Acquisitions

NES Acquisition

In April 2017, we completed the acquisition of NES Rentals Holdings II, Inc. (“NES”). NES was a provider of rental equipment with 73 branches located throughout the eastern half of the U.S., and had approximately 1,100 employees and approximately $900 of rental assets at original equipment cost as of December 31, 2016. NES had annual revenues of approximately $369. The acquisition is expected to:

•Increase our density in strategically important markets, including the East Coast, Gulf States and the Midwest;

•Strengthen our relationships with local and strategic accounts in the construction and industrial sectors, which we expect will enhance cross-selling opportunities and drive revenue synergies; and

•Create meaningful opportunities for cost synergies in areas such as corporate overhead, operational efficiencies and purchasing.

The aggregate consideration paid to holders of NES common stock and options was approximately $960. The acquisition and related fees and expenses were funded through available cash, drawings on our senior secured asset-based revolving credit facility (“ABL facility”) and the issuances of $250 principal amount of 5 ⁷/₈ percent Senior Notes due 2026 (as an add-on to our existing 5 ⁷/₈ percent Senior Notes due 2026) and $250 principal amount of 5 ¹/₂ percent Senior Notes due 2027 (as an add-on to our existing 5 ¹/₂ percent Senior Notes due 2027). See note 12 to the consolidated financial statements for additional detail on the debt issuances.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date. We do not expect material changes to the assigned values.



Accounts receivable, net of allowance for doubtful accounts (1)	$	49
Inventory	4
Rental equipment	571
Property and equipment	48
Intangibles (2)	139
Other assets	7
Total identifiable assets acquired	818
Short-term debt and current maturities of long-term debt (3)	(3		)
Current liabilities	(33		)
Deferred taxes	(15		)
Long-term debt (3)	(11		)
Other long-term liabilities	(5		)
Total liabilities assumed	(67		)
Net identifiable assets acquired	751
Goodwill (4)	209
Net assets acquired	$	960

(1) The fair value of accounts receivables acquired was $49, and the gross contractual amount was $53. We estimated that $4 would be uncollectible.

(2) The following table reflects the estimated fair values and useful lives of the acquired intangible assets identified based on our purchase accounting assessments:



	Fair value		Life (years)
Customer relationships	$	138	10
Non-compete agreements	1		1
Total	$	139

(3) The acquired debt reflects capital lease obligations.

(4) All of the goodwill was assigned to our general rentals segment. The level of goodwill that resulted from the acquisition is primarily reflective of NES's going-concern value, the value of NES's assembled workforce, new customer relationships expected to arise from the acquisition, and operational synergies that we expect to achieve that would not be available to other market participants. $1 of goodwill is expected to be deductible for income tax purposes.

The year ended December 31, 2017 include NES acquisition-related costs of $17 which are included in “Merger related costs” in our consolidated statements of income. The merger related costs are comprised of financial and legal advisory fees. In addition to the acquisition-related costs reflected in our consolidated statements of income, the debt issuance costs and the original issue premiums associated with the issuance of debt to fund the acquisition are reflected, net of amortization subsequent to the acquisition date, in long-term debt in our consolidated balance sheets. See note 12 to the consolidated financial statements for additional detail on the debt issuances.

Since the acquisition date, significant amounts of fleet have been moved between URI locations and the acquired NES locations, and it is not practicable to reasonably estimate the amounts of revenue and earnings of NES since the acquisition date. The impact of the NES acquisition on our equipment rentals revenue is primarily reflected in the increase in the volume of OEC on rent of 18.2 percent for the year ended December 31, 2017 (such increase also includes the impact of the acquisition of Neff Corporation ("Neff") discussed below).

Neff Acquisition

In October 2017, we completed the acquisition of Neff. Neff was a provider of earthmoving, material handling, aerial and other equipment, and had 69 branches located in 14 states, with a concentration in southern geographies. Neff had approximately 1,100 employees and approximately $860 of rental assets at original equipment cost as of September 30, 2017. Neff had annual revenues of approximately $413. The acquisition is expected to augment our earthmoving capabilities and efficiencies of scale in key market areas, particularly fast-growing southern geographies, and is expected to lead to revenue synergies through the cross-selling of our broader fleet.

The aggregate consideration paid to holders of Neff common stock and options was approximately $1.316 billion (including $7 of stock consideration associated with Neff stock options and restricted stock units which were converted into United Rentals stock options). The acquisition and related fees and expenses were funded through the issuances of $750 principal amount of 4 ⁵/₈ percent Senior Notes due 2025 and $750 principal amount of 4 ⁷/₈ percent Senior Notes due 2028. See note 12 to the consolidated financial statements for additional detail on the debt issuances.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the acquisition date. The opening balance sheet values assigned to these assets and liabilities are based on preliminary valuations and are subject to change as we obtain additional information during the acquisition measurement period. We expect to materially finalize the assigned values in the first half of 2018.



Accounts receivable, net of allowance for doubtful accounts (1)	$	72
Inventory	5
Rental equipment	551
Property and equipment	45
Intangibles (customer relationships) (2)	153
Other assets	5
Total identifiable assets acquired	831
Current liabilities	(61		)
Deferred taxes	(35		)
Other long-term liabilities	(3		)
Total liabilities assumed	(99		)
Net identifiable assets acquired	732
Goodwill (3)	584
Net assets acquired	$	1,316

(1) The fair value of accounts receivables acquired was $72, and the gross contractual amount was $74. We estimated that $2 would be uncollectible.

