Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of United Rentals, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of United Rentals, Inc. (“the Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and the financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated January 27, 2021 expressed an unqualified opinion thereon.

Adoption of Accounting Standards Update (ASU) No. 2016-02

As discussed in Note 13 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of ASU No. 2016-02, Leases and associated amendments (Topic 842), using the modified retrospective method.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.


			Valuation of Goodwill
Description of the Matter			At December 31, 2020, the Company’s goodwill was $5.2 billion. As discussed in Note 2 to the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level. Auditing management’s annual goodwill impairment test was complex and highly judgmental due to the significant estimations required to determine the fair value of the reporting units. In particular, the fair value estimates were sensitive to significant assumptions, including the discount rates, revenue growth rates, Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) margin, capital expenditures, long-term growth rates and market multiples, all of which are affected by expectations about future operational, rental industry market or economic conditions, including the impact of COVID-19.
How We Addressed the Matter in Our Audit			We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment review process, including controls over management’s development and review of the significant assumptions described above and review of the reasonableness of the data utilized in the Company’s valuation analysis. To test the fair value of the Company’s reporting units, we performed audit procedures that included, among others, assessing methodologies and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We compared the significant assumptions used by management to current industry and economic trends, including the impact of COVID-19, and key performance indicators, and evaluated whether changes in the company’s business would affect the significant assumptions. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions. In performing our testing, we utilized internal valuation specialists to assist us in evaluating the Company’s valuation model and related significant assumptions. In addition, we tested management’s reconciliation of the fair value of the reporting units to the market capitalization of the Company.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1997.

Stamford, Connecticut

January 27, 2021

UNITED RENTALS, INC.

CONSOLIDATED BALANCE SHEETS

(In millions, except share data)


	December 31,
	2020		2019
ASSETS
Cash and cash equivalents	$	202	$	52
Accounts receivable, net of allowance for doubtful accounts of $108 at December 31, 2020 and $103 at December 31, 2019	1,315		1,530
Inventory	125		120
Prepaid expenses and other assets	375		140

Total current assets	2,017		1,842
Rental equipment, net	8,705		9,787
Property and equipment, net	604		604
Goodwill	5,168		5,154
Other intangible assets, net	648		895
Operating lease right-of-use assets	688		669
Other long-term assets	38		19
Total assets	$	17,868	$	18,970
LIABILITIES AND STOCKHOLDERS’ EQUITY
Short-term debt and current maturities of long-term debt	$	704	$	997
Accounts payable	466		454
Accrued expenses and other liabilities	720		747
Total current liabilities	1,890		2,198
Long-term debt	8,978		10,431

Deferred taxes	1,768		1,887
Operating lease liabilities	549		533
Other long-term liabilities	138		91
Total liabilities	13,323		15,140

Common stock—$0.01 par value, 500,000,000 shares authorized, 114,210,157 and 72,196,648 shares issued and outstanding, respectively, at December 31, 2020 and 113,825,667 and 74,362,195 shares issued and outstanding, respectively, at December 31, 2019	1		1
Additional paid-in capital	2,482		2,440
Retained earnings	6,165		5,275
Treasury stock at cost—42,013,509 and 39,463,472 shares at December 31, 2020 and December 31, 2019, respectively	(3,957)		(3,700)
Accumulated other comprehensive loss	(146)		(186)
Total stockholders’ equity	4,545		3,830
Total liabilities and stockholders’ equity	$	17,868	$	18,970

See accompanying notes.

UNITED RENTALS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share amounts)


	Year Ended December 31,
	2020		2019		2018
Revenues:
Equipment rentals	$	7,140	$	7,964	$	6,940
Sales of rental equipment	858		831		664
Sales of new equipment	247		268		208
Contractor supplies sales	98		104		91
Service and other revenues	187		184		144
Total revenues	8,530		9,351		8,047
Cost of revenues:
Cost of equipment rentals, excluding depreciation	2,820		3,126		2,614
Depreciation of rental equipment	1,601		1,631		1,363
Cost of rental equipment sales	526		518		386
Cost of new equipment sales	214		231		179
Cost of contractor supplies sales	69		73		60
Cost of service and other revenues	117		102		81
Total cost of revenues	5,347		5,681		4,683
Gross profit	3,183		3,670		3,364
Selling, general and administrative expenses	979		1,092		1,038
Merger related costs	—		1		36
Restructuring charge	17		18		31
Non-rental depreciation and amortization	387		407		308
Operating income	1,800		2,152		1,951
Interest expense, net	669		648		481

Other income, net	(8)		(10)		(6)
Income before provision (benefit) for income taxes	1,139		1,514		1,476
Provision (benefit) for income taxes	249		340		380


Net income	$	890	$	1,174	$	1,096



Basic earnings per share	$	12.24	$	15.18	$	13.26



Diluted earnings per share	$	12.20	$	15.11	$	13.12

See accompanying notes.

UNITED RENTALS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)


	Year Ended December 31,
	2020		2019		2018
Net income	$	890	$	1,174	$	1,096
Other comprehensive income (loss):
Foreign currency translation adjustments (1)	40		49		(84)
Fixed price diesel swaps	—		2		(2)
Other comprehensive income (loss) (1)	40		51		(86)
Comprehensive income	$	930	$	1,225	$	1,010

(1)There were no material reclassifications from accumulated other comprehensive loss reflected in other comprehensive income (loss) during the years ended December 31, 2020, 2019 or 2018. There was no material tax impact related to the foreign currency translation adjustments during the years ended December 31, 2020, 2019 or 2018. See note 14 to the consolidated financial statements for a discussion addressing our determination pertaining to the permanent reinvestment of unremitted foreign earnings. There were no material taxes associated with other comprehensive income (loss) during the years ended December 31, 2020, 2019 or 2018.

See accompanying notes.

UNITED RENTALS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions)


	Common Stock			Additional				Treasury Stock			Accumulated Other
	Number of Shares	Amount		Paid-in Capital		Retained Earnings		Number of Shares	Amount		Comprehensive (Loss) Income
Balance at January 1, 2018	84	$	1	$	2,356	$	3,005	28	$	(2,105)	$	(151)
Net income						1,096
Foreign currency translation adjustments											(84)
Fixed price diesel swaps											(2)

Stock compensation expense, net	1			102
Exercise of common stock options	—			2


Shares repurchased and retired				(52)
Repurchase of common stock	(5)							5	(765)

Balance at December 31, 2018	80	$	1	$	2,408	$	4,101	33	$	(2,870)	$	(237)

See accompanying notes.

UNITED RENTALS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

(In millions)


	Common Stock			Additional				Treasury Stock			Accumulated Other
	Number of Shares	Amount		Paid-in Capital		Retained Earnings		Number of Shares	Amount		Comprehensive (Loss) Income
Balance at December 31, 2018	80	$	1	$	2,408	$	4,101	33	$	(2,870)	$	(237)
Net income						1,174
Foreign currency translation adjustments											49
Fixed price diesel swaps											2

Stock compensation expense, net	—			61
Exercise of common stock options	—			11



Shares repurchased and retired				(40)
Repurchase of common stock	(6)							6	(830)

Balance at December 31, 2019	74	$	1	$	2,440	$	5,275	39	$	(3,700)	$	(186)

See accompanying notes.

UNITED RENTALS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

(In millions)


	Common Stock			Additional				Treasury Stock			Accumulated Other
	Number of Shares	Amount		Paid-in Capital		Retained Earnings		Number of Shares	Amount		Comprehensive (Loss) Income (1)
Balance at December 31, 2019	74	$	1	$	2,440	$	5,275	39	$	(3,700)	$	(186)
Net income						890
Foreign currency translation adjustments											40


Stock compensation expense, net	1			70
Exercise of common stock options	—			1


Shares repurchased and retired				(29)
Repurchase of common stock	(3)							3	$	(257)

Balance at December 31, 2020	72	$	1	$	2,482	$	6,165	42	$	(3,957)	$	(146)

(1)As of December 31, 2020, 2019 and 2018, the Accumulated Other Comprehensive Loss balance primarily reflects foreign currency translation adjustments.

See accompanying notes.

UNITED RENTALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended December 31,
	2020		2019		2018
	(In millions)
Cash Flows From Operating Activities:
Net income	$	890	$	1,174	$	1,096
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,988		2,038		1,671
Amortization of deferred financing costs and original issue discounts	14		15		12
Gain on sales of rental equipment	(332)		(313)		(278)
Gain on sales of non-rental equipment	(8)		(6)		(6)
Insurance proceeds from damaged equipment	(40)		(24)		(22)
Stock compensation expense, net	70		61		102
Merger related costs	—		1		36
Restructuring charge	17		18		31
Loss on repurchase/redemption of debt securities and amendment of ABL facility	183		61		—


(Decrease) increase in deferred taxes	(121)		204		257
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable	218		39		(115)
Increase in inventory	(5)		(8)		(20)
(Increase) decrease in prepaid expenses and other assets	(228)		(59)		75
Increase (decrease) in accounts payable	10		(86)		49
Increase (decrease) in accrued expenses and other liabilities	2		(91)		(35)
Net cash provided by operating activities	2,658		3,024		2,853
Cash Flows From Investing Activities:
Purchases of rental equipment	(961)		(2,132)		(2,106)
Purchases of non-rental equipment	(197)		(218)		(185)
Proceeds from sales of rental equipment	858		831		664
Proceeds from sales of non-rental equipment	42		37		23
Insurance proceeds from damaged equipment	40		24		22
Purchases of other companies, net of cash acquired	(2)		(249)		(2,966)
Purchases of investments	(3)		(3)		(3)
Net cash used in investing activities	(223)		(1,710)		(4,551)
Cash Flows From Financing Activities:
Proceeds from debt	9,260		9,260		12,178
Payments of debt	(11,245)		(9,678)		(9,942)

Payments of financing costs	(23)		(28)		(24)
Proceeds from the exercise of common stock options	1		11		2
Common stock repurchased	(286)		(870)		(817)


Net cash (used in) provided by financing activities	(2,293)		(1,305)		1,397
Effect of foreign exchange rates	8		—		(8)
Net increase (decrease) in cash and cash equivalents	150		9		(309)
Cash and cash equivalents at beginning of year	52		43		352
Cash and cash equivalents at end of year	$	202	$	52	$	43
Supplemental disclosure of cash flow information:
Cash paid for interest	$	483	$	581	$	455
Cash paid for income taxes, net	318		238		71

See accompanying notes.

UNITED RENTALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

1. Organization, Description of Business and Consolidation

United Rentals, Inc. ("Holdings") 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 stockholder. As used in this report, the terms the “Company,” “United Rentals,” “we,” “us,” and “our” refer to United Rentals, Inc. and its subsidiaries, unless otherwise indicated.

We rent equipment to a diverse customer base that includes construction and industrial companies, manufacturers, utilities, municipalities, homeowners and others in the United States, Canada and Europe. With the July 2018 acquisition of BakerCorp International Holdings, Inc. (“BakerCorp”), which added 11 European locations in France, Germany, the United Kingdom and the Netherlands to our branch network, we entered into select European markets. In addition to renting equipment, we sell new and used rental equipment, as well as related contractor supplies, parts and service.

The accompanying consolidated financial statements include our accounts and those of our controlled subsidiary companies. All significant intercompany accounts and transactions have been eliminated. We consolidate variable interest entities if we are deemed the primary beneficiary of the entity.

COVID-19

The novel coronavirus (“COVID-19”) was first identified in people in late 2019. COVID-19 spread rapidly throughout the world and, in March 2020, the World Health Organization characterized COVID-19 as a pandemic. COVID-19 is a pandemic of respiratory disease spreading from person-to-person that poses a serious public health risk. It has significantly disrupted supply chains and businesses around the world. The extent and duration of the COVID-19 impact, on the operations and financial position of United Rentals, and on the global economy, is uncertain. See "Item 1. Business- Industry Overview and Economic Outlook" above for a discussion of market performance in 2020. The health and safety of our employees and customers remains our top priority, and we have also engaged in extensive contingency planning to manage the business impact of the pandemic.

Prior to mid-March 2020, our results were largely in line with expectations. We began to experience a decline in revenues in March 2020, when rental volume declined in response to shelter-in-place orders and other market restrictions. COVID-19 is discussed in more detail throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

2. Summary of Significant Accounting Policies

Cash Equivalents

We consider all highly liquid instruments with maturities of three months or less when purchased to be cash equivalents. Our cash equivalents at December 31, 2020 and 2019 consist of direct obligations of financial institutions rated A or better.

