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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 June 30, 2017
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, 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.
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 July 17, 2017, there were 84,540,070 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.


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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.


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UNITED RENTALS, INC.
UNITED RENTALS (NORTH AMERICA), INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2017
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 companies that we have acquired or may acquire, in our specialty business or otherwise, including NES Rentals Holdings II, Inc. (“NES ”), could have undiscovered liabilities or involve other unexpected costs, may strain our management capabilities or may be difficult to integrate;
the cyclical nature of our business, which is highly sensitive to North American construction and industrial activities; if construction or industrial activity decline, our revenues and, because many of our costs are fixed, our profitability may be adversely affected;
our significant indebtedness (which totaled $8.2 billion at June 30, 2017) requires us to use a substantial portion of our cash flow for debt service and can constrain our flexibility in responding to unanticipated or adverse business conditions;
inability to refinance our indebtedness on terms that are favorable to us, or at all;
incurrence of additional debt, which could exacerbate the risks associated with our current level of indebtedness;
noncompliance with financial or other covenants in our debt agreements, which could result in our lenders terminating the agreements and requiring us to repay outstanding borrowings;
restrictive covenants and amount of borrowings permitted in our debt instruments, which can limit our financial and operational flexibility;
overcapacity of fleet in the equipment rental industry;
inability to benefit from government spending, including spending associated with infrastructure projects;
fluctuations in the price of our common stock and inability to complete stock repurchases in the time frame and/or on the terms anticipated;
rates we charge and time utilization we achieve being less than anticipated;
inability to manage credit risk adequately or to collect on contracts with a large number of customers;
inability to access the capital that our businesses or growth plans may require;
incurrence of impairment charges;
trends in oil and natural gas could adversely affect the demand for our services and products;
the fact that our holding company structure requires us to depend in part on distributions from subsidiaries and such distributions could be limited by contractual or legal restrictions;
increases in our loss reserves to address business operations or other claims and any claims that exceed our established levels of reserves;
incurrence of additional expenses (including indemnification obligations) and other costs in connection with litigation, regulatory and investigatory matters;
the outcome or other potential consequences of regulatory matters and commercial litigation;
shortfalls in our insurance coverage;
our charter provisions as well as provisions of certain debt agreements and our significant indebtedness may have the effect of making more difficult or otherwise discouraging, delaying or deterring a takeover or other change of control of us;
turnover in our management team and inability to attract and retain key personnel;
costs we incur being more than anticipated, and the inability to realize expected savings in the amounts or time frames planned;
dependence on key suppliers to obtain equipment and other supplies for our business on acceptable terms;
inability to sell our new or used fleet in the amounts, or at the prices, we expect;
competition from existing and new competitors;
risks related to security breaches, cybersecurity attacks 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;

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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, 2016, 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)
 
 
June 30, 2017
 
December 31, 2016
 
(unaudited)
 
ASSETS
 
 
 
Cash and cash equivalents
$
338

 
$
312

Accounts receivable, net of allowance for doubtful accounts of $59 at June 30, 2017 and $54 at December 31, 2016
990

 
920

Inventory
78

 
68

Prepaid expenses and other assets
77

 
61

Total current assets
1,483

 
1,361

Rental equipment, net
7,076

 
6,189

Property and equipment, net
449

 
430

Goodwill
3,468

 
3,260

Other intangible assets, net
798

 
742

Other long-term assets
10

 
6

Total assets
$
13,284

 
$
11,988

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Short-term debt and current maturities of long-term debt
$
644

 
$
597

Accounts payable
692

 
243

Accrued expenses and other liabilities
408

 
344

Total current liabilities
1,744

 
1,184

Long-term debt
7,571

 
7,193

Deferred taxes
1,952

 
1,896

Other long-term liabilities
69

 
67

Total liabilities
11,336

 
10,340

Common stock—$0.01 par value, 500,000,000 shares authorized, 112,302,008 and 84,538,835 shares issued and outstanding, respectively, at June 30, 2017 and 111,985,215 and 84,222,042 shares issued and outstanding, respectively, at December 31, 2016
1

 
1

Additional paid-in capital
2,300

 
2,288

Retained earnings
1,909

 
1,654

Treasury stock at cost—27,763,173 shares at June 30, 2017 and December 31, 2016
(2,077
)
 
(2,077
)
Accumulated other comprehensive loss
(185
)
 
(218
)
Total stockholders’ equity
1,948

 
1,648

Total liabilities and stockholders’ equity
$
13,284

 
$
11,988

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
 
Six Months Ended
 
June 30,
 
June 30,
 
2017

2016
 
2017
 
2016
Revenues:
 
 
 
 
 
 
 
Equipment rentals
$
1,367

 
$
1,204

 
$
2,533

 
$
2,321

Sales of rental equipment
133

 
134

 
239

 
249

Sales of new equipment
47

 
36

 
86

 
66

Contractor supplies sales
21

 
22

 
39

 
41

Service and other revenues
29

 
25

 
56

 
54

Total revenues
1,597

 
1,421

 
2,953

 
2,731

Cost of revenues:
 