(2) The customer relationships are being amortized over a 10 year life.

(3) All of the goodwill was assigned to our general rentals segment. The level of goodwill that resulted from the acquisition is primarily reflective of Neff's going-concern value, the value of Neff's assembled workforce, new customer relationships expected to arise from the acquisition, and operational synergies that we expect to achieve that would not be available to other market participants. $12 of goodwill is expected to be deductible for income tax purposes.

The year ended December 31, 2017 include Neff acquisition-related costs of $33 which are included in “Merger related costs” in our consolidated statements of income. The merger related costs are primarily comprised of financial and legal advisory fees, and also include a termination fee we paid associated with a merger agreement Neff entered into with a prior bidder. In addition to the acquisition-related costs reflected in our consolidated statements of income, the debt issuance costs and the original issue premiums associated with the issuance of debt to fund the acquisition are reflected, net of amortization subsequent to the acquisition date, in long-term debt in our consolidated balance sheets. See note 12 to the consolidated financial statements for additional detail on the debt issuances.

Since the acquisition date, significant amounts of fleet have been moved between URI locations and the acquired Neff locations, and it is not practicable to reasonably estimate the amounts of revenue and earnings of Neff since the acquisition date. The impact of the Neff acquisition on our equipment rentals revenue is primarily reflected in the increase in the volume of OEC on rent of 18.2 percent for the year ended December 31, 2017 (such increase also includes the impact of the acquisition of NES discussed above).

Pro forma financial information

The pro forma information below gives effect to the NES and Neff acquisitions as if they had been completed on January 1, 2016 (“the pro forma acquisition date”). The pro forma information is not necessarily indicative of our results of operations had the acquisitions been completed on the above date, nor is it necessarily indicative of our future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisitions, and also does not reflect additional revenue opportunities following the acquisitions. The pro forma information includes adjustments to record the assets and liabilities of NES and Neff at their respective fair values based on available information and to give effect to the financing for the acquisitions and related transactions. The pro forma adjustments reflected in the table below are subject to change as additional analysis is performed. The opening balance sheet values assigned to the assets acquired and liabilities assumed are based on preliminary valuations and are subject to change as we obtain additional information during the acquisition measurement periods. Increases or decreases in the estimated fair values of the net assets acquired may impact our statements of income in future periods. We do not expect any material changes to the values assigned to the NES assets acquired and liabilities assumed, and expect to materially finalize the assigned Neff values in the first half of 2018. The table below presents unaudited pro forma consolidated income statement information as if NES and Neff had been included in our consolidated results for the entire periods reflected:



	Year Ended											Year Ended
	December 31, 2017											December 31, 2016
	United Rentals		NES			Neff			Total			United Rentals		NES			Neff			Total
Historic/pro forma revenues	$	6,641	$	81		$	312		$	7,034		$	5,762	$	369		$	398		$	6,529
Historic/combined pretax income (loss)	1,048		(12		)	38			1,074			909		26			46			981
Pro forma adjustments to pretax income (loss):
Impact of fair value mark-ups/useful life changes on depreciation (1)			(9		)	(8		)	(17		)			(37		)	(10		)	(47		)
Impact of the fair value mark-up of acquired fleet on cost of rental equipment sales (2)			(1		)	(1		)	(2		)			(2		)	(1		)	(3		)
Intangible asset amortization (3)			(3		)	(18		)	(21		)			(26		)	(28		)	(54		)
Gain on sale of equity interest (4)			—			—			—					(7		)	—			(7		)
Interest expense (5)			(9		)	(51		)	(60		)			(37		)	(69		)	(106		)
Elimination of historic interest (6)			12			34			46					38			46			84
Elimination of merger related costs (7)			17			33			50					—			—			—
Restructuring charges (8)			32			14			46					(32		)	(14		)	(46		)
Pro forma pretax income									$	1,116										$	802

(1) Depreciation of rental equipment and non-rental depreciation were adjusted for the fair value mark-ups, and the changes in useful lives and salvage values, of the equipment acquired in the NES and Neff acquisitions.

(2) Cost of rental equipment sales was adjusted for the fair value mark-ups of rental equipment acquired in the NES and Neff acquisitions.

(3) The intangible assets acquired in the NES and Neff acquisitions were amortized.

(4) In 2016, NES sold its equity interest in a successor company and recognized a gain of $7. This gain was eliminated as the equity interest that was sold is not a component of the combined company.

(5) As discussed above, we issued debt to partially fund the NES and Neff acquisitions. Interest expense was adjusted to reflect these changes in our debt portfolio.

(6) Historic interest on debt that is not part of the combined entity was eliminated.

(7) Merger related costs primarily comprised of financial and legal advisory fees associated with the NES and Neff acquisitions were eliminated as they were assumed to have been recognized prior to the pro forma acquisition date. The merger related costs also include a termination fee we paid associated with a merger agreement Neff entered into with a prior bidder.

(8) We expect to recognize restructuring charges primarily comprised of severance costs and branch closure charges associated with the acquisitions over a period of approximately one year following the acquisition dates, which, for the pro forma presentation, was January 1, 2016. As such, the restructuring charges recognized in 2017 were moved to 2016. The restructuring charges reflected in our consolidated statements of income also include non-NES/Neff restructuring charges, as discussed in note 5 to the consolidated financial statements. We do not expect to recognize significant additional restructuring charges associated with the NES acquisition. We expect to recognize additional restructuring charges associated with the Neff acquisition, however the total costs expected to be incurred are not currently estimable, as we are still identifying the actions that will be undertaken.