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts. These allowances reflect our estimate of the amount of our receivables that we will be unable to collect based on historical write-off experience and, as applicable, current conditions and reasonable and supportable forecasts that affect collectibility. Our allowance for doubtful accounts as of December 31, 2020 included an adjustment for the estimated impact of COVID-19 on future collectibility that was not material to our financial statements. Our estimate could require change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase or decrease our allowances. Trade receivables that have contractual maturities of one year or less are written-off when they are determined to be uncollectible based on the criteria necessary to qualify as a deduction for federal tax purposes. Write-offs of such receivables require management approval based on specified dollar thresholds. See note 3 to our consolidated financial statements for further detail.

Inventory

Inventory consists of new equipment, contractor supplies, tools, parts, fuel and related supply items. Inventory is stated at the lower of cost or market. Cost is determined, depending on the type of inventory, using either a specific identification, weighted-average or first-in, first-out method.

Rental Equipment

Rental equipment, which includes service and delivery vehicles, is recorded at cost and depreciated over the estimated useful life of the equipment using the straight-line method. The range of estimated useful lives for rental equipment is two to 20 years. Rental equipment is depreciated to a salvage value of zero to 10 percent of cost. Rental equipment is depreciated whether or not it is out on rent.

Property and Equipment

Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. The range of estimated useful lives for property and equipment is two to 39 years. Ordinary repair and maintenance costs are charged to expense as incurred. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or the remaining life of the lease, whichever is shorter.

Acquisition Accounting

We have made a number of acquisitions in the past and may continue to make acquisitions in the future. The assets acquired and liabilities assumed are recorded based on their respective fair values at the date of acquisition. Long-lived assets (principally rental equipment), goodwill and other intangible assets generally represent the largest components of our acquisitions. Rental equipment is valued utilizing either a cost, market or income approach, or a combination of certain of these methods, depending on the asset being valued and the availability of market or income data. The intangible assets that we have acquired are non-compete agreements, customer relationships and trade names and associated trademarks. The estimated fair values of these intangible assets reflect various assumptions about discount rates, revenue growth rates, operating margins, terminal values, useful lives and other prospective financial information. Goodwill is calculated as the excess of the cost of the acquired entity over the net of the fair value of the assets acquired and the liabilities assumed. Non-compete agreements, customer relationships and trade names and associated trademarks are valued based on an excess earnings or income approach based on projected cash flows.

Determining the fair value of the assets and liabilities acquired is judgmental in nature and can involve the use of significant estimates and assumptions. The judgments made in determining the estimated fair value assigned to the assets acquired, as well as the estimated life of the assets, can materially impact net income in periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future. As discussed below, we regularly review for impairments.

When we make an acquisition, we also acquire other assets and assume liabilities. These other assets and liabilities typically include, but are not limited to, parts inventory, accounts receivable, accounts payable and other working capital items. Because of their short-term nature, the fair values of these other assets and liabilities generally approximate the book values on the acquired entities' balance sheets.

Evaluation of Goodwill Impairment

Goodwill is tested for impairment annually or more frequently if an event or circumstance indicates that an impairment loss may have been incurred. Application of the goodwill impairment test requires judgment, including: the identification of reporting units; assignment of assets and liabilities to reporting units; assignment of goodwill to reporting units; determination of the fair value of each reporting unit; and an assumption as to the form of the transaction in which the reporting unit would be acquired by a market participant (either a taxable or nontaxable transaction).

We estimate the fair value of our reporting units (which are our regions) using a combination of an income approach based on the present value of estimated future cash flows and a market approach based on market price data of shares of our Company and other corporations engaged in similar businesses as well as acquisition multiples paid in recent transactions within our industry (including our own acquisitions). We believe this approach, which utilizes multiple valuation techniques, yields the most appropriate evidence of fair value.

As discussed below (see "Guidance Adopted in 2020-Simplifying the Test for Goodwill Impairment"), in 2020, we adopted accounting guidance that eliminated the second step from the goodwill impairment test (this guidance did not have a significant impact on our financial statements). 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. We did not perform this second step for the goodwill impairment test conducted as of October 1, 2020 or 2019 (for 2020, because the adopted accounting guidance eliminated the second step, and, for 2019, because there was no indication that an impairment may have existed). The first step of the impairment test requires comparing the fair value of a reporting unit with its carrying amount. Financial Accounting

Standards Board ("FASB") guidance permits entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

In connection with our goodwill impairment test that was conducted as of October 1, 2020, we bypassed the qualitative assessment for each reporting unit and quantitatively compared the fair values of our reporting units with their carrying amounts. We considered the impact of COVID-19 when performing the test, and it did not have a material impact on the test results. Our goodwill impairment testing as of this date indicated that all of our reporting units, excluding our Fluid Solutions Europe reporting unit, had estimated fair values which exceeded their respective carrying amounts by at least 42 percent. As discussed above, in July 2018, we completed the acquisition of BakerCorp. All of the assets in the Fluid Solutions Europe reporting unit were acquired in the BakerCorp acquisition. The estimated fair value of our Fluid Solutions Europe reporting unit exceeded its carrying amount by 22 percent. As all of the assets in the Fluid Solutions Europe reporting unit were recorded at fair value as of the July 2018 acquisition date, we expected the percentage by which the Fluid Solutions Europe reporting unit’s fair value exceeded its carrying value to be significantly less than the equivalent percentages determined for our other reporting units.

In connection with our goodwill impairment test that was conducted as of October 1, 2019, we bypassed the qualitative assessment for each reporting unit and proceeded directly to the first step of the goodwill impairment test. Our goodwill impairment testing as of this date indicated that all of our reporting units, excluding our Fluid Solutions Europe reporting unit, had estimated fair values which exceeded their respective carrying amounts by at least 32 percent. As discussed above, in July 2018, we completed the acquisition of BakerCorp. All of the assets in the Fluid Solutions Europe reporting unit were acquired in the BakerCorp acquisition. The estimated fair value of our Fluid Solutions Europe reporting unit exceeded its carrying amount by 12 percent. As all of the assets in the Fluid Solutions Europe reporting unit were recorded at fair value as of the July 2018 acquisition date, we expected the percentage by which the Fluid Solutions Europe reporting unit’s fair value exceeded its carrying value to be significantly less than the equivalent percentages determined for our other reporting units.

Restructuring Charges

Costs associated with exit or disposal activities, including lease termination costs and certain employee severance costs associated with restructuring, branch closings or other activities, are recognized at fair value when they are incurred.

Other Intangible Assets

Other intangible assets consist of non-compete agreements, customer relationships and trade names and associated trademarks. The non-compete agreements are being amortized on a straight-line basis over initial periods of approximately 5 years. The customer relationships are being amortized either using the sum of the years' digits method or on a straight-line basis over initial periods ranging from 5 to 15 years. The trade names and associated trademarks are being amortized using the sum of the years' digits method over initial periods of approximately 5 years. We believe that the amortization methods used reflect the estimated pattern in which the economic benefits will be consumed.

Long-Lived Assets

Long-lived assets are recorded at the lower of amortized cost or fair value. As part of an ongoing review of the valuation of long-lived assets, we assess the carrying value of such assets if facts and circumstances suggest they may be impaired. If this review indicates the carrying value of such an asset may not be recoverable, as determined by an undiscounted cash flow analysis over the remaining useful life, the carrying value would be reduced to its estimated fair value.

Translation of Foreign Currency

Assets and liabilities of our foreign subsidiaries that have a functional currency other than U.S. dollars are translated into U.S. dollars using exchange rates at the balance sheet date. Revenues and expenses are translated at average exchange rates effective during the year. Foreign currency translation gains and losses are included as a component of accumulated other comprehensive (loss) income within stockholders’ equity.

Revenue Recognition

As discussed in note 3 to our consolidated financial statements, we recognize revenue in accordance with two different accounting standards: 1) Topic 606 (which addresses revenue from contracts with customers) and 2) Topic 842 (which addresses lease revenue). As discussed in note 13 to our consolidated financial statements, in 2019, we adopted Topic 842. Topic 842 replaced Topic 840, which was the lease accounting standard in effect for the year ended December 31, 2018. As discussed in note 3, most of our revenue is accounted for under Topic 842. The discussion below addresses our primary revenue types based on the accounting standard used to determine the accounting.

Lease revenues (Topic 842)

The accounting for the significant types of revenue that are accounted for under Topic 842 is discussed below.

Owned equipment rentals: Owned equipment rentals represent revenues from renting equipment that we own. We account for such rentals as operating leases.

Re-rent revenue: Re-rent revenue reflects revenues from equipment that we rent from vendors and then rent to our customers. We account for such rentals as subleases. The accounting for re-rent revenue is the same as the accounting for owned equipment rentals described above.

Revenues from contracts with customers (Topic 606)

The accounting for the significant types of revenue that are accounted for under Topic 606 is discussed below.

Delivery and pick-up: Delivery and pick-up revenue associated with renting equipment is recognized when the service is performed.

Sales of rental equipment, new equipment and contractor supplies are recognized at the time of delivery to, or pick-up by, the customer and when collectibility is probable.

Service and other revenues primarily represent revenues earned from providing repair and maintenance services on our customers’ fleet (including parts sales). Service revenue is recognized as the services are performed.

See note 3 to our consolidated financial statements for further discussion of our revenue accounting.

Delivery Expense

Equipment rentals include our revenues from fees we charge for equipment delivery. Delivery costs are charged to operations as incurred, and are included in cost of revenues on our consolidated statements of income.

Advertising Expense

We promote our business through local and national advertising in various media, including television, trade publications, branded sponsorships, yellow pages, the internet, radio and direct mail. Advertising costs are generally expensed as incurred. These costs may include the development costs for branded content and advertising campaigns. Advertising expense, net of the qualified advertising reimbursements discussed below, was immaterial for the years ended December 31, 2020, 2019 and 2018.

We receive reimbursements for advertising that promotes a vendor’s products or services. Such reimbursements that meet the applicable criteria under U.S. generally accepted accounting principles (“GAAP”) are offset against advertising costs in the period in which we recognize the incremental advertising cost. The amounts of qualified advertising reimbursements that reduced advertising expense were $22, $49 and $41 for the years ended December 31, 2020, 2019 and 2018, respectively.

Insurance

We are insured for general liability, workers’ compensation and automobile liability, subject to deductibles or self-insured retentions per occurrence. Losses within the deductible amounts are accrued based upon the aggregate liability for reported claims incurred, as well as an estimated liability for claims incurred but not yet reported. These liabilities are not discounted. We are also self-insured for group medical claims but purchase “stop loss” insurance as protection against any one significant loss.

Income Taxes

We use the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities and are measured using the tax rates and laws that are expected to be in effect when the differences are expected to reverse. Recognition of deferred tax assets is limited to amounts considered by management to be more likely than not to be realized in future periods. The most significant positive evidence that we consider in the recognition of deferred tax assets is the expected reversal of cumulative deferred tax liabilities resulting from book versus tax depreciation of our rental equipment fleet that is well in excess of the deferred tax assets.

We use a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return regarding uncertainties in income tax positions. The first step is recognition: we determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based

on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, we presume that the position will be examined by the appropriate taxing authority with full knowledge of all relevant information. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in one or more of the following: an increase in a liability for income taxes payable, a reduction of an income tax refund receivable, a reduction in a deferred tax asset or an increase in a deferred tax liability.

We have historically considered the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested, and, accordingly, no taxes were provided on such earnings prior to the fourth quarter of 2020. In the fourth quarter of 2020, we identified $135 of cash in our foreign operations in excess of near-term working capital needs, and determined that this amount could no longer be considered indefinitely reinvested. As a result, our prior assertion that all undistributed earnings of our foreign subsidiaries should be considered indefinitely reinvested has changed, and, in the fourth quarter of 2020, we recorded the immaterial taxes on a distribution of the $135 of cash.

The Tax Cuts and Jobs Act (the "Tax Act") was enacted in December 2017, and required a one-time transition tax for deemed repatriation of accumulated undistributed earnings of certain foreign investments, which we primarily recognized upon adoption of the Tax Act in 2017. As discussed in note 14 to the consolidated financial statements, we completed our accounting for the tax effects of enactment of the Tax Act in 2018.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates impact the calculation of the allowance for doubtful accounts, depreciation and amortization, income taxes and reserves for claims. Actual results could materially differ from those estimates.

Concentrations of Credit Risk

Financial instruments that potentially subject us to significant concentrations of credit risk include cash and cash equivalents and accounts receivable. We maintain cash and cash equivalents with high quality financial institutions. Concentration of credit risk with respect to receivables is limited because a large number of geographically diverse customers makes up our customer base (see note 3 to our consolidated financial statements for further detail). We manage credit risk through credit approvals, credit limits and other monitoring procedures.

