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:

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

•Strengthened our relationships with local and strategic accounts in the construction and industrial sectors, which enhances cross-selling opportunities and drives revenue synergies; and

•Created 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 drawings on our senior secured asset-based revolving credit facility (“ABL facility”) and new debt issuances.

The following table summarizes the fair values of the assets acquired and liabilities assumed.



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 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 nine months ended September 30, 2018 and 2017 include NES acquisition-related costs which are included in “Merger related costs” in our condensed consolidated statements of income. In addition to the acquisition-related costs reflected in our condensed consolidated statements of income, the debt issuance costs and the original issue premiums associated with the issuance of debt to fund the acquisition are reflected, net of amortization subsequent to the acquisition date, in long-term debt in our condensed consolidated balance sheets.

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 19.6 percent for the nine months ended September 30, 2018 (such increase also includes the impact of the acquisitions of Neff Corporation ("Neff") and BakerCorp International Holdings, Inc. (“BakerCorp”) 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 augmented our earthmoving capabilities and efficiencies of scale in key market areas, particularly fast-growing southern geographies, and created opportunities for 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 primarily funded through new debt issuances.

The following table summarizes the fair values of the assets acquired and liabilities assumed.



Accounts receivable, net of allowance for doubtful accounts (1)	$	72
Inventory	5
Rental equipment	550
Property and equipment	45
Intangibles (customer relationships) (2)	153
Other assets	5
Total identifiable assets acquired	830
Current liabilities	(62		)
Deferred taxes	(36		)
Other long-term liabilities	(3		)
Total liabilities assumed	(101		)
Net identifiable assets acquired	729
Goodwill (3)	587
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. $320 of goodwill is expected to be deductible for income tax purposes.

The three and nine months ended September 30, 2018 and 2017 include Neff acquisition-related costs which are included in “Merger related costs” in our condensed consolidated statements of income. 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 condensed consolidated balance sheets.

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 increases in the volume of OEC on rent of 17.8 percent and 19.6 percent for the three and nine months ended September 30, 2018, respectively. Such increase for the three months ended September 30, 2018 includes the impact of the acquisition of BakerCorp discussed below. Such increase for the nine months ended September 30, 2018 includes the impact of the acquisitions of NES discussed above and BakerCorp discussed below.

BakerCorp Acquisition

In July 2018, we completed the acquisition of BakerCorp. BakerCorp was a leading multinational provider of tank, pump, filtration and trench shoring rental solutions for a broad range of industrial and construction applications. BakerCorp had approximately 950 employees, and its operations were primarily concentrated in the United States and Canada, where it had 46 locations. BakerCorp also had 11 locations in France, Germany, the United Kingdom and the Netherlands. BakerCorp had annual revenues of approximately $295. The acquisition is expected to:

•Augment our bundled solutions for fluid storage, transfer and treatment;

•Expand our strategic account base; and

•Provide a significant opportunity to increase revenue and enhance customer service by cross-selling to our broader customer base.

The aggregate consideration paid was approximately $724. The acquisition and related fees and expenses were funded through drawings on our ABL facility.

The following table summarizes the fair values of the assets acquired and liabilities assumed. The purchase price allocations for these assets and liabilities are based on preliminary valuations and are subject to change as we obtain additional information during the acquisition measurement period.



Accounts receivable, net of allowance for doubtful accounts (1)	$	73
Inventory	5
Rental equipment	352
Property and equipment	27
Intangibles (2)	149
Other assets	5
Total identifiable assets acquired	611
Current liabilities	(61		)
Deferred taxes	(20		)
Total liabilities assumed	(81		)
Net identifiable assets acquired	530
Goodwill (3)	194
Net assets acquired	$	724

(1) The fair value of accounts receivables acquired was $73, and the gross contractual amount was $79. We estimated that $6 would be uncollectible.

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



	Fair value		Life (years)
Customer relationships	$	144	8
Trade names and associated trademarks	5		5
Total	$	149

(3) All of the goodwill was assigned to our trench, power and fluid solutions segment. The level of goodwill that resulted from the acquisition is primarily reflective of BakerCorp's going-concern value, the value of BakerCorp's assembled workforce, new customer relationships expected to arise from the acquisition, and operational synergies that we expect to achieve that are not associated with the identifiable assets. $7 of goodwill is expected to be deductible for income tax purposes.

The three and nine months ended September 30, 2018 include BakerCorp acquisition-related costs which are included in “Merger related costs” in our condensed consolidated statements of income.

Since the acquisition date, significant amounts of fleet have been moved between URI locations and the acquired BakerCorp locations, and it is not practicable to reasonably estimate the amounts of revenue and earnings of BakerCorp since the acquisition date. The impact of the BakerCorp acquisition on our equipment rentals revenue is primarily reflected in the increases in the volume of OEC on rent of 17.8 percent and 19.6 percent for the three and nine months ended September 30, 2018, respectively. Such increase for the three months ended September 30, 2018 includes the impact of the acquisition of Neff discussed above. Such increase for the nine months ended September 30, 2018 includes the impact of the acquisitions of NES and Neff discussed above.

Pro forma financial information

The pro forma information below gives effect to the NES, Neff and BakerCorp acquisitions as if they had been completed on January 1, 2017 (“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, Neff and BakerCorp 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 acquisition measurement periods for NES and Neff have ended and the values assigned to the NES and Neff assets acquired and liabilities assumed are final. The opening balance sheet values assigned to the BakerCorp assets acquired and liabilities assumed are based on preliminary valuations and are subject to change as we obtain additional information during the acquisition measurement period