 
 
 
 
 
 
Cost of equipment rentals, excluding depreciation
525

 
456

 
999

 
905

Depreciation of rental equipment
266

 
242

 
514

 
485

Cost of rental equipment sales
81

 
79

 
141

 
147

Cost of new equipment sales
40

 
29

 
74

 
54

Cost of contractor supplies sales
15

 
15

 
28

 
28

Cost of service and other revenues
15

 
10

 
28

 
22

Total cost of revenues
942

 
831

 
1,784

 
1,641

Gross profit
655

 
590

 
1,169

 
1,090

Selling, general and administrative expenses
218

 
177

 
411

 
354

Merger related costs
14

 

 
16

 

Restructuring charge
19

 
2

 
19

 
4

Non-rental depreciation and amortization
64

 
64

 
126

 
131

Operating income
340

 
347

 
597

 
601

Interest expense, net
113

 
132

 
207

 
239

Other income, net
(2
)
 
(2
)
 

 
(2
)
Income before provision for income taxes
229

 
217

 
390

 
364

Provision for income taxes
88

 
83

 
140

 
138

Net income
$
141

 
$
134

 
$
250

 
$
226

Basic earnings per share
$
1.67

 
$
1.52

 
$
2.95

 
$
2.53

Diluted earnings per share
$
1.65

 
$
1.52

 
$
2.92

 
$
2.52

See accompanying notes.

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UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In millions)
 
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
 Net income
$
141


$
134

 
$
250

 
$
226

 Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 Foreign currency translation adjustments
25


(2
)
 
34

 
60

 Fixed price diesel swaps


2

 
(1
)
 
3

 Other comprehensive income
25

 

 
33

 
63

 Comprehensive income (1)
$
166

 
$
134

 
$
283

 
$
289


(1)There were no material reclassifications from accumulated other comprehensive loss reflected in other comprehensive income during 2017 or 2016. 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 income during 2017 or 2016.


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) Income (2)
Balance at December 31, 2016
84

 
$
1

 
$
2,288

 
$
1,654

 
28

 
$
(2,077
)
 
$
(218
)
Net income
 
 
 
 
 
 
250

 
 
 
 
 
 
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
 
 
34

Fixed price diesel swaps
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
Cumulative effect of a change in accounting for share-based payments (note 1)
 
 
 
 
 
 
5

 
 
 
 
 
 
Stock compensation expense, net
1

 
 
 
40

 
 
 
 
 
 
 
 
Exercise of common stock options
 
 
 
 
1

 
 
 
 
 
 
 
 
Shares repurchased and retired
 
 
 
 
(24
)
 
 
 
 
 
 
 
 
Other
 
 
 
 
(5
)
 
 
 
 
 
 
 
 
Balance at June 30, 2017
85

 
$
1

 
$
2,300

 
$
1,909

 
28

 
$
(2,077
)
 
$
(185
)
 
(1)Common stock outstanding decreased by approximately 8 million net shares during the year ended December 31, 2016.
(2)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)
 
Six Months Ended
 
June 30,
 
2017
 
2016
Cash Flows From Operating Activities:
 
 
 
Net income
$
250

 
$
226

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
640

 
616

Amortization of deferred financing costs and original issue discounts
4

 
4

Gain on sales of rental equipment
(98
)
 
(102
)
Gain on sales of non-rental equipment
(3
)
 
(1
)
Stock compensation expense, net
40

 
22

Merger related costs
16

 

Restructuring charge
19

 
4

Loss on repurchase/redemption of debt securities and amendment of ABL facility
12

 
26

Excess tax benefits from share-based payment arrangements

 
(53
)
Increase in deferred taxes
40

 
69

Changes in operating assets and liabilities, net of amounts acquired:
 
 
 
(Increase) decrease in accounts receivable
(16
)
 
68

Increase in inventory
(5
)
 
(2
)
(Increase) decrease in prepaid expenses and other assets
(7
)
 
64

Increase in accounts payable
429

 
337

Increase (decrease) in accrued expenses and other liabilities
16

 
(31
)
Net cash provided by operating activities
1,337

 
1,247

Cash Flows From Investing Activities:
 
 
 
Purchases of rental equipment
(913
)
 
(722
)
Purchases of non-rental equipment
(55
)
 
(42
)
Proceeds from sales of rental equipment
239

 
249

Proceeds from sales of non-rental equipment
6

 
7

Purchases of other companies, net of cash acquired
(965
)
 
(14
)
Purchases of investments
(4
)
 

Net cash used in investing activities
(1,692
)
 
(522
)
Cash Flows From Financing Activities:
 
 
 
Proceeds from debt
3,943

 
3,964

Payments of debt
(3,543
)
 
(4,320
)
Proceeds from the exercise of common stock options
1

 

Common stock repurchased
(24
)
 
(336
)
Payments of financing costs
(7
)
 
(12
)
Excess tax benefits from share-based payment arrangements

 
53

Net cash provided by (used in) financing activities
370

 
(651
)
Effect of foreign exchange rates
11

 
12

Net increase in cash and cash equivalents
26

 
86

Cash and cash equivalents at beginning of period
312

 
179

Cash and cash equivalents at end of period
$
338

 
$
265

Supplemental disclosure of cash flow information:
 
 
 
Cash paid for income taxes, net
$
59

 
$
3

Cash paid for interest
177

 
219


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, 2016 (the “2016 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 2016 Form 10-K.
In our opinion, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of financial condition, operating results and cash flows for the interim periods presented have been made. Interim results of operations are not necessarily indicative of the results of the full year.