Stock-Based Compensation

We measure stock-based compensation at the grant date based on the fair value of the award and recognize stock-based compensation expense over the requisite service period. Determining the fair value of stock option awards requires judgment, including estimating stock price volatility and expected option life. Restricted stock awards are valued based on the fair value of the stock on the grant date and the related compensation expense is recognized over the service period. Similarly, for time-based restricted stock awards subject to graded vesting, we recognize compensation cost on a straight-line basis over the requisite service period. For performance-based restricted stock units ("RSUs"), compensation expense is recognized if satisfaction of the performance condition is considered probable. We recognize forfeitures of stock-based compensation as they occur.

New Accounting Pronouncements

Simplifying the Accounting for Income Taxes. In December 2019, the FASB issued guidance intended to simplify the accounting for income taxes. The guidance removes the following exceptions: 1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, 2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, 3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary and 4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. Additionally, the guidance simplifies the accounting for income taxes by: 1) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, 2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which

the book goodwill was originally recognized and when it should be considered a separate transaction, 3) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements (although the entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority), 4) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date and 5) making minor improvements for income tax accounting related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. The guidance will be effective for fiscal years and interim periods beginning after December 15, 2020. Different components of the guidance require retrospective, modified retrospective or prospective adoption, and early adoption is permitted. We will adopt this guidance when it becomes effective, in the first quarter of 2021, and the impact on our financial statements is not expected to be material.

Guidance Adopted in 2020

Measurement of Credit Losses on Financial Instruments. In June 2016, the FASB issued guidance that requires companies to present certain financial assets net of the amount expected to be collected. Trade receivables (as noted below, excluding receivables arising from operating lease revenues) are the only material financial asset we have that is impacted by this guidance. 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. This guidance does not apply to receivables arising from operating lease revenues. As discussed in note 3 to the consolidated financial statements, most of our equipment rental revenue is accounted for as lease revenue (such revenue represented 77 percent of our total revenues for the year ended December 31, 2020). We adopted this guidance in 2020, and the impact of adoption on our financial statements was not material. See note 3 (see "Receivables and contract assets and liabilities") for further discussion of our receivables.

Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In March 2020, the FASB issued guidance that provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. We adopted this guidance in 2020, and the impact of adoption on our financial statements was not material. The expedients and exceptions in this guidance are optional, and we are evaluating the potential future financial statement impact of any such expedient or exception that we may elect to apply.

Simplifying the Test for Goodwill Impairment. In January 2017, the Financial Accounting Standards Board ("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. We adopted the guidance for the goodwill impairment test that we conducted as of October 1, 2020, and adoption of the guidance did not have a significant impact on our financial statements.

3. Revenue Recognition

Revenue Recognition Accounting Standards

In March 2016, the FASB issued updated lease accounting guidance ("Topic 842"), as explained further in note 13 to the consolidated financial statements. We adopted Topic 842 on January 1, 2019. Topic 842 is an update to Topic 840, which was the lease accounting standard in place through December 31, 2018. As reflected below, most of our revenue is accounted for under Topic 842 (Topic 840 for 2018). There were no significant changes to our revenue accounting upon adoption of Topic 842.

We recognize revenue in accordance with two different accounting standards: 1) Topic 606 (which addresses revenue from contracts with customers) and 2) Topic 842 (which, as discussed above, addresses lease revenue). Under Topic 606, revenue from contracts with customers is measured based on the consideration specified in the contract with the customer, and excludes any sales incentives and amounts collected on behalf of third parties. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer, and is the unit of account under Topic 606. As reflected below, most of our revenue is accounted for under Topic 842. Our contracts with customers generally do not include multiple performance obligations. We recognize revenue when we satisfy a performance obligation by transferring control over a

product or service to a customer. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for such products or services.

Nature of goods and services

In the following table, revenue is summarized by type and by the applicable accounting standard.


	Year Ended December 31,
			2020						2019						2018
	Topic 842		Topic 606		Total		Topic 842		Topic 606		Total		Topic 840		Topic 606		Total
Revenues:
Owned equipment rentals	$	6,056	$	—	$	6,056	$	6,777	$	—	$	6,777	$	5,946	$	—	$	5,946
Re-rent revenue	142		—		142		155		—		155		138		—		138
Ancillary and other rental revenues:
Delivery and pick-up	—		506		506		—		564		564		—		477		477
Other	338		98		436		356		112		468		287		92		379
Total ancillary and other rental revenues	338		604		942		356		676		1,032		287		569		856
Total equipment rentals	6,536		604		7,140		7,288		676		7,964		6,371		569		6,940
Sales of rental equipment	—		858		858		—		831		831		—		664		664
Sales of new equipment	—		247		247		—		268		268		—		208		208
Contractor supplies sales	—		98		98		—		104		104		—		91		91
Service and other revenues	—		187		187		—		184		184		—		144		144
Total revenues	$	6,536	$	1,994	$	8,530	$	7,288	$	2,063	$	9,351	$	6,371	$	1,676	$	8,047

Revenues by reportable segment and geographical market are presented in note 4 of the consolidated financial statements using the revenue captions reflected in our consolidated statements of operations. The majority of our revenue is recognized in our general rentals segment and in the U.S. (for the year ended December 31, 2020, 79 percent and 91 percent of total revenues, respectively). We believe that the disaggregation of our revenue from contracts to customers as reflected above, coupled with the further discussion below and the reportable segment and geographical market disclosures in note 4, depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.

Lease revenues (Topic 842)

The accounting for the types of revenue that are accounted for under Topic 842 is discussed below.

Owned equipment rentals represent our most significant revenue type (they accounted for 71 percent of total revenues for the year ended December 31, 2020) and are governed by our standard rental contract. We account for such rentals as operating leases. The lease terms are included in our contracts, and the determination of whether our contracts contain leases generally does not require significant assumptions or judgments. Our lease revenues do not include material amounts of variable payments.

Owned equipment rentals: Owned equipment rentals represent revenues from renting equipment that we own. We do not generally provide an option for the lessee to purchase the rented equipment at the end of the lease, and do not generate material revenue from sales of equipment under such options.

We recognize revenues from renting equipment on a straight-line basis. Our rental contract periods are hourly, daily, weekly or monthly. By way of example, if a customer were to rent a piece of equipment and the daily, weekly and monthly rental rates for that particular piece were (in actual dollars) $100, $300 and $900, respectively, we would recognize revenue of $32.14 per day. The daily rate for recognition purposes is calculated by dividing the monthly rate of $900 by the monthly term of 28 days. This daily rate assumes that the equipment will be on rent for the full 28 days, as we are unsure of when the customer will return the equipment and therefore unsure of which rental contract period will apply.

As part of this straight-line methodology, when the equipment is returned, we recognize as incremental revenue the excess, if any, between the amount the customer is contractually required to pay, which is based on the rental contract period applicable to the actual number of days the equipment was out on rent, over the cumulative amount of revenue recognized to date. In any given accounting period, we will have customers return equipment and be contractually required to pay us more

than the cumulative amount of revenue recognized to date under the straight-line methodology. For instance, continuing the above example, if the customer rented the above piece of equipment on December 29 and returned it at the close of business on January 1, we would recognize incremental revenue on January 1 of $171.44 (in actual dollars, representing the difference between the amount the customer is contractually required to pay, or $300 at the weekly rate, and the cumulative amount recognized to date on a straight-line basis, or $128.56, which represents four days at $32.14 per day).

We record amounts billed to customers in excess of recognizable revenue as deferred revenue on our balance sheet. We had deferred revenue (associated with both Topic 842 and Topic 606) of $51 and $55 as of December 31, 2020 and 2019, respectively.

As noted above, we are unsure of when the customer will return rented equipment. As such, we do not know how much the customer will owe us upon return of the equipment and cannot provide a maturity analysis of future lease payments. Our equipment is generally rented for short periods of time (significantly less than a year). Lessees do not provide residual value guarantees on rented equipment.

We expect to derive significant future benefits from our equipment following the end of the rental term. Our rentals are generally short-term in nature, and our equipment is typically rented for the majority of the time that we own it. We additionally recognize revenue from sales of rental equipment when we dispose of the equipment.

“Other” equipment rental revenue is primarily comprised of 1) Rental Protection Plan (or "RPP") revenue associated with the damage waiver customers can purchase when they rent our equipment to protect against potential loss or damage, 2) environmental charges associated with the rental of equipment, and 3) charges for rented equipment that is damaged by our customers.

Revenues from contracts with customers (Topic 606)

The accounting for the types of revenue that are accounted for under Topic 606 is discussed below. Substantially all of our revenues under Topic 606 are recognized at a point-in-time rather than over time.

Delivery and pick-up: Delivery and pick-up revenue associated with renting equipment is recognized when the service is performed.

“Other” equipment rental revenue is primarily comprised of revenues associated with the consumption of fuel by our customers which are recognized when the equipment is returned by the customer (and consumption, if any, can be measured).

Sales of rental equipment, new equipment and contractor supplies are recognized at the time of delivery to, or pick-up by, the customer and when collectibility is probable.

Receivables and contract assets and liabilities

As reflected above, most of our equipment rental revenue is accounted for under Topic 842 (such revenue represented 77 percent of our total revenues for the year ended December 31, 2020). The customers that are responsible for the remaining revenue that is accounted for under Topic 606 are generally the same customers that rent our equipment. We manage credit risk associated with our accounts receivables at the customer level. Because the same customers generate the revenues that are accounted for under both Topic 606 and Topic 842, the discussions below on credit risk and our allowances for doubtful accounts address receivables arising from revenues from both Topic 606 and Topic 842 (Topic 840 for 2018).

Concentration of credit risk with respect to our receivables is limited because a large number of geographically diverse customers makes up our customer base. Our largest customer accounted for less than one percent of total revenues in each of 2020, 2019, and 2018. Our customer with the largest receivable balance represented approximately two percent and one percent of total receivables at December 31, 2020 and 2019, respectively. We manage credit risk through credit approvals, credit limits and other monitoring procedures.

Our allowances for doubtful accounts reflect our estimate of the amount of our receivables that we will be unable to collect based on historical write-off experience and, as applicable, current conditions and reasonable and supportable forecasts

that affect collectibility. Our estimate could require change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase or decrease our allowances. Trade receivables that have contractual maturities of one year or less are written-off when they are determined to be uncollectible based on the criteria necessary to qualify as a deduction for federal tax purposes. Write-offs of such receivables require management approval based on specified dollar thresholds. See the table below for a rollforward of our allowance for doubtful accounts.

In 2020, we adopted accounting guidance that requires companies to present certain financial assets net of the amount expected to be collected. This 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. Our allowance for doubtful accounts as of December 31, 2020 included an adjustment for the estimated impact of COVID-19 on future collectibility that was not material to our financial statements. Trade receivables are the only material financial asset we have that is impacted by this guidance, which does not apply to receivables arising from operating lease revenues. Substantially all of our non-lease trade receivables are due in one year or less. As discussed above, most of our equipment rental revenue is accounted for as lease revenue (such revenue represented 77 percent of our total revenues for the year ended December 31, 2020), and these revenues account for corresponding portions of the $1.315 billion of net accounts receivable and the associated allowance for doubtful accounts of $108 reported on our consolidated balance sheet as of December 31, 2020). During the year ended December 31, 2020, we recognized total bad debt expenses for our non-lease trade receivables, within selling, general and administrative expenses on our consolidated statement of income, of $9 associated with our allowance for doubtful accounts. Adoption of this guidance did not materially impact 1) net accounts receivable or the associated allowance for doubtful accounts as reported on our consolidated balance sheet as of December 31, 2020 or 2) total bad debt expenses recognized associated with our allowance for doubtful accounts for the year ended December 31, 2020.

As discussed above, most of our equipment rental revenue is accounted for under Topic 842. The customers that are responsible for the remaining revenue that is accounted for under Topic 606 are generally the same customers that rent our equipment. We manage credit risk associated with our accounts receivables at the customer level. The rollforward of our allowance for doubtful accounts (in total, and associated with revenues arising from both Topic 606 and Topic 842/840) is shown below.


	Year ended December 31,
	2020		2019		2018
Beginning balance	$	103	$	93	$	68
Acquired	—		2		14
Charged to costs and expenses (1)	9		8		45
Charged to revenue (2)	25		34		—
Deductions (3)	(29)		(34)		(34)
Ending balance	$	108	$	103	$	93

(1) Reflects bad debt expenses recognized within selling, general and administrative expenses (associated with Topic 606 revenues).

(2) Primarily reflects doubtful accounts associated with lease revenues that were recognized as a reduction to equipment rentals revenue (primarily associated with Topic 842 revenues). We adopted Topic 842 in 2019 using a transition method that does not require application to periods prior to adoption.

(3) Represents write-offs of accounts, net of immaterial recoveries.

We do not have material contract assets, or impairment losses associated therewith, or material contract liabilities, associated with contracts with customers. Our contracts with customers do not generally result in material amounts billed to customers in excess of recognizable revenue. We did not recognize material revenue during the years ended December 31, 2020 and December 31, 2019 that was included in the contract liability balance as of the beginning of such periods.

