

Rental equipment, net

 
5,869

 

 
569

 

 

 
6,438

Property and equipment, net
44

 
330

 
20

 
42

 

 

 
436

Investments in subsidiaries
1,288

 
1,000

 
938

 

 

 
(3,226
)
 

Goodwill

 
3,000

 

 
257

 

 

 
3,257

Other intangible assets, net

 
880

 

 
68

 

 

 
948

Other long-term assets

 
93

 

 

 

 

 
93

Total assets
$
1,528

 
$
11,494

 
$
776

 
$
1,081

 
$
837

 
$
(3,118
)
 
$
12,598

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term debt and current maturities of long-term debt
$
9

 
$
36

 
$

 
$

 
$
594

 
$

 
$
639

Accounts payable

 
428

 

 
47

 

 

 
475

Accrued expenses and other liabilities
1

 
366

 
14

 
22

 

 

 
403

Total current liabilities
10

 
830

 
14

 
69

 
594

 

 
1,517

Long-term debt
3

 
7,752

 
113

 
8

 

 

 
7,876

Deferred taxes
18

 
1,569

 

 
66

 

 

 
1,653

Other long-term liabilities

 
55

 

 

 

 

 
55

Total liabilities
31

 
10,206

 
127

 
143

 
594

 

 
11,101

Total stockholders’ equity (deficit)
1,497

 
1,288

 
649

 
938

 
243

 
(3,118
)
 
1,497

Total liabilities and stockholders’ equity (deficit)
$
1,528

 
$
11,494

 
$
776

 
$
1,081

 
$
837

 
$
(3,118
)
 
$
12,598






25

Table of Contents
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, 2014
 
 
Parent
 
URNA
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
 
Foreign
 
SPV
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
8

 
$

 
$
150

 
$

 
$

 
$
158

Accounts receivable, net

 
37

 

 
144

 
759

 

 
940

Intercompany receivable (payable)
476

 
(428
)
 
(60
)
 
(109
)
 

 
121

 

Inventory

 
69

 

 
9

 

 

 
78

Prepaid expenses and other assets

 
113

 
1

 
8

 

 

 
122

Deferred taxes

 
246

 

 
2

 

 

 
248

Total current assets
476

 
45

 
(59
)
 
204

 
759

 
121

 
1,546

Rental equipment, net

 
5,399

 

 
609

 

 

 
6,008

Property and equipment, net
42

 
332

 
21

 
43

 

 

 
438

Investments in subsidiaries
1,330

 
1,185

 
1,040

 

 

 
(3,555
)
 

Goodwill

 
3,000

 

 
272

 

 

 
3,272

Other intangible assets, net

 
1,014

 

 
92

 

 

 
1,106

Other long-term assets
1

 
96

 

 

 

 

 
97

Total assets
$
1,849

 
$
11,071

 
$
1,002

 
$
1,220

 
$
759

 
$
(3,434
)
 
$
12,467

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term debt and current maturities of long-term debt
$
32

 
$
38

 
$

 
$

 
$
548

 
$

 
$
618

Accounts payable

 
248

 

 
37

 

 

 
285

Accrued expenses and other liabilities

 
499

 
19

 
57

 

 

 
575

Total current liabilities
32

 
785

 
19

 
94

 
548

 

 
1,478

Long-term debt

 
7,298

 
130

 
6

 

 

 
7,434

Deferred taxes
19

 
1,594

 

 
79

 

 

 
1,692

Other long-term liabilities

 
64

 

 
1

 

 

 
65

Total liabilities
51

 
9,741

 
149

 
180

 
548

 

 
10,669

Temporary equity
2

 

 

 

 

 

 
2

Total stockholders’ equity (deficit)
1,796

 
1,330