New Accounting Pronouncements
Leases. In March 2016, the Financial Accounting Standards Board (“FASB”) issued guidance ("Topic 842") to increase transparency and comparability among organizations by requiring i) recognition of lease assets and lease liabilities on the balance sheet and ii) disclosure of key information about leasing arrangements. Some changes to the lessor accounting guidance were made to align both of the following: i) the lessor accounting guidance with certain changes made to the lessee accounting guidance and ii) key aspects of the lessor accounting model with revenue recognition guidance. Topic 842 will be effective for fiscal years and interim periods beginning after December 15, 2018, and early adoption is permitted. A modified retrospective approach is required for adoption for all leases that exist at or commence after the date of initial application with an option to use certain practical expedients. We expect to adopt this guidance when effective.
As discussed below, most of our equipment rental revenues, which accounted for 86 percent of total revenues for the six months ended June 30, 2017, will be accounted for under the current lease accounting standard ("Topic 840") until the adoption of Topic 842. While our review of the equipment rental revenue accounting under Topic 842 is ongoing, we have tentatively concluded that no significant changes are expected to the accounting for most of our equipment rental revenues upon adoption of Topic 842.
Under Topic 842, our operating leases, which include both real estate and non-rental equipment, will result in lease assets and lease liabilities being recognized on the balance sheet. We lease a significant portion of our branch locations, and also lease other premises used for purposes such as district and regional offices and service centers. We expect that the quantification of the amount of the lease assets and lease liabilities that we will recognize on our balance sheet will take a significant amount of time given the size of our lease portfolio. While our review of the lessee accounting requirements of Topic 842 is ongoing, we believe that the impact on our balance sheet, while not currently estimable, will be significant.
Revenue from Contracts with Customers. In May 2014, and in subsequent updates, the FASB issued guidance ("Topic 606") to clarify the principles for recognizing revenue. This guidance includes the required steps to achieve the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective for fiscal years and interim periods beginning after December 15, 2017, and early adoption (for fiscal years and interim periods beginning after December 15, 2016) is permitted. We expect to adopt this guidance when effective.
Upon adoption of Topic 606, we will recognize revenue in accordance with two different accounting standards: 1) Topic 606 and 2) Topic 840. As discussed above, we expect to adopt Topic 842, an update to Topic 840, when it becomes effective, on January 1, 2019. While our review of our revenue accounting is ongoing, we expect that most of our equipment rental revenues, which accounted for 86 percent of total revenues for the six months ended June 30, 2017, will be accounted for under Topic

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840 until the adoption of Topic 842, and that our non-equipment rental revenues will be accounted for under Topic 606. While our review of our non-equipment rental revenue accounting is ongoing, we do not believe that Topic 606 will have a significant impact on our financial statements.
We are also evaluating the disclosure requirements of Topic 606, as well as its impact on our internal controls over financial reporting.
Statement of Cash Flows. In August 2016, the FASB issued guidance to reduce the diversity in the presentation of certain cash receipts and cash payments presented and classified in the statement of cash flows. The guidance addresses the following specific cash flow issues: (1) debt prepayment or debt extinguishment costs, (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (6) distributions received from equity method investees, (7) beneficial interests in securitization transitions and (8) separately identifiable cash flows and application of predominance principle. The guidance will be effective for fiscal years and interim periods beginning after December 15, 2017, and early adoption is permitted. The guidance requires retrospective adoption. We expect to adopt this guidance when effective, and do not expect the guidance to have a significant impact on our financial statements.
Measurement of Credit Losses on Financial Instruments. In June 2016, the 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 are currently assessing whether we will early adopt, and the impact on our financial statements is not currently estimable.
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

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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 are currently assessing whether we will early adopt and do not expect that this guidance will 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 six months ended June 30, 2017, we recognized $8 of such excess tax benefits, and, pursuant to the adopted guidance, net income increased by $8, or $0.09 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 six months ended June 30, 2016 reflects $53 of such excess tax benefits within net cash used in financing activities. All of the excess tax benefits for the six months ended June 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.