Performance obligations

Most of our Topic 606 revenue is recognized at a point-in-time, rather than over time. Accordingly, in any particular period, we do not generally recognize a significant amount of revenue from performance obligations satisfied (or partially satisfied) in previous periods, and the amounts of such revenue recognized during the years ended December 31, 2020 and December 31, 2019 were not material. We also do not expect to recognize material revenue in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of December 31, 2020.

Payment terms

Our Topic 606 revenues do not include material amounts of variable consideration. Our payment terms vary by the type and location of our customer and the products or services offered. The time between invoicing and when payment is due is not significant. Our contracts do not generally include a significant financing component. For certain products or services and customer types, we require payment before the products or services are delivered to the customer. Our contracts with customers do not generally result in significant obligations associated with returns, refunds or warranties. See above for a discussion of how we manage credit risk.

Revenue is recognized net of taxes collected from customers, which are subsequently remitted to governmental authorities.

Contract costs

We do not recognize any assets associated with the incremental costs of obtaining a contract with a customer (for example, a sales commission) that we expect to recover. Most of our revenue is recognized at a point-in-time or over a period of one year or less, and we use the practical expedient that allows us to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized is one year or less.

Contract estimates and judgments

Our revenues accounted for under Topic 606 generally do not require significant estimates or judgments, primarily for the following reasons:

The transaction price is generally fixed and stated in our contracts;
As noted above, our contracts generally do not include multiple performance obligations, and accordingly do not generally require estimates of the standalone selling price for each performance obligation;
Our revenues do not include material amounts of variable consideration, or result in significant obligations associated with returns, refunds or warranties; and
Most of our revenue is recognized as of a point-in-time and the timing of the satisfaction of the applicable performance obligations is readily determinable. As noted above, our Topic 606 revenue is generally recognized at the time of delivery to, or pick-up by, the customer.

Our revenues accounted for under Topic 842 also generally do not require significant estimates or judgments. We monitor and review our estimated standalone selling prices on a regular basis.

4. Segment Information

Our reportable segments are i) general rentals and ii) trench, power and fluid solutions. Our regions discussed below, which are our operating segments, are aggregated into our reportable segments. We believe that the regions that are aggregated into our reportable segments have similar economic characteristics, as each region is capital intensive, offers similar products to similar customers, uses similar methods to distribute its products, and is subject to similar competitive risks. The aggregation of our regions also reflects the management structure that we use for making operating decisions and assessing performance. We evaluate segment performance primarily based on segment equipment rentals gross profit.

The general rentals segment includes the rental of i) general construction and industrial equipment, such as backhoes, skid-steer loaders, forklifts, earthmoving equipment and material handling equipment, ii) aerial work platforms, such as boom lifts and scissor lifts and iii) general tools and light equipment, such as pressure washers, water pumps and power tools. The general rentals segment reflects the aggregation of 11 geographic regions—Carolinas, 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.

The trench, power and fluid solutions segment includes the rental of specialty construction products such as i) trench safety equipment, such as trench shields, aluminum hydraulic shoring systems, slide rails, crossing plates, construction lasers and line testing equipment for underground work, ii) power and HVAC equipment, such as portable diesel generators, electrical distribution equipment, and temperature control equipment and iii) fluid solutions equipment primarily used for fluid containment, transfer and treatment. The trench, power and fluid solutions 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, iii) the Fluid Solutions region and iv) the Fluid Solutions Europe region. The trench, power and fluid solutions

segment’s customers include construction companies involved in infrastructure projects, municipalities and industrial companies. This segment operates throughout the United States and in Canada and Europe.

The following table presents the percentage of equipment rental revenue by equipment type for the years ended December 31, 2020, 2019 and 2018:


	Year Ended December 31,
	2020		2019		2018
Primarily rented by our general rentals segment:
General construction and industrial equipment	43	%	43	%	44	%
Aerial work platforms	27	%	28	%	28	%
General tools and light equipment	8	%	8	%	8	%
Primarily rented by our trench, power and fluid solutions segment:
Power and HVAC equipment	9	%	8	%	8	%
Trench safety equipment	6	%	6	%	6	%
Fluid solutions equipment	7	%	7	%	6	%

The accounting policies for our segments are the same as those described in the summary of significant accounting policies in note 2. Certain corporate costs, including those related to selling, finance, legal, risk management, human resources, corporate management and information technology systems, are deemed to be of an operating nature and are allocated to our segments based primarily on rental fleet size.

The following table sets forth financial information by segment as of and for the years ended December 31, 2020, 2019 and 2018:


	General rentals		Trench, power and fluid solutions		Total
2020
Equipment rentals	$	5,472	$	1,668	$	7,140
Sales of rental equipment	785		73		858
Sales of new equipment	214		33		247
Contractor supplies sales	64		34		98
Service and other revenues	164		23		187
Total revenue	6,699		1,831		8,530
Depreciation and amortization expense	1,633		355		1,988
Equipment rentals gross profit	1,954		765		2,719
Capital expenditures	969		189		1,158
Total assets	$	15,051	$	2,817	$	17,868
2019
Equipment rentals	$	6,202	$	1,762	$	7,964
Sales of rental equipment	768		63		831
Sales of new equipment	238		30		268
Contractor supplies sales	71		33		104
Service and other revenues	157		27		184
Total revenue	7,436		1,915		9,351
Depreciation and amortization expense	1,681		357		2,038
Equipment rentals gross profit	2,407		800		3,207
Capital expenditures	1,967		383		2,350
Total assets	$	16,036	$	2,934	$	18,970
2018
Equipment rentals	$	5,550	$	1,390	$	6,940
Sales of rental equipment	619		45		664
Sales of new equipment	186		22		208
Contractor supplies sales	68		23		91
Service and other revenues	127		17		144
Total revenue	6,550		1,497		8,047
Depreciation and amortization expense	1,410		261		1,671
Equipment rentals gross profit	2,293		670		2,963
Capital expenditures	1,980		311		2,291
Total assets	$	15,597	$	2,536	$	18,133

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:


	Year Ended December 31,
	2020		2019		2018
Total equipment rentals gross profit	$	2,719	$	3,207	$	2,963
Gross profit from other lines of business	464		463		401
Selling, general and administrative expenses	(979)		(1,092)		(1,038)
Merger related costs	—		(1)		(36)
Restructuring charge	(17)		(18)		(31)
Non-rental depreciation and amortization	(387)		(407)		(308)
Interest expense, net	(669)		(648)		(481)

Other income, net	8		10		6
Income before provision for income taxes	$	1,139	$	1,514	$	1,476

We operate in the United States, Canada and Europe. In July 2018, we completed the acquisition of BakerCorp, which allowed for our entry into select European markets. Our presence in Europe is limited, and the foreign information in the table below primarily reflects Canada. The following table presents geographic area information for the years ended December 31, 2020, 2019 and 2018, except for balance sheet information, which is presented as of December 31, 2020 and 2019:


	Domestic		Foreign		Total
2020
Equipment rentals	$	6,543	$	597	$	7,140
Sales of rental equipment	784		74		858
Sales of new equipment	218		29		247
Contractor supplies sales	86		12		98
Service and other revenues	166		21		187
Total revenue	7,797		733		8,530
Rental equipment, net	7,960		745		8,705
Property and equipment, net	558		46		604
Goodwill and other intangible assets, net	$	5,361	$	455	$	5,816
2019
Equipment rentals	$	7,283	$	681	$	7,964
Sales of rental equipment	757		74		831
Sales of new equipment	238		30		268
Contractor supplies sales	92		12		104
Service and other revenues	164		20		184
Total revenue	8,534		817		9,351
Rental equipment, net	8,995		792		9,787
Property and equipment, net	554		50		604
Goodwill and other intangible assets, net	$	5,592	$	457	$	6,049
2018
Equipment rentals	$	6,388	$	552	$	6,940
Sales of rental equipment	609		55		664
Sales of new equipment	184		24		208
Contractor supplies sales	80		11		91
Service and other revenues	126		18		144
Total revenue	$	7,387	$	660	$	8,047

5. Restructuring and Asset Impairment Charges

Restructuring charges primarily include severance costs associated with headcount reductions, as well as branch closure charges. We incur severance costs and branch closure charges in the ordinary course of our business. We only include such costs that are part of a restructuring program as restructuring charges. Since the first such program was initiated in 2008, we have completed five restructuring programs and have incurred total restructuring charges of $350.

Closed Restructuring Programs

Our closed restructuring programs were initiated either in recognition of a challenging economic environment or following the completion of certain significant acquisitions. As of December 31, 2020, the total liability associated with the closed restructuring programs was $14. As of December 31, 2020, we have incurred total restructuring charges under the closed restructuring programs of $334, comprised of $193 of branch closure charges and $141 of severance and other costs.

2020-2021 Cost Savings Restructuring Program

In the fourth quarter of 2019, we initiated a restructuring program associated with the consolidation of certain common functions, the relocation of our shared-service facilities and certain other cost reduction measures. We expect to complete the restructuring program in the first half of 2021. The total costs expected to be incurred in connection with the program are not currently estimable, as we are still identifying the actions that will be undertaken.

The table below provides certain information concerning our restructuring charges under the 2020-2021 Cost Savings restructuring program:


Description	Beginning Reserve Balance		Charged to Costs and Expenses (1)		Payments and Other		Ending Reserve Balance








Year Ended December 31, 2020:
Branch closure charges	$	—	$	7	$	(4)	$	3
Severance and other	—		8		(6)		2
Total	$	—	$	15	$	(10)	$	5

(1) Reflected in our consolidated statements of income as “Restructuring charge” (such charge also includes activity under our other restructuring programs). The restructuring charges are not allocated to our segments. As of December 31, 2020, we have incurred total restructuring charges under the 2020-2021 Cost Savings restructuring program of $16, comprised of $8 of branch closure charges and $8 of severance and other costs.

Asset Impairment Charges

In addition to the restructuring charges discussed above, during the year ended December 31, 2020, we recorded asset impairment charges of $36 primarily in our general rentals segment. The asset impairment charges, which were not related to COVID-19, are primarily reflected in depreciation of rental equipment in our consolidated statements of income and principally relate to the discontinuation of certain equipment programs. There were no material asset impairment charges during the years ended December 31, 2019 and 2018.

6. Prepaid Expenses and Other Assets

Prepaid expenses and other assets consist of the following:


	December 31,
	2020		2019
Equipment (1)	$	300	$	—
Insurance	18		12
Advertising reimbursements (2)	11		27
Income taxes	4		51
Other (3)	42		50




Prepaid expenses and other assets	$	375	$	140

(1) Reflects refundable deposits on expected rental equipment purchases pursuant to advanced purchase agreements. Such deposits are presented as a component of our cash flows from operations. We expect to purchase and receive the equipment in 2021.

(2) Reflects reimbursements due for advertising that promotes a vendor’s products or services. See note 2 ("Advertising Expense") for further detail.

(3) Includes multiple items, none of which are individually significant.

7. Rental Equipment

Rental equipment consists of the following:


	December 31,
	2020		2019
Rental equipment	$	14,216	$	14,852
Less accumulated depreciation	(5,511)		(5,065)
Rental equipment, net (1)	$	8,705	$	9,787

(1) As discussed above, disciplined management of capital expenditures and fleet capacity is a component of our COVID-19 response plan, which contributed to the year-over-year decrease in net rental equipment.

8. Property and Equipment

Property and equipment consist of the following:


	December 31,
	2020		2019
Land	$	111	$	101
Buildings	215		210
Non-rental vehicles	168		168
Machinery and equipment	164		157
Furniture and fixtures	338		328
Leasehold improvements	396		348
	1,392		1,312
Less accumulated depreciation and amortization	(788)		(708)
Property and equipment, net	$	604	$	604

9. Goodwill and Other Intangible Assets

The following table presents the changes in the carrying amount of goodwill for each of the three years in the period ended December 31, 2020:


	General rentals		Trench, power and fluid solutions		Total
Balance at January 1, 2018 (1)	$	3,607	$	475	$	4,082
Goodwill related to acquisitions (2) (3)	752		247		999
Foreign currency translation and other adjustments	(17)		(6)		(23)
Balance at December 31, 2018 (1)	4,342		716		5,058
Goodwill related to acquisitions (2)	10		73		83
Foreign currency translation and other adjustments	10		3		13
Balance at December 31, 2019 (1)	4,362		792		5,154
Goodwill related to acquisitions (2)	1		(3)		(2)
Foreign currency translation and other adjustments	5		11		16
Balance at December 31, 2020 (1)	$	4,368	$	800	$	5,168

(1) The total carrying amount of goodwill for all periods in the table above is reflected net of $1.557 billion of accumulated impairment charges, which were primarily recorded in our general rentals segment.

(2) Includes goodwill adjustments for the effect on goodwill of changes to net assets acquired during the measurement period, which were not significant to our previously reported operating results or financial condition.

(3) The acquisitions of BakerCorp and BlueLine in July 2018 and October 2018, respectively, accounted for most of the 2018 goodwill related to acquisitions.

Other intangible assets were comprised of the following at December 31, 2020 and 2019:


	December 31, 2020
	Weighted-Average Remaining Amortization Period	Gross Carrying Amount		Accumulated Amortization		Net Amount
Non-compete agreements	35 months	$	12	$	6	$	6
Customer relationships	6 years	$	2,252	$	1,614	$	638
Trade names and associated trademarks	4 years	$	8	$	4	$	4


	December 31, 2019
	Weighted-Average Remaining Amortization Period	Gross Carrying Amount		Accumulated Amortization		Net Amount
Non-compete agreements	43 months	$	24	$	14	$	10
Customer relationships	7 years	$	2,246	$	1,364	$	882
Trade names and associated trademarks	4 years	$	5	$	2	$	3

Amortization expense for other intangible assets was $250, $290 and $213 for the years ended December 31, 2020, 2019 and 2018, respectively.

As of December 31, 2020, estimated amortization expense for other intangible assets for each of the next five years and thereafter was as follows:


2021	$	206
2022	161
2023	117
2024	75
2025	50
Thereafter	39
Total	$	648

10. Accrued Expenses and Other Liabilities and Other Long-Term Liabilities

Accrued expenses and other liabilities consist of the following:


	December 31,
	2020		2019
Self-insurance accruals	$	54	$	59
Accrued compensation and benefit costs	79		86
Property and income taxes payable	45		26
Restructuring reserves (1)	19		20
Interest payable	133		142
Deferred revenue (2)	51		55
National accounts accrual	84		87
Operating lease liability	178		178
Other (3)	77		94
Accrued expenses and other liabilities	$	720	$	747

(1) Primarily relates to branch closure charges and severance costs. See note 5 for additional detail.

(2) Reflects amounts billed to customers in excess of recognizable revenue. See note 3 for additional detail.

(3) Other includes multiple items, none of which are individually significant.

Other long-term liabilities consist of the following:


	December 31,
	2020		2019
Self-insurance accruals	$	73	$	62
Income taxes payable	5		14
Accrued compensation and benefit costs	60		15
Other long-term liabilities	$	138	$	91

11. Fair Value Measurements

As of December 31, 2020 and 2019, the amounts of our assets and liabilities that were accounted for at fair value were immaterial.

Fair value measurements are categorized in one of the following three levels based on the lowest level input that is significant to the fair value measurement in its entirety:

Level 1—Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than quoted prices in active markets for identical assets or liabilities include:

a) quoted prices for similar assets or liabilities in active markets;

b) quoted prices for identical or similar assets or liabilities in inactive markets;

c) inputs other than quoted prices that are observable for the asset or liability;

d) inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.

Level 3—Inputs to the valuation methodology are unobservable (i.e., supported by little or no market activity) and significant to the fair value measure.

Fair Value of Financial Instruments

The carrying amounts reported in our 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, accounts receivable securitization and term loan facilities and finance leases approximated their

book values as of December 31, 2020 and 2019. The estimated fair values of our other financial instruments, all of which are categorized in Level 1 of the fair value hierarchy, as of December 31, 2020 and 2019 have been calculated based upon available market information, and were as follows:


	December 31, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value


Senior notes	$	6,965	$	7,470	$	7,755	$	8,176

12. Debt

Debt, net of unamortized original issue premiums and unamortized debt issuance costs, consists of the following:


	December 31,
	2020		2019

Accounts receivable securitization facility expiring 2021 (1)	$	634	$	929
$3.75 billion ABL facility expiring 2024 (1) (2)	977		1,638
Term loan facility expiring 2025 (1)	971		979











5 1/2 percent Senior Notes due 2025 (3)	—		795
4 5/8 percent Senior Notes due 2025 (3)	—		742
5 7/8 percent Senior Notes due 2026	999		999
6 1/2 percent Senior Notes due 2026 (3)	—		1,089
5 1/2 percent Senior Notes due 2027	994		992
3 7/8 percent Senior Secured Notes due 2027	742		741
4 7/8 percent Senior Notes due 2028 (4)	1,654		1,652
4 7/8 percent Senior Notes due 2028 (4)	4		4
5 1/4 percent Senior Notes due 2030	742		741
4 percent Senior Notes due 2030 (5)	742		—
3 7/8 percent Senior Notes due 2031 (6)	1,088		—
Finance leases	135		127




Total debt	9,682		11,428
Less short-term portion	(704)		(997)
Total long-term debt	$	8,978	$	10,431

(1) The table below presents financial information associated with our variable rate indebtedness as of and for the year ended December 31, 2020. We have borrowed the full available amount under the term loan facility. The principal obligation under the term loan facility is required to be repaid in quarterly installments in an aggregate amount equal to 1.0 percent per annum, with the balance due at the maturity of the facility. The average amount of debt outstanding under the term loan facility decreases slightly each quarter due to the requirement to repay a portion of the principal obligation.



	ABL facility			Accounts receivable securitization facility			Term loan facility
Borrowing capacity, net of letters of credit	$	2,705		$	166		$	—
Letters of credit	60
Interest rate at December 31, 2020	1.4		%	1.5		%	1.9		%
Average month-end debt outstanding	794			667			983
Weighted-average interest rate on average debt outstanding	1.9		%	1.8		%	2.2		%
Maximum month-end debt outstanding	1,494			811			988

(2) The decrease in the outstanding debt under the ABL facility since December 31, 2019 primarily reflects the use of proceeds from operations to reduce borrowings under the ABL facility. As discussed above, disciplined management of capital expenditures and fleet capacity is a component of our COVID-19 response plan, and, in 2020, capital expenditures

decreased significantly year-over-year. The decreased capital expenditures contributed to our ability to use proceeds from operations to reduce borrowings under the ABL facility.

(3) URNA redeemed all of its 5 1/2 percent Senior Notes due 2025 and 6 1/2 percent Senior Notes due 2026 in August 2020, and redeemed all of its 4 5/8 percent Senior Notes due 2025 in October 2020. During the year ended December 31, 2020, we recognized an aggregate debt redemption loss, in interest expense, net in our consolidated statement of income, of $183 (comprised of $27, $132 and $24 for the 5 1/2 percent Senior Notes due 2025, 6 1/2 percent Senior Notes due 2026 and 4 5/8 percent Senior Notes due 2025, respectively). The loss reflects the difference between the net carrying amount and the total purchase price of the redeemed notes. Prior to redeeming the notes, we considered the impact of COVID-19 on liquidity, and assessed our available sources and anticipated uses of cash, including, with respect to sources, cash generated from operations and from the sale of rental equipment.

(4) URNA separately issued 4 7/8 percent Senior Notes in August 2017 and in September 2017. Following the issuances, we consummated an exchange offer pursuant to which most of the 4 7/8 percent Senior Notes issued in September 2017 were exchanged for additional notes fungible with the 4 7/8 percent Senior Notes issued in August 2017.

(5) In February 2020, URNA issued $750 aggregate principal amount of 4 percent Notes due 2030. See below for additional detail on the issued debt.

(6) In August 2020, URNA issued $1.100 billion aggregate principal amount of 3 7/8 percent Senior Notes due 2031. See below for additional detail on the issued debt.

Short-term debt

As of December 31, 2020, our short-term debt primarily reflects $634 of borrowings under our accounts receivable securitization facility.

Accounts receivable securitization facility. In 2020, the accounts receivable securitization facility was amended, primarily to (a) extend the maturity date, (b) reduce the size of the facility and (c) adjust the financial tests (including the method of calculation) relating to (i) the default ratio, (ii) the delinquency ratio, (iii) the dilution ratio and (iv) days sales outstanding. The amended facility expires on June 25, 2021, has a facility size of $800, and may be extended on a 364-day basis by mutual agreement of the Company and the lenders under the facility. Borrowings under the facility are reflected as short-term debt on our consolidated balance sheets. Key provisions of the facility include the following:

borrowings 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 by a specified amount. As of December 31, 2020, there were $922 of receivables, net of applicable reserves, in the collateral pool;
the receivables in the collateral pool are the lenders’ only source of repayment;
upon early termination of the facility, no new amounts will be advanced under the facility and collections on the receivables securing the facility will be used to repay the outstanding borrowings; and
standard termination events including, without limitation, a change of control of Holdings, URNA or certain of its subsidiaries, a failure to make payments, a failure to comply with standard default, delinquency, dilution and days sales outstanding covenants, or breach of the fixed charge coverage ratio covenant under the ABL facility (if applicable).

See the table above for financial information associated with the accounts receivable securitization facility.

Long-term debt

ABL facility. In June 2008, Holdings, URNA, and certain of our subsidiaries entered into a credit agreement providing for a five-year $1.25 billion ABL facility, a portion of which is available for borrowing in Canadian dollars. The ABL facility was subsequently upsized and extended, and a portion of the facility is also now available for borrowing in British Pounds and Euros by certain subsidiaries of URNA in Europe. The size of the ABL facility was $3.75 billion as of December 31, 2020. See the table above for financial information associated with the ABL facility.

The ABL facility is subject to, among other things, the terms of a borrowing base derived from the value of eligible rental equipment and eligible inventory. The borrowing base is subject to certain reserves and caps customary for financings of this type. All amounts borrowed under the credit agreement must be repaid on or before February 2024. Loans under the credit agreement bear interest, at URNA’s option: (i) in the case of loans in U.S. dollars, at a rate equal to the London interbank offered rate or an alternate base rate, in each case plus a spread, (ii) in the case of loans in Canadian dollars, at a rate equal to the Canadian prime rate or an alternate rate (Bankers' Acceptance Rate), in each case plus a spread, (iii) in the case of loans in Euros, at a rate equal to the London interbank offered rate or an alternate base rate, in each case plus a spread, or (iv) in the case of loans in British pounds, at a rate equal to the London interbank offered rate or an alternate base rate, in each case plus a spread. The interest rates under the credit agreement are subject to change based on the availability in the facility. A commitment fee accrues on any unused portion of the commitments under the credit agreement at a fixed rate per annum.

Ongoing extensions of credit under the credit agreement are subject to customary conditions, including sufficient availability under the borrowing base. As discussed below (see “Loan Covenants and Compliance”), the only financial covenant that currently exists in the ABL facility is the fixed charge coverage ratio. As of December 31, 2020, availability under the ABL facility has exceeded the required threshold and, as a result, this financial covenant was inapplicable. In addition, the credit agreement contains customary negative covenants applicable to Holdings, URNA and our subsidiaries, including negative covenants that restrict the ability of such entities to, among other things, (i) incur additional indebtedness or engage in certain other types of financing transactions, (ii) allow certain liens to attach to assets, (iii) repurchase, or pay dividends or make certain other restricted payments on, capital stock and certain other securities, (iv) prepay certain indebtedness and (v) make acquisitions and investments. The U.S. dollar borrowings under the credit agreement are secured by substantially all of our assets and substantially all of the assets of certain of our U.S. subsidiaries (other than real property and certain accounts receivable). The U.S. dollar borrowings under the credit agreement are guaranteed by Holdings and by URNA and, subject to certain exceptions, our domestic subsidiaries. Borrowings under the credit agreement by URNA’s Canadian subsidiaries are also secured by substantially all the assets of URNA’s Canadian subsidiaries and supported by guarantees from the Canadian subsidiaries and from Holdings and URNA, and, subject to certain exceptions, our domestic subsidiaries. Borrowings under the credit agreement by URNA’s subsidiaries in Europe and Puerto Rico are guaranteed by Holdings, URNA, URNA’s Canadian subsidiaries and, subject to certain exceptions, our domestic subsidiaries and secured by substantially all the assets of our U.S. subsidiaries (other than real property and certain accounts receivable) and substantially all the assets of URNA’s Canadian subsidiaries. Under the ABL facility, a change of control (as defined in the credit agreement) constitutes an event of default, entitling our lenders, among other things, to terminate our ABL facility and to require us to repay outstanding borrowings.

Term loan facility. In October 2018, Holdings, URNA, and certain of our subsidiaries entered into a $1 billion senior secured term loan facility. See the table above for financial information associated with the term loan facility. The term loan facility is guaranteed by Holdings and the same domestic subsidiaries that guarantee the U.S. dollar borrowings under the ABL facility. In addition, the obligations under the term loan facility are secured by first priority security interests in the same collateral that secures the U.S. dollar borrowings under the ABL facility, on a pari passu basis with the ABL facility.