2. Acquisitions
In April 2017, we completed the acquisition 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

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(Dollars in millions, except per share data, unless otherwise indicated)



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 $964. The acquisition and related fees and expenses were funded through available cash, drawings on our senior secured asset-based revolving credit facility (“ABL facility”) and new debt issuances. See note 8 to the condensed consolidated financial statements for additional detail on the debt issuances.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date. The purchase price allocations for these assets and liabilities are based on preliminary valuations and are subject to change as we obtain additional information during the acquisition measurement period.
 Accounts receivable, net of allowance for doubtful accounts (1)
$
51

 Inventory
4

 Rental equipment
571

 Property and equipment
48

 Intangibles (2)
139

 Other assets
6

 Total identifiable assets acquired
819

 Short-term debt and current maturities of long-term debt (3)
(3
)
 Current liabilities
(26
)
 Deferred taxes
(14
)
 Long-term debt (3)
(6
)
 Other long-term liabilities
(5
)
 Total liabilities assumed
(54
)
 Net identifiable assets acquired
765

 Goodwill (4)
199

 Net assets acquired
$
964

(1) The fair value of accounts receivables acquired was $51, and the gross contractual amount was $54. 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
$
138

10
 Non-compete agreements
1

1
 Total
$
139

 
(3) The acquired debt reflects capital lease obligations.
(4) All of the goodwill was assigned to our general rentals segment. The level of goodwill that resulted from the acquisition is primarily reflective of NES's going-concern value, the value of NES'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. $1 of goodwill is expected to be deductible for income tax purposes.
The three and six months ended June 30, 2017 include NES acquisition-related costs of $14 and $16, respectively, which are reflected as “Merger related costs” in our condensed consolidated statements of income. The merger related costs are comprised of financial and legal advisory fees. In addition to the acquisition-related costs reflected in our condensed consolidated statements of income, the debt issuance costs and the original issue premiums associated with the issuance of debt to fund the acquisition are reflected, net of amortization subsequent to the acquisition date, in long-term debt in our condensed consolidated balance sheets. See note 8 to the condensed consolidated financial statements for additional detail on the debt issuances.
Since the acquisition date, significant amounts of fleet have been moved between URI locations and the acquired NES locations, and it is not practicable to reasonably estimate the amounts of revenue and earnings of NES since the acquisition

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(Dollars in millions, except per share data, unless otherwise indicated)



date. The impact of the NES acquisition on our equipment rentals revenue is primarily reflected in the increases in the volume of OEC on rent of 17.4 percent and 12.4 percent for the three and six months ended June 30, 2017, respectively.
The pro forma information below has been prepared using the purchase method of accounting, giving effect to the NES acquisition as if it had been completed on January 1, 2016 (“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 pro forma information includes adjustments to record the assets and liabilities of NES at their respective fair values based on available information and to give effect to the financing for the acquisition and related transactions. The pro forma adjustments reflected in the table below are subject to change as additional analysis is performed. The purchase 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 NES had been included in our consolidated results for the entire periods reflected:
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2017
 
2016
 
2017

 
2016
 
United Rentals historic revenues
$
1,597

 
$
1,421

 
$
2,953

 
$
2,731

 
NES historic revenues

 
90

 
81

 
171

 
Pro forma revenues
1,597

 
1,511

 
3,034

 
2,902

 
United Rentals historic pretax income
229

 
217

 
390

 
364

 
NES historic pretax income (loss)

 
3

 
(12
)
 
5

 
Combined pretax income
229

 
220

 
378

 
369

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

 
(10
)
 
(9
)
 
(19
)
 
Impact of the fair value mark-up of acquired NES fleet on cost of rental equipment sales (2)

 

 
(1
)
 

 
Gain on sale of equity interest (3)

 

 

 
(7
)
 
Interest expense (4)

 
(10
)
 
(9
)
 
(19
)
 
Elimination of historic NES interest (5)

 
10

 
12

 
19

 
Elimination of merger related costs (6)
14

 

 
16

 

 
Restructuring charges (7)
18

 
(9
)
 
18

 
(18
)
 
Pro forma pretax income
$
261

 
$
201

 
$
405

 
$
325

 
(1) Depreciation of rental equipment and non-rental depreciation were adjusted for the fair value mark-ups of equipment acquired in the NES 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 of rental equipment acquired in the NES acquisition.
(3) In 2016, NES sold its equity interest in a successor company and recognized a gain of $7. This gain was eliminated as the equity interest that was sold is not a component of the combined company.
(4) To partially fund the NES acquisition, URNA issued an aggregate of $500 principal amount of debt, as discussed in note 8 to the condensed consolidated financial statements. Drawings on the ABL facility were also used to partially fund the purchase price. Interest expense was adjusted to reflect these changes in our debt portfolio.
(5) NES historic interest on debt that is not part of the combined entity was eliminated.
(6) Merger related costs comprised of financial and legal advisory fees associated with the NES acquisition were eliminated as they were assumed to have been recognized prior to the pro forma acquisition date.
(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, for the pro forma

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)



presentation, was January 1, 2016. As such, the restructuring charges recognized in 2017 were moved to 2016. The restructuring charges reflected in our condensed consolidated statements of income also include non-NES restructuring charges, as discussed in note 4 to the condensed consolidated financial statements. We expect to recognize additional restructuring charges associated with the acquisition, however the total costs expected to be incurred are not currently estimable, as we are still identifying the actions that will be undertaken. The 2016 restructuring charges above reflect the total charges recorded as of June 30, 2017 recognized on a straight-line basis from the pro forma acquisition date through June 30, 2016.