The principal obligations under the term loan facility are to be repaid in quarterly installments in an aggregate amount equal to 1.0 percent per annum, with the balance due at the maturity of the term loan facility. The term loan facility matures on October 31, 2025. Amounts drawn under the term loan facility bear annual interest, at URNA’s option, at either the London interbank offered rate plus a margin of 1.75 percent or at an alternative base rate plus a margin of 0.75 percent.

The term loan facility contains customary negative covenants applicable to URNA and its subsidiaries, including negative covenants that restrict the ability of such entities to, among other things, (i) incur additional indebtedness; (ii) incur additional liens; (iii) make dividends and other restricted payments; and (iv) engage in mergers, acquisitions and dispositions. The term loan facility does not include any financial covenants. Under the term loan facility, a change of control (as defined in the credit agreement) constitutes an event of default, entitling our lenders to, among other things, terminate the term loan facility and require us to repay outstanding loans.

5 7*/*8 percent Senior Notes due 2026. In May 2016, URNA issued $750 aggregate principal amount of 5 7/8 percent Senior Notes (the “5 7/8 percent Notes”) which are due September 15, 2026. In February 2017, URNA issued $250 aggregate principal amount of 5 7/8 percent Notes as an add-on to the existing 5 7/8 percent Notes, after which the aggregate principal amount of outstanding 5 7/8 percent Notes was $1.0 billion. The notes issued in February 2017 have identical terms, and are fungible, with the existing 5 7/8 percent Notes. The net proceeds from the issuances were approximately $999 (including the original issue premium and after deducting offering expenses). The 5 7/8 percent Notes are unsecured and are guaranteed by Holdings and certain domestic subsidiaries of URNA. The 5 7/8 percent Notes may be redeemed on or after September 15, 2021, at specified redemption prices that range from 102.938 percent in 2021, to 100 percent in 2024 and thereafter, plus accrued and unpaid interest, if any. The indenture governing the 5 7/8 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. 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 7/8 percent Notes tendered at a purchase price in cash equal to 101 percent of the principal amount thereof, plus accrued and unpaid interest, if any, thereon. The carrying value of the 5 7/8 percent Notes includes the $8 unamortized portion of the original issue premium recognized in conjunction with the February 2017 issuance, which is being amortized through the maturity date in 2026. The effective interest rate on the 5 7/8 percent Notes is 5.7 percent.

5 1*/*2 percent Senior Notes due 2027. In November 2016, URNA issued $750 aggregate principal amount of 5 1/2 percent Senior Notes which are due May 15, 2027 (the “2027 5 1/2 percent Notes”). In February 2017, URNA issued $250 aggregate principal amount of 2027 5 1/2 percent Notes as an add-on to the existing 2027 5 1/2 percent Notes, after which the aggregate principal amount of outstanding 2027 5 1/2 percent Notes was $1.0 billion. The notes issued in February 2017 have identical terms, and are fungible, with the existing 2027 5 1/2 percent Notes. The net proceeds from the issuances were approximately $991 (including the original issue premium and after deducting offering expenses). The 2027 5 1/2 percent Notes are unsecured and are guaranteed by Holdings and certain domestic subsidiaries of URNA. The 2027 5 1/2 percent Notes may be redeemed on or after May 15, 2022, at specified redemption prices that range from 102.75 percent in 2022, to 100 percent in 2025 and thereafter, plus accrued and unpaid interest, if any. The indenture governing the 2027 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 2027 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. The carrying value of the 2027 5 1/2 percent Notes includes the $2 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 Notes is 5.5 percent.

3 7*/*8 percent Senior Secured Notes due 2027. In November 2019, URNA issued $750 aggregate principal amount of 3 7/8 percent Senior Secured Notes (the “3 7/8 percent Notes”) which are due November 15, 2027. The net proceeds from the issuance were approximately $741 (after deducting offering expenses). The 3 7/8 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 and the term loan facility, subject to certain exceptions. The 3 7/8 percent Notes may be redeemed on or after November 15, 2022, at specified redemption prices that range from 101.938 percent in 2022, to 100 percent in 2025 and thereafter, in each case, plus accrued and unpaid interest, if any. In addition, at any time on or prior to November 15, 2022, up to 40 percent of the aggregate principal amount of the 3 7/8 percent Notes may be redeemed with the net cash proceeds of certain equity offerings at a redemption price equal to 103.875 percent of the aggregate principal amount of the notes plus accrued and unpaid interest, if any. The indenture governing the 3 7/8 percent Notes contains certain restrictive covenants, including, among others, limitations on (i) liens and (ii) mergers and consolidations, as well as a requirement to timely file periodic reports with the SEC. Each of the restrictive covenants is subject to important exceptions and qualifications that would allow URNA and its subsidiaries to engage in these activities under certain conditions. In addition, the requirements to provide subsidiary guarantees, to give further assurances and to make an offer to repurchase the notes upon the occurrence of a change of control will not apply to URNA and its restricted subsidiaries during any period when the 3 7/8 percent Notes are rated investment grade by both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc., or, in certain circumstances, another rating agency selected by URNA, provided at such time no default under the indenture has occurred and is continuing. The indenture also requires that, in the event of a change of control (as defined in the indenture), URNA must make an offer to purchase all of the then-outstanding 3 7/8 percent Notes tendered at a purchase price in cash equal to 101 percent of the principal amount thereof, plus accrued and unpaid interest, if any, thereon.

4 7*/*8 percent Senior Notes due 2028. In August 2017, URNA issued $925 principal amount of 4 7/8 percent Senior Notes (the “Initial 4 7/8 percent Notes”) which are due January 15, 2028. The net proceeds from the issuance were approximately $913 (after deducting offering expenses). The Initial 4 7/8 percent Notes are unsecured and are guaranteed by Holdings and certain domestic subsidiaries of URNA. The Initial 4 7/8 percent Notes may be redeemed on or after January 15, 2023, at specified redemption prices that range from 102.438 percent in 2023, to 100 percent in 2026 and thereafter, in each case, plus accrued and unpaid interest, if any. The indenture governing the Initial 4 7/8 percent Notes contains certain restrictive covenants, including, among others, limitations on (i) liens; (ii) mergers and consolidations; (iii) sales, transfers and other dispositions of assets; (iv) dividends and other distributions, stock repurchases and redemptions and other restricted payments; and (v) designations of unrestricted subsidiaries, as well as a requirement to timely file periodic reports with the SEC. Each of the restrictive covenants is subject to important exceptions and qualifications that would allow URNA and its subsidiaries to engage in these activities under certain conditions. In addition, the covenant relating to dividends and other distributions, stock repurchases and redemptions and other restricted payments and the requirements relating to additional subsidiary guarantors will not apply to URNA and its restricted subsidiaries during any period when the Initial 4 7/8 percent Notes are rated investment grade by both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc., or, in certain circumstances, another rating agency selected by URNA, provided at such time no default under the indenture has occurred and is continuing. The indenture also requires that, in the event of a change of control (as defined in the indenture), URNA must make an offer to

purchase all of the then-outstanding Initial 4 7/8 percent Notes tendered at a purchase price in cash equal to 101 percent of the principal amount thereof, plus accrued and unpaid interest, if any, thereon.

In September 2017, URNA issued $750 principal amount of 4 7/8 percent Senior Notes (the “Subsequent 4 7/8 percent Notes”) which are due January 15, 2028. The net proceeds from the issuance were approximately $743 (including the original issue premium and after deducting offering expenses). The Subsequent 4 7/8 percent Notes represent a separate a distinct series of notes from the Initial 4 7/8 percent Notes. The Subsequent 4 7/8 percent Notes are unsecured and are guaranteed by Holdings and certain domestic subsidiaries of URNA. The Subsequent 4 7/8 percent Notes may be redeemed on or after January 15, 2023, at specified redemption prices that range from 102.438 percent in 2023, to 100 percent in 2026 and thereafter, in each case, plus accrued and unpaid interest, if any. The indenture governing the Subsequent 4 7/8 percent Notes contains certain restrictive covenants, including, among others, limitations on (i) liens; (ii) mergers and consolidations; (iii) sales, transfers and other dispositions of assets; (iv) dividends and other distributions, stock repurchases and redemptions and other restricted payments; and (v) designations of unrestricted subsidiaries, as well as a requirement to timely file periodic reports with the SEC. Each of the restrictive covenants is subject to important exceptions and qualifications that would allow URNA and its subsidiaries to engage in these activities under certain conditions. In addition, the covenant relating to dividends and other distributions, stock repurchases and redemptions and other restricted payments and the requirements relating to additional subsidiary guarantors will not apply to URNA and its restricted subsidiaries during any period when the Subsequent 4 7/8 percent Notes are rated investment grade by both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc., or, in certain circumstances, another rating agency selected by URNA, provided at such time no default under the indenture has occurred and is continuing. The indenture also requires that, in the event of a change of control (as defined in the indenture), URNA must make an offer to purchase all of the then-outstanding Subsequent 4 7/8 percent Notes tendered at a purchase price in cash equal to 101 percent of the principal amount thereof, plus accrued and unpaid interest, if any, thereon. The effective interest rate on the Subsequent 4 7/8 percent Notes is 4.84 percent.

In December 2017, we consummated an exchange offer pursuant to which approximately $744 principal amount of Subsequent 4 7/8 percent Notes were exchanged for additional Initial 4 7/8 percent Notes issued under the indenture governing the Initial 4 7/8 percent Notes and fungible with the Initial 4 7/8 percent Notes. As of December 31, 2020, the principal amounts outstanding were $1.669 billion for the Initial 4 7/8 percent Notes and $4 for the Subsequent 4 7/8 percent Notes. The carrying value of the Initial 4 7/8 percent Notes includes $1 of the unamortized original issue premium, which is being amortized through the maturity date in 2028. The effective interest rate on the Initial 4 7/8 percent Notes is 4.86 percent.

5 1*/*4 percent Senior Notes due 2030. In May 2019, URNA issued $750 aggregate principal amount of 5 1/4 percent Senior Notes (the “5 1/4 percent Notes”) which are due January 15, 2030. The net proceeds from the issuance were approximately $741 (after deducting offering expenses). The 5 1/4 percent Notes are unsecured and are guaranteed by Holdings and certain domestic subsidiaries of URNA. The 5 1/4 percent Notes may be redeemed on or after January 15, 2025, at specified redemption prices that range from 102.625 percent in 2025, to 100 percent in 2028 and thereafter, in each case, plus accrued and unpaid interest, if any. In addition, at any time on or prior to January 15, 2023, up to 40 percent of the aggregate principal amount of the 5 1/4 percent Notes may be redeemed with the net cash proceeds of certain equity offerings at a redemption price equal to 105.250 percent of the aggregate principal amount of the notes plus accrued and unpaid interest, if any. The indenture governing the 5 1/4 percent Notes contains certain restrictive covenants, including, among others, limitations on (i) liens; (ii) mergers and consolidations; and (iii) dividends and other distributions, stock repurchases and redemptions and other restricted payments, as well as a requirement to timely file periodic reports with the SEC. Each of the restrictive covenants is subject to important exceptions and qualifications that would allow URNA and its subsidiaries to engage in these activities under certain conditions. In addition, the covenant relating to dividends and other distributions, stock repurchases and redemptions and other restricted payments and the requirements relating to additional subsidiary guarantors will not apply to URNA and its restricted subsidiaries during any period when the 5 1/4 percent Notes are rated investment grade by both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc., or, in certain circumstances, another rating agency selected by URNA, provided at such time no default under the indenture has occurred and is continuing. The indenture also requires that, in the event of a change of control (as defined in the indenture), URNA must make an offer to purchase all of the then-outstanding 5 1/4 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.

4 percent Senior Notes due 2030. In February 2020, URNA issued $750 aggregate principal amount of 4 percent Notes which are due July 15, 2030. The net proceeds from the issuance were approximately $741 (after deducting offering expenses). The 4 percent Notes are unsecured and are guaranteed by Holdings and certain domestic subsidiaries of URNA. The 4 percent Notes may be redeemed on or after July 15, 2025, at specified redemption prices that range from 102.000 percent in 2025, to 100 percent in 2028 and thereafter, in each case, plus accrued and unpaid interest, if any. In addition, at any time on or prior to July 15, 2023, up to 40 percent of the aggregate principal amount of the 4 percent Notes may be redeemed with the net cash proceeds of certain equity offerings at a redemption price equal to 104.000 percent of the aggregate principal amount of the notes plus accrued and unpaid interest, if any. The indenture governing the 4 percent Notes contains certain restrictive

covenants, including, among others, limitations on (i) liens and (ii) mergers and consolidations, as well as a requirement to timely file periodic reports with the SEC. Each of the restrictive covenants is subject to important exceptions and qualifications that would allow URNA and its subsidiaries to engage in these activities under certain conditions. In addition, the requirements to provide subsidiary guarantees and to make an offer to repurchase the notes upon the occurrence of a change of control will not apply to URNA and its restricted subsidiaries during any period when the 4 percent Notes are rated investment grade by both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc., or, in certain circumstances, another rating agency selected by URNA, provided at such time no default under the indenture has occurred and is continuing. The indenture also requires that, in the event of a change of control (as defined in the indenture), URNA must make an offer to purchase all of the then-outstanding 4 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.

3 7*/*8 percent Senior Notes due 2031. In August 2020, URNA issued $1.100 billion aggregate principal amount of 3 7/8 percent Senior Notes (the “3 7/8 percent Notes”) which are due February 15, 2031. The net proceeds from the issuance were approximately $1.087 billion (after deducting offering expenses). The 3 7/8 percent Notes are unsecured and are guaranteed by Holdings and certain domestic subsidiaries of URNA. The 3 7/8 percent Notes may be redeemed on or after August 15, 2025, at specified redemption prices that range from 101.938 percent in 2025, to 100 percent in 2028 and thereafter, in each case, plus accrued and unpaid interest, if any. In addition, at any time on or prior to August 15, 2023, up to 40 percent of the aggregate principal amount of the 3 7/8 percent Notes may be redeemed with the net cash proceeds of certain equity offerings at a redemption price equal to 103.875 percent of the aggregate principal amount of the notes plus accrued and unpaid interest, if any. The indenture governing the 3 7/8 percent Notes contains certain restrictive covenants, including, among others, limitations on (i) liens and (ii) mergers and consolidations, as well as a requirement to timely file periodic reports with the SEC. Each of the restrictive covenants is subject to important exceptions and qualifications that would allow URNA and its subsidiaries to engage in these activities under certain conditions. In addition, the requirements to provide subsidiary guarantees and to make an offer to repurchase the notes upon the occurrence of a change of control will not apply to URNA and its restricted subsidiaries during any period when the 3 7/8 percent Notes are rated investment grade by both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc., or, in certain circumstances, another rating agency selected by URNA, provided at such time no default under the indenture has occurred and is continuing. The indenture also requires that, in the event of a change of control (as defined in the indenture), URNA must make an offer to purchase all of the then-outstanding 3 7/8 percent Notes tendered at a purchase price in cash equal to 101 percent of the principal amount thereof, plus accrued and unpaid interest, if any, thereon.

Loan Covenants and Compliance

As of December 31, 2020, we were in compliance with the covenants and other provisions of the ABL, accounts receivable securitization and term loan facilities and the senior notes. Any failure to be in compliance with any material provision or covenant of these agreements could have a material adverse effect on our liquidity and operations.

The only financial 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 December 31, 2020, specified availability under the ABL facility exceeded the required threshold and, as a result, this financial 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.

Maturities

Debt maturities (exclusive of any unamortized original issue premiums and unamortized debt issuance costs) for each of the next five years and thereafter at December 31, 2020 are as follows:


2021	$	704
2022	47
2023	36
2024	1,004
2025	939
Thereafter	7,025
Total	$	9,755

13. Leases

Adoption of Accounting Standards Codification (“ASC”) Topic 842, “Leases”

In March 2016, the FASB issued guidance ("Topic 842") to increase transparency and comparability among organizations by requiring (1) recognition of lease assets and lease liabilities on the balance sheet and (2) disclosure of key information about leasing arrangements. Some changes to the lessor accounting guidance were made to align both of the following: (1) the lessor accounting guidance with certain changes made to the lessee accounting guidance and (2) key aspects of the lessor accounting model with revenue recognition guidance. We adopted Topic 842 at the required adoption date of January 1, 2019, using the transition method that allowed us to initially apply Topic 842 as of January 1, 2019 and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We used the package of practical expedients permitted under the transition guidance that allowed us to not reassess: (1) whether any expired or existing contracts are or contain leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. We additionally used, for our real estate operating leases, the practical expedient that allows lessees to treat the lease and non-lease components of leases as a single lease component. We did not recognize a material adjustment to the opening balance of retained earnings upon adoption. Because of the transition method we used to adopt Topic 842, Topic 842 was not applied to periods prior to adoption and the adoption of Topic 842 had no impact on our previously reported results.

As discussed in note 3 to the consolidated financial statements, most of our equipment rental revenues, which accounted for 84 percent of total revenues for the year ended December 31, 2020, were accounted for under the previous lease accounting standard through December 31, 2018 and are accounted for under Topic 842 following adoption. There were no significant changes to our revenue accounting upon adoption of Topic 842. See note 3 for a discussion of our revenue accounting (such discussion includes lessor disclosures required under Topic 842).

The adoption of Topic 842 resulted in the recognition of right-of-use (“ROU”) assets and lease liabilities on our consolidated balance sheet, as discussed further below. The adoption of Topic 842 did not have a material impact on our consolidated income statement (as noted above, although a significant portion of our revenue is accounted for under Topic 842 following adoption, there were no significant changes to our revenue accounting upon adoption) or our consolidated cash flow statement.

Lease Accounting

We determine if an arrangement is a lease at inception. Our material lease contracts are generally for real estate or vehicles, and the determination of whether such contracts contain leases generally does not require significant estimates or judgments. We lease real estate and equipment under operating leases. We lease a significant portion of our branch locations, and also lease other premises used for purposes such as district and regional offices and service centers. Our finance lease obligations consist primarily of rental equipment (primarily vehicles) and building leases.

Operating leases result in the recognition of ROU assets and lease liabilities on the balance sheet. ROU assets represent our right to use the leased asset for the lease term and lease liabilities represent our obligation to make lease payments. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate at the commencement date to determine the present value of lease payments. The operating lease ROU assets also include any lease payments made and exclude lease incentives. Our lease terms may include options, at our sole discretion, to extend or terminate the lease that we are reasonably certain to exercise. The amount of payments associated with such options reflected in the “Maturity of lease liabilities” table below is not material. Most real estate leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 5 years or more. Lease expense is recognized on a straight-line basis over the lease term.

Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense on such leases is recognized on a straight-line basis over the lease term. The primary leases we enter into with initial terms of 12 months or less are for equipment that we rent from vendors and then rent to our customers. We generate sublease revenue from such leases that

we refer to as "re-rent revenue" as discussed in note 3 to the consolidated financial statements. Apart from the re-rent revenue discussed in note 3, we do not generate material sublease income.

We have lease agreements with lease and non-lease components, and, for our real estate operating leases, we account for the lease and non-lease components as a single lease component. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The tables below present financial information associated with our leases. This information is only presented as of, and for the years ended, December 31, 2020 and December 31, 2019 because, as noted above, we adopted Topic 842 using a transition method that does not require application to periods prior to adoption.


	Classification	December 31, 2020		December 31, 2019
Assets
Operating lease assets	Operating lease right-of-use assets	$	688	$	669
Finance lease assets	Rental equipment	295		286
	Less accumulated depreciation	(86)		(89)
	Rental equipment, net	209		197
	Property and equipment, net:
	Non-rental vehicles	8		8
	Buildings	19		18
	Less accumulated depreciation and amortization	(11)		(15)
	Property and equipment, net	16		11
Total leased assets		913		877
Liabilities
Current
Operating	Accrued expenses and other liabilities	178		178
Finance	Short-term debt and current maturities of long-term debt	60		58
Long-term
Operating	Operating lease liabilities	549		533
Finance	Long-term debt	75		69
Total lease liabilities		$	862	$	838


Lease cost	Classification	Year Ended December 31, 2020		Year Ended December 31, 2019
Operating lease cost (1)	Cost of equipment rentals, excluding depreciation (1)	$	366	$	370
	Selling, general and administrative expenses	10		10
	Restructuring charge	9		16
Finance lease cost
Amortization of leased assets	Depreciation of rental equipment	31		28
	Non-rental depreciation and amortization	1		2
Interest on lease liabilities	Interest expense, net	5		6
Sublease income (2)		(142)		(157)
Net lease cost		$	280	$	275

(1) Includes variable lease costs, which are immaterial. Cost of equipment rentals, excluding depreciation for the years ended December 31, 2020 and 2019 includes $124 and $142, respectively, of short-term lease costs associated with equipment that we rent from vendors and then rent to our customers, as discussed further above. Apart from these costs, short-term lease costs are immaterial.

(2) Primarily reflects re-rent revenue as discussed further above.


Maturity of lease liabilities (as of December 31, 2020)	Operating leases (1)		Finance leases (2)
2021	$	205	$	63
2022	176		40
2023	144		28
2024	112		10
2025	76		1
Thereafter	113		3
Total	826		145
Less amount representing interest	(99)		(10)
Present value of lease liabilities	$	727	$	135

(1) Reflects payments for non-cancelable operating leases with initial or remaining terms of one year or more as of December 31, 2020. The table above does not include any legally binding minimum lease payments for leases signed but not yet commenced, and such leases are not material in the aggregate.

(2) The table above does not include any legally binding minimum lease payments for leases signed but not yet commenced, and such leases are not material in the aggregate.


Lease term and discount rate	December 31, 2020		December 31, 2019
Weighted-average remaining lease term (years)
Operating leases	5.0		4.8
Finance leases	3.0		3.2
Weighted-average discount rate
Operating leases	4.2	%	4.7	%
Finance leases	3.4	%	4.0	%


Other information	Year Ended December 31, 2020		Year Ended December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	207	$	202
Operating cash flows from finance leases	5		6
Financing cash flows from finance leases	53		47
Leased assets obtained in exchange for new operating lease liabilities	202		201
Leased assets obtained in exchange for new finance lease liabilities	$	64	$	55

As discussed above, we adopted Topic 842 on January 1, 2019. Topic 842 is an update to Topic 840, which was the lease accounting standard in place through December 31, 2018. Upon adoption of Topic 842, the leases that were previously classified as capital leases through December 31, 2018 were classified as finance leases. There were no significant changes to the accounting upon this change in classification. The following table presents historic financial statement information for our leases (accounted for under Topic 840) for the year ended December 31, 2018:



Capital leases
Depreciation of rental equipment	$	22
Non-rental depreciation and amortization	1









Operating leases
Rent expense on non-cancelable leases (1)	$	179

(1) Rent expense on non-cancelable operating leases does not include short-term lease costs associated with equipment that we rent from vendors and then rent to our customers (which is a component of the 2020 and 2019 operating lease costs under Topic 842 as reflected in the table above). Under Topic 840, rental payments under leases with terms of a month or less that were not renewed are not included in rent expense, and we excluded such expenses because of the short-term duration of

the arrangements under which we rented equipment from vendors and then rented such equipment to our customers. The amount of such rentals was $121 for the year ended December 31, 2018.

14. Income Taxes

The components of the provision (benefit) for income taxes for each of the three years in the period ended December 31, 2020 are as follows:


	Year ended December 31,
	2020		2019		2018
Current
Federal	$	290	$	97	$	47
Foreign	15		(6)		18
State and local	65		45		58
	370		136		123
Deferred
Federal	(107)		185		243
Foreign	6		14		3
State and local	(20)		5		11
	(121)		204		257
Total	$	249	$	340	$	380

A reconciliation of the provision (benefit) for income taxes and the amount computed by applying the statutory federal income tax rate of 21 percent to the income before provision (benefit) for income taxes for each of the three years in the period ended December 31, 2020 is as follows:


	Year ended December 31,
	2020		2019		2018
Computed tax at statutory tax rate	$	239	$	318	$	310
State income taxes, net of federal tax benefit	31		43		54
Other permanent items	(3)		(17)		(1)
Change in valuation allowance	(22)		(3)		7
Enactment of the Tax Act (1)	—		—		6
Foreign tax rate differential	4		(1)		4
Total	$	249	$	340	$	380

(1) The Tax Act was enacted in December 2017 and required (i) the revaluation of our net deferred tax liability based on a U.S. federal tax rate of 21 percent and (ii) a one-time transition tax for deemed repatriation of accumulated undistributed earnings of certain foreign investments. We primarily recognized the accounting for the enactment of the Tax Act upon adoption in 2017, and finalized the accounting in 2018.

The components of deferred income tax assets (liabilities) are as follows:


	December 31, 2020		December 31, 2019
Reserves and allowances	$	129	$	111

Debt cancellation and other	10		8
Net operating loss and credit carryforwards	242		371
Operating lease assets	183		182
Total deferred tax assets	564		672
Less: valuation allowance (1)	(21)		(43)
Total net deferred tax assets	543		629
Property and equipment, including rental equipment	(1,962)		(2,135)
Operating lease liabilities	(183)		(182)
Intangibles	(166)		(199)


Total deferred tax liability	(2,311)		(2,516)
Total net deferred tax liability	$	(1,768)	$	(1,887)

(1) Relates to foreign tax credits, state net operating loss carryforwards, and state tax credits that may not be realized. All of the remaining valuation allowance for foreign tax credits was released in 2020.