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(Dollars in millions, except per share data, unless otherwise indicated)



3. Segment Information
Our reportable segments are i) general rentals and ii) trench, power and pump. 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 ten geographic regions—Gulf South, Industrial (which serves the geographic Gulf region and has a strong industrial presence), Mid-Atlantic, Mid-Central, Midwest, Northeast, Pacific West, South, Southeast and Western Canada—and operates throughout the United States and Canada. We periodically review the size and geographic scope of our regions, and have occasionally reorganized the regions to create a more balanced and effective structure.
The trench, power and pump 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) pumps primarily used by municipalities, industrial plants, and mining, construction, and agribusiness customers. 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 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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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 June 30, 2017
 
 
 
 
 
Equipment rentals
$
1,143

 
$
224

 
$
1,367

Sales of rental equipment
122

 
11

 
133

Sales of new equipment
43

 
4

 
47

Contractor supplies sales
18

 
3

 
21

Service and other revenues
26

 
3

 
29

Total revenue
1,352

 
245

 
1,597

Depreciation and amortization expense
285

 
45

 
330

Equipment rentals gross profit
465

 
111

 
576

Three Months Ended June 30, 2016
 
 
 
 
 
Equipment rentals
$
1,015

 
$
189

 
$
1,204

Sales of rental equipment
125

 
9

 
134

Sales of new equipment
31

 
5

 
36

Contractor supplies sales
17

 
5

 
22

Service and other revenues
22

 
3

 
25

Total revenue
1,210

 
211

 
1,421

Depreciation and amortization expense
259

 
47

 
306

Equipment rentals gross profit
417

 
89

 
506

Six Months Ended June 30, 2017
 
 
 
 
 
Equipment rentals
$
2,120

 
$
413

 
$
2,533

Sales of rental equipment
218

 
21

 
239

Sales of new equipment
78

 
8

 
86

Contractor supplies sales
32

 
7

 
39

Service and other revenues
50

 
6

 
56

Total revenue
2,498

 
455

 
2,953

Depreciation and amortization expense
549

 
91

 
640

Equipment rentals gross profit
825

 
195

 
1,020

Capital expenditures
863

 
105

 
968

Six Months Ended June 30, 2016
 
 
 
 
 
Equipment rentals
$
1,970

 
$
351

 
$
2,321

Sales of rental equipment
231

 
18

 
249

Sales of new equipment
57

 
9

 
66

Contractor supplies sales
33

 
8

 
41

Service and other revenues
48

 
6

 
54

Total revenue
2,339

 
392

 
2,731

Depreciation and amortization expense
525

 
91

 
616

Equipment rentals gross profit
774

 
157

 
931

Capital expenditures
692

 
72

 
764


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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)



 
June 30,
2017
 
December 31,
2016
Total reportable segment assets
 
 
 
General rentals
$
11,747

 
$
10,496

Trench, power and pump
1,537

 
1,492

Total assets
$
13,284

 
$
11,988

 
Equipment rentals gross profit is the primary measure management reviews to make operating decisions and assess segment performance. The following is a reconciliation of equipment rentals gross profit to income before provision for income taxes:

Three Months Ended

Six Months Ended
 
June 30,

June 30,
 
2017

2016

2017

2016
Total equipment rentals gross profit
$
576

 
$
506

 
$
1,020

 
$
931

Gross profit from other lines of business
79

 
84

 
149

 
159

Selling, general and administrative expenses
(218
)
 
(177
)
 
(411
)
 
(354
)
Merger related costs
(14
)
 

 
(16
)


Restructuring charge
(19
)
 
(2
)
 
(19
)
 
(4
)
Non-rental depreciation and amortization
(64
)
 
(64
)
 
(126
)
 
(131
)
Interest expense, net
(113
)
 
(132
)
 
(207
)
 
(239
)
Other income, net
2

 
2

 

 
2

Income before provision for income taxes
$
229

 
$
217


$
390


$
364

4. Restructuring Charges
Restructuring Charges
Restructuring charges primarily include severance costs associated with headcount reductions, as well as branch closure charges which principally relate to continuing lease obligations at vacant facilities. We incur severance costs and branch closure charges in the ordinary course of our business. We only include such costs that are part of a restructuring program as restructuring charges. Since the first such restructuring program was initiated in 2008, we have completed three restructuring programs and have incurred total restructuring charges of $253.
Closed Restructuring Programs
We have three closed restructuring programs. The first was initiated in 2008 in recognition of a challenging economic environment and was completed in 2011. The second was initiated following the April 30, 2012 acquisition 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/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. We expect to complete the restructuring program in the first half of 2018. The total costs expected to be incurred in connection with the program are not currently estimable, as we are still identifying the actions that will be undertaken.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)



The table below provides certain information concerning restructuring activity during the six months ended June 30, 2017:  
 
 
Reserve Balance at
 
Charged to
Costs and
Expenses (1)
 
Payments
and Other
 
Reserve Balance at
 
 
December 31, 2016
 
 
 
June 30, 2017
Closed Restructuring Programs
 
 
 
 
 
 
 
 
Branch closure charges
 
$
16

 
$

 
$
(2
)
 
$
14

Severance and other
 
1

 

 
(1
)
 

Total
 
$
17

 
$

 
$
(3
)
 
$
14

NES/Project XL Restructuring Program
 
 
 
 
 
 
 
 
Branch closure charges
 
$

 
$
3

 
$
(1
)
 
$
2

Severance and other
 

 
16

 
(11
)
 
5

Total
 
$

 
$
19

 
$
(12
)
 
$
7

Total
 
 
 
 
 
 
 
 
Branch closure charges
 
$
16

 
$
3

 
$
(3
)
 
$
16

Severance and other
 
1

 
16

 
(12
)
 
5

Total
 
$
17

 
$
19

 
$
(15
)
 
$
21

 
_________________
(1)
Reflected in our condensed consolidated statements of income as “Restructuring charge.” These charges are not allocated to our reportable segments. 

5. Goodwill and Other Intangible Assets
The following table presents the changes in the carrying amount of goodwill for the six months ended June 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)
199

 

 
199

Foreign currency translation
7

 
2

 
9

Balance at June 30, 2017 (1)
3,003

 
465

 
3,468

 
_________________
(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, see note 2 to our condensed consolidated financial statements.
Other intangible assets were comprised of the following at June 30, 2017 and December 31, 2016:  
 
June 30, 2017
 
Weighted-Average Remaining
Amortization Period
 
Gross
Carrying Amount
 
Accumulated
Amortization
 
Net
Amount
Non-compete agreements
29 months
 
 
$
67

 
 
 
$
59

 
 
 
$
8

 
Customer relationships
9 years
 
 
$
1,585

 
 
 
$
795

 
 
 
$
790

 
 

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)



 
December 31, 2016
 
Weighted-Average Remaining
Amortization Period
 
Gross
Carrying Amount
 
Accumulated
Amortization
 
Net
Amount
Non-compete agreements
28 months
 
 
$
70

 
 
 
$
57

 
 
 
$
13

 
Customer relationships
10 years
 
 
$
1,465

 
 
 
$
737

 
 
 
$
728

 
Trade names and associated trademarks
4 months
 
 
$
80

 
 
 
$
79

 
 
 
$
1

 

Our other intangibles assets, net at June 30, 2017 include the following assets associated with the acquisition of NES discussed in note 2 to our condensed consolidated financial statements. No residual value has been assigned to these intangible assets. 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, which we believe best reflects the estimated pattern in which the economic benefits will be consumed.
 
June 30, 2017
 
Weighted-Average Remaining
Amortization Period 
 
 
Net Carrying
Amount
Non-compete agreements
1 year
 
 
$
1

Customer relationships
10 years
 
 
$
132

Amortization expense for other intangible assets was $42 and $43 for the three months ended June 30, 2017 and 2016, respectively, and $84 and $90 for the six months ended June 30, 2017 and 2016, respectively.
As of June 30, 2017, estimated amortization expense for other intangible assets for each of the next five years and thereafter is as follows:  
2017
 
$
81

 
2018
150
 
 
2019
132
 
 
2020
113
 
 
2021
95
 
 
Thereafter
227
 
 
Total
 
$
798

 

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 six months ended June 30, 2017 and 2016, the risks we managed using derivative instruments were diesel price risk and foreign currency exchange rate risk. At June 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 six months ended June 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 June 30, 2017.
Fixed Price Diesel Swaps
The fixed price swap contracts on diesel purchases that were outstanding at June 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 June 30, 2017, we had outstanding fixed price swap contracts covering 4.4 million gallons of diesel which will be purchased throughout 2017 and 2018.
Foreign Currency Forward Contracts

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(Dollars in millions, except per share data, unless otherwise indicated)



The forward contracts to purchase Canadian dollars, which were all settled as of June 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 occurred. During the six months ended June 30, 2017, forward contracts were used to purchase $402 Canadian dollars, representing the total amount due at maturity for certain Canadian dollar denominated intercompany loans that were settled during the six months ended June 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 June 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 six months ended June 30, 2017 and 2016 was as follows:
 
 
 
 
Three Months Ended June 30, 2017
 
Three Months Ended June 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)
 
 *

 
$
(5
)
 
(2
)
 
$
(6
)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts (4)
Other income
(expense), net
 
7

 
(7
)
 
3

 
(3
)
 
 
 
Six Months Ended June 30, 2017
 
Six Months Ended June 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)
 
 *

 
$
(10
)
 
(4
)
 
$
(11
)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts (4)
Other income
(expense), net
 
7

 
(7
)
 
3

 
(3
)
*
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.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)



(3)
Amounts recognized on hedged item reflect the use of 1.9 million and 2.4 million gallons and of diesel covered by the fixed price swaps during the three months ended June 30, 2017 and 2016, respectively, and the use of 3.8 million and 5.0 million gallons and of diesel covered by the fixed price swaps during the six months ended June 30, 2017 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. 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
As of June 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 June 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 June 30, 2017, we have fixed price swap contracts that mature throughout 2017 and 2018 covering 4.4 million gallons of diesel which we will buy at the average contract price of $2.57 per gallon, while the average forward price for the hedged gallons was $2.51 per gallon as of June 30, 2017.
 