We file income tax returns in the U.S., Canada and Europe. Without exception, we have completed our domestic and international income tax examinations, or the statute of limitations has expired in the respective jurisdictions, for years prior to 2011.

For financial reporting purposes, income before provision for income taxes for our foreign subsidiaries was $83, $62 and $71 for the years ended December 31, 2020, 2019 and 2018, respectively.

We continue to expect that the remaining balance of our undistributed foreign earnings will be indefinitely reinvested. If we determine that all or a portion of such foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes and U.S. state income taxes. At December 31, 2020, unremitted earnings of foreign subsidiaries were $840. Determination of the amount of unrecognized deferred tax liability on these unremitted earnings is not practicable.

We have net operating loss carryforwards (“NOLs”) of $759 for federal income tax purposes that expire from 2030 through 2037, $3 for foreign income tax purposes that expire from 2024 through 2029 and $744 for state income tax purposes that expire from 2021 through 2034.

15. Commitments and Contingencies

We are subject to a number of claims and proceedings that generally arise in the ordinary conduct of our business. These matters include, but are not limited to, general liability claims (including personal injury, product liability, and property and automobile claims), indemnification and guarantee obligations, employee injuries and employment-related claims, self-insurance obligations and contract and real estate matters. Based on advice of counsel and available information, including current status or stage of proceeding, and taking into account accruals included in our consolidated balance sheets for matters where we have established them, we currently believe that any liabilities ultimately resulting from these ordinary course claims and proceedings will not, individually or in the aggregate, have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Indemnification

The Company indemnifies its officers and directors pursuant to indemnification agreements and may in addition indemnify these individuals as permitted by Delaware law.

Employee Benefit Plans

We currently sponsor two defined contribution 401(k) retirement plans, which are subject to the provisions of the Employee Retirement Income Security Act of 1974. We also sponsor a deferred profit sharing plan and a registered retirement savings plan for the benefit of the full-time employees of our Canadian subsidiaries. Under these plans, we match a percentage of the participants’ contributions up to a specified amount. Company contributions to the plans were $33, $37 and $31 in the years ended December 31, 2020, 2019 and 2018, respectively.

Environmental Matters

The Company and its operations are subject to various laws and related regulations governing environmental matters. Under such laws, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, such property, as well as investigation of property damage. We incur ongoing expenses associated with the performance of appropriate remediation at certain locations.

16. Common Stock

We have 500 million authorized shares of common stock, $0.01 par value. At December 31, 2020 and 2019, there were 0.0 million shares of common stock reserved for issuance pursuant to options granted under our stock option plans.

As of December 31, 2020, there were an aggregate of 0.8 million outstanding time and performance-based RSUs and 2.0 million shares available for grants of stock and options under our 2019 Long Term Incentive Plan.

A summary of the transactions within the Company’s stock option plans follows (shares in thousands):


	Shares	Weighted-Average Exercise Price








Outstanding at December 31, 2019	37	50.40
Granted	—	—
Exercised	(26)	45.88
Canceled	(1)	43.63
Outstanding at December 31, 2020	10	61.93


Exercisable at December 31, 2020	10	$	61.93

The following table presents information associated with stock options as of December 31, 2020 and 2019, and for the years ended December 31, 2020, 2019 and 2018:



	2020		2019		2018
Intrinsic value of options outstanding as of December 31	$	2	$	4
Intrinsic value of options exercisable as of December 31	2		4
Intrinsic value of options exercised	3		45		13
Weighted-average grant date fair value per option	$	—	$	—	$	—

In addition to stock options, the Company issues time-based and performance-based RSUs to certain officers and key executives under various equity incentive plans. The RSUs automatically convert to shares of common stock on a one-for-one basis as the awards vest. The time-based RSUs typically vest over a three year vesting period beginning 12 months from the grant date and thereafter annually on the anniversary of the grant date. The performance-based RSUs vest based on the achievement of the performance conditions during the applicable performance periods (currently the calendar year). There were 360 thousand shares of common stock issued upon vesting of RSUs during 2020, net of 207 thousand shares surrendered to satisfy tax obligations. The Company measures the value of RSUs at fair value based on the closing price of the underlying common stock on the grant date. The Company amortizes the fair value of outstanding RSUs as stock-based compensation expense over the requisite service period on a straight-line basis, or sooner if the employee effectively vests upon termination of employment under certain circumstances. For performance-based RSUs, compensation expense is recognized to the extent that the satisfaction of the performance condition is considered probable.

A summary of RSUs granted follows (RSUs in thousands):


	Year Ended December 31,
	2020		2019		2018
RSUs granted	643		456		566
Weighted-average grant date price per unit	$	140.99	$	124.37	$	175.79

As of December 31, 2020, the total pretax compensation cost not yet recognized by the Company with regard to unvested RSUs was $49. The weighted-average period over which this compensation cost is expected to be recognized is 2.0 years.

A summary of RSU activity for the year ended December 31, 2020 follows (RSUs in thousands):


	Stock Units	Weighted-Average Grant Date Fair Value
Nonvested as of December 31, 2019	461	$	104.40
Granted	643	140.99
Vested	(520)	138.48
Forfeited	(67)	135.44
Nonvested as of December 31, 2020	517	$	164.62

The total fair value of RSUs vested during the fiscal years ended December 31, 2020, 2019 and 2018 was $75, $80, and $114, respectively.

Dividend Policy. Holdings has not paid dividends on its common stock since inception. The payment of any future dividends or the authorization of stock repurchases or other recapitalizations will be determined by our Board of Directors in light of conditions then existing, including earnings, financial condition and capital requirements, financing agreements, business conditions, stock price and other factors. The terms of certain agreements governing our outstanding indebtedness contain certain limitations on our ability to move operating cash flows to Holdings and/or to pay dividends on, or effect repurchases of, our common stock. In addition, under Delaware law, dividends may only be paid out of surplus or current or prior year’s net profits.

Stockholders’ Rights Plan. Our stockholders' rights plan expired in accordance with its terms in 2011. Our Board of Directors elected not to renew or extend the plan.

17. Quarterly Financial Information (Unaudited)


	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Full Year
For the year ended December 31, 2020 (1):
Total revenues	$	2,125	$	1,939	$	2,187	$	2,279	$	8,530
Gross profit	727		701		886		869		3,183
Operating income	358		381		551		510		1,800
Net income (1)	173		212		208		297		890
Earnings per share—basic	2.33		2.94		2.88		4.11		12.24
Earnings per share—diluted (3)	2.33		2.93		2.87		4.09		12.20

For the year ended December 31, 2019 (2):
Total revenues	$	2,117	$	2,290	$	2,488	$	2,456	$	9,351
Gross profit	761		911		1,033		965		3,670
Operating income	368		529		656		599		2,152
Net income (2)	175		270		391		338		1,174
Earnings per share—basic	2.21		3.45		5.10		4.51		15.18
Earnings per share—diluted (3)	2.19		3.44		5.08		4.49		15.11

(1) As discussed in note 12 to our consolidated financial statements, in the fourth quarter of 2020, we redeemed all of our 4 5/8 percent Senior Notes due 2025, and recognized a redemption loss of $24 in interest expense, net. The loss represented the difference between the net carrying amount and the total purchase price of the redeemed notes.

(2) In the fourth quarter of 2019, we issued $750 aggregate principal amount of 3 7/8 percent Senior Secured Notes due 2027 and redeemed all of our 4 5/8 percent Senior Secured Notes. Upon redemption, we recognized a loss of $29 in interest expense, net. The loss represented the difference between the net carrying amount and the total purchase price of the redeemed notes.

(3) Diluted earnings per share includes the after-tax impacts of the following:


	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Full Year
For the year ended December 31, 2020:

Merger related intangible asset amortization (4)	(0.59)		(0.59)		(0.55)		(0.52)		(2.22)
Impact on depreciation related to acquired fleet and property and equipment (5)	(0.03)		(0.02)		(0.06)		0.04		(0.08)
Impact of the fair value mark-up of acquired fleet (6)	(0.12)		(0.10)		(0.12)		(0.16)		(0.51)


Restructuring charge (7)	(0.02)		(0.04)		(0.06)		(0.06)		(0.18)
Asset impairment charge (8)	(0.26)		—		(0.10)		—		(0.37)
Loss on extinguishment of debt securities and amendment of ABL facility (9)	—		—		(1.64)		(0.25)		(1.88)

For the year ended December 31, 2019:
Merger related costs (10)	$	(0.01)	$	—	$	—	$	—	$	(0.01)
Merger related intangible asset amortization (4)	(0.64)		(0.64)		(0.63)		(0.60)		(2.48)
Impact on depreciation related to acquired fleet and property and equipment (5)	(0.14)		(0.12)		(0.07)		(0.05)		(0.39)
Impact of the fair value mark-up of acquired fleet (6)	(0.25)		(0.15)		(0.14)		(0.16)		(0.72)


Restructuring charge (7)	(0.07)		(0.06)		(0.02)		(0.03)		(0.18)
Asset impairment charge (8)	(0.01)		(0.03)		(0.02)		0.01		(0.05)
Loss on extinguishment of debt securities and amendment of ABL facility (9)	—		(0.30)		—		(0.28)		(0.58)

(4)This reflects the amortization of the intangible assets acquired in the RSC, National Pump, NES, Neff, BakerCorp and BlueLine acquisitions.

(5)This reflects the impact of extending the useful lives of equipment acquired in the RSC, NES, Neff, BakerCorp and BlueLine acquisitions, net of the impact of additional depreciation associated with the fair value mark-up of such equipment.

(6)This reflects additional costs recorded in cost of rental equipment sales associated with the fair value mark-up of rental equipment acquired in the RSC, NES, Neff and BlueLine acquisitions and subsequently sold.

(7)As discussed in note 5 to our consolidated financial statements, this primarily reflects severance costs and branch closure charges associated with our restructuring programs.

(8)This reflects write-offs of leasehold improvements and other fixed assets. As discussed in note 5 to our consolidated financial statements, the 2020 charges primarily reflect the discontinuation of certain equipment programs, and were not related to COVID-19.

(9)This primarily reflects the difference between the net carrying amount and the total purchase price of the redeemed notes.

(10)This reflects transaction costs associated with the BakerCorp and BlueLine acquisitions that were completed in 2018.

18. 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):


	Year Ended December 31,
	2020		2019		2018
Numerator:




Net income available to common stockholders	$	890	$	1,174	$	1,096
Denominator:
Denominator for basic earnings per share—weighted-average common shares	72,658		77,341		82,652
Effect of dilutive securities:
Employee stock options	12		114		379


Restricted stock units	259		255		499
Denominator for diluted earnings per share—adjusted weighted-average common shares	72,929		77,710		83,530



Basic earnings per share	$	12.24	$	15.18	$	13.26



Diluted earnings per share	$	12.20	$	15.11	$	13.12

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

UNITED RENTALS, INC.

(In millions)


Description	Balance at Beginning of Period		Acquired		Charged to Costs and Expenses			Charged to Revenue			Deductions			Balance at End of Period
Year Ended December 31, 2020:
Allowance for doubtful accounts	$	103	$	—	$	9	(a)	$	25	(a)	$	29	(b)	$	108
Reserve for obsolescence and shrinkage	10		—		34			—			36		(c)	8
Self-insurance reserve	121		—		169			—			163		(d)	127
Year Ended December 31, 2019:
Allowance for doubtful accounts	$	93	$	2	$	8	(a)	$	34	(a)	$	34	(b)	$	103
Reserve for obsolescence and shrinkage	5		4		40			—			39		(c)	10
Self-insurance reserve	106		—		180			—			165		(d)	121
Year Ended December 31, 2018:
Allowance for doubtful accounts	$	68	$	14	$	45	(a)	$	—	(a)	$	34	(b)	$	93
Reserve for obsolescence and shrinkage	7		1		26			—			29		(c)	5
Self-insurance reserve	100		5		144			—			143		(d)	106

The above information reflects the continuing operations of the Company for the periods presented. Additionally, because the Company has retained certain self-insurance liabilities associated with the discontinued traffic control business, those amounts have been included as well.

(a) Amounts charged to cost and expenses reflect bad debt expenses recognized within selling, general and administrative expenses. The amounts charged to revenue primarily reflect doubtful accounts associated with lease revenues that were recognized as a reduction to equipment rentals revenue. In 2019, we adopted an updated lease accounting standard (see note 13 to the consolidated financial statements for further detail) that requires that we recognize doubtful accounts associated with lease revenues as a reduction to equipment rentals revenue. We adopted the updated lease accounting standard using a transition method that does not require application to periods prior to adoption.

(b) Represents write-offs of accounts, net of recoveries.

(d) Represents payments.

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