Fair Value of Financial Instruments
The carrying amounts reported in our condensed consolidated balance sheets for accounts receivable, accounts payable and accrued expenses and other liabilities approximate fair value due to the immediate to short-term maturity of these financial instruments. The fair values of our ABL facility, accounts receivable securitization facility and capital leases approximated their book values as of June 30, 2017 and December 31, 2016. The estimated fair values of our financial instruments, all of which are categorized in Level 1 of the fair value hierarchy, as of June 30, 2017 and December 31, 2016 have been calculated based upon available market information, and were as follows: 
 
June 30, 2017
 
December 31, 2016
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Senior notes
$
5,770

 
$
6,058

 
$
5,506

 
$
5,715



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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)



8. Debt
Debt, net of unamortized original issue discounts or premiums, and unamortized debt issuance costs, consists of the following: 
 
June 30, 2017
 
December 31, 2016
Accounts Receivable Securitization Facility expiring 2017 (1)
$
615

 
$
568

$2.5 billion ABL Facility expiring 2021 (2)
1,763

 
1,645

7 5/8 percent Senior Notes due 2022 (3)
223

 
469

1/8 percent Senior Notes due 2023
935

 
936

5/8 percent Senior Secured Notes due 2023
991

 
991

3/4 percent Senior Notes due 2024
840

 
839

1/2 percent Senior Notes due 2025
793

 
792

7/8 percent Senior Notes due 2026 (4)
998

 
740

1/2 percent Senior Notes due 2027 (5)
990

 
739

Capital leases
67

 
71

Total debt
8,215

 
7,790

Less short-term portion (6)
(644
)
 
(597
)
Total long-term debt
$
7,571

 
$
7,193

 ___________________

(1)
At June 30, 2017, $10 was available under our accounts receivable securitization facility. The interest rate applicable to the accounts receivable securitization facility was 1.9 percent at June 30, 2017. During the six months ended June 30, 2017, the monthly average amount outstanding under the accounts receivable securitization facility was $557, and the weighted-average interest rate thereon was 1.7 percent. The maximum month-end amount outstanding under the accounts receivable securitization facility during the six months ended June 30, 2017 was $616. 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 June 30, 2017, there were $694 of receivables, net of applicable reserves and other deductions, in the collateral pool.
(2)
At June 30, 2017, $0.7 billion was available under our ABL facility, net of $40 of letters of credit. The interest rate applicable to the ABL facility was 2.7 percent at June 30, 2017. During the six months ended June 30, 2017, the monthly average amount outstanding under the ABL facility was $1.2 billion, and the weighted-average interest rate thereon was 2.5 percent. The maximum month-end amount outstanding under the ABL facility during the six months ended June 30, 2017 was $1.8 billion. As discussed below, pending the payment of the purchase price for the NES acquisition discussed in note 2 to the condensed consolidated financial statements, the net proceeds from debt issued in February 2017 were used to reduce borrowings under the ABL facility. Following the closing of the NES acquisition on April 3, 2017, we used borrowings under the ABL facility to partially fund the NES acquisition.
(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.
(4)
In February 2017, URNA issued $250 principal amount of 5 7/8 percent Senior Notes as an add-on to our existing 5 7/8 percent Senior Notes. The net proceeds from the issuance were $258 (including the original issue premium and after deducting offering expenses). Pending the payment of the purchase price for the NES acquisition, the net proceeds from the issuance were used to reduce borrowings under the ABL facility. The acquisition closed on April 3, 2017. Upon closing of the NES acquisition, we used available cash and borrowings under the ABL facility to finance the NES acquisition. After the February 2017 issuance, the aggregate principal amount of outstanding 5 7/8 percent Senior Notes was $1.0 billion. The newly issued notes have identical terms, and are fungible, with the 5 7/8 percent Senior Notes outstanding at December 31, 2016. The carrying value of the 5 7/8 percent Senior 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 Senior Notes is 5.7 percent.
(5)
In February 2017, 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). Pending the payment of the purchase

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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)



price for the NES acquisition, the net proceeds from the issuance were used to reduce borrowings under the ABL facility. Upon closing of the NES acquisition, we used available cash and borrowings under the ABL facility to finance the NES acquisition. 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.
(6)
As of June 30, 2017, our short-term debt primarily reflects $615 of borrowings under our accounts receivable securitization facility.
Loan Covenants and Compliance
As of June 30, 2017, 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 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 June 30, 2017, 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. Legal and Regulatory Matters
We are subject to a number of claims and proceedings that generally arise in the ordinary course of our business. These matters include, but are not limited to, general liability claims (including personal injury, property and auto claims), indemnification and guarantee obligations, employee injuries and employment-related claims, self-insurance obligations, contract and real estate matters, and other general business litigation. Based on advice of counsel and available information, including current status or stage of proceeding, and taking into account accruals for matters where we have established them, we currently believe that any liabilities ultimately resulting from such claims and proceedings will not, individually or in the aggregate, have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
10. Earnings Per Share
Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares plus the effect of dilutive potential common shares outstanding during the period. The following table sets forth the computation of basic and diluted earnings per share (shares in thousands): 

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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
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
Numerator:
 
 
 
 
 
 
 
Net income available to common stockholders
$
141

 
$
134

 
250

 
226

Denominator:
 
 
 
 
 
 
 
Denominator for basic earnings per share—weighted-average common shares
84,635

 
88,095

 
84,546

 
89,303

Effect of dilutive securities:
 
 
 
 
 
 
 
Employee stock options
394

 
271

 
403

 
267

Restricted stock units
379

 
107

 
452

 
139

Denominator for diluted earnings per share—adjusted weighted-average common shares
85,408

 
88,473

 
85,401

 
89,709

Basic earnings per share
$
1.67

 
$
1.52

 
$
2.95

 
$
2.53

Diluted earnings per share
$
1.65

 
$
1.52

 
$
2.92

 
$
2.52


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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)



11. Condensed Consolidating Financial Information of Guarantor Subsidiaries
URNA is 100 percent owned by Holdings (“Parent”) and has certain outstanding indebtedness that is guaranteed by both Parent and, with the exception of its U.S. special purpose vehicle which holds receivable assets relating to the Company’s accounts receivable securitization facility (the “SPV”), all of URNA’s U.S. subsidiaries (the “guarantor subsidiaries”). Other than the guarantee by certain Canadian subsidiaries of URNA's indebtedness under the ABL facility, none of URNA’s indebtedness is guaranteed by URNA's foreign subsidiaries or the SPV (together, the “non-guarantor subsidiaries”). The receivable assets owned by the SPV have been sold or contributed by URNA to the SPV and are not available to satisfy the obligations of URNA or Parent’s other subsidiaries. The guarantor subsidiaries are all 100 percent-owned and the guarantees are made on a joint and several basis. The guarantees are not full and unconditional because a guarantor subsidiary can be automatically released and relieved of its obligations under certain circumstances, including sale of the guarantor subsidiary, the sale of all or substantially all of the guarantor subsidiary's assets, the requirements for legal defeasance or covenant defeasance under the applicable indenture being met 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 share repurchases and dividend payments. As of June 30, 2017, the amount available for distribution under the most restrictive of these covenants was $456. The Company’s total available capacity for making share repurchases and dividend payments includes the intercompany receivable balance of Parent. As of June 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 $1.027 billion.
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
June 30, 2017  
 
Parent
 
URNA
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
 
Foreign
 
SPV
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$

 
$
9

 
$

 
$
329

 
$

 
$

 
$
338

Accounts receivable, net

 
35

 

 
98

 
857

 

 
990

Intercompany receivable (payable)
571

 
(353
)
 
(201
)
 
(128
)
 

 
111

 

Inventory

 
70

 

 
8

 

 

 
78

Prepaid expenses and other assets
6

 
67

 

 
4

 

 

 
77

Total current assets
577

 
(172
)
 
(201
)
 
311

 
857

 
111

 
1,483

Rental equipment, net

 
6,555

 

 
521

 

 

 
7,076

Property and equipment, net
38

 
340

 
31

 
40

 

 

 
449

Investments in subsidiaries
1,354

 
1,071

 
1,014

 

 

 
(3,439
)
 

Goodwill

 
3,213

 

 
255

 

 

 
3,468

Other intangible assets, net

 
746

 

 
52

 

 

 
798

Other long-term assets
3

 
7

 

 

 

 

 
10

Total assets
$
1,972

 
$
11,760

 
$
844

 
$
1,179

 
$
857

 
$
(3,328
)
 
$
13,284

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term debt and current maturities of long-term debt
$
1

 
$
26

 
$

 
$
2

 
$
615

 
$

 
$
644

Accounts payable

 
630

 

 
62

 

 

 
692

Accrued expenses and other liabilities

 
371

 
11

 
25

 
1

 

 
408

Total current liabilities
1

 
1,027

 
11

 
89

 
616

 

 
1,744

Long-term debt
2

 
7,452

 
114

 
3

 

 

 
7,571

Deferred taxes
21

 
1,858

 

 
73

 

 

 
1,952

Other long-term liabilities

 
69

 

 

 

 

 
69

Total liabilities
24

 
10,406

 
125

 
165

 
616

 

 
11,336

Total stockholders’ equity (deficit)
1,948

 
1,354

 
719

 
1,014

 
241

 
(3,328
)
 
1,948

Total liabilities and stockholders’ equity (deficit)
$
1,972

 
$
11,760

 
$
844

 
$
1,179

 
$
857

 
$
(3,328
)
 
$
13,284






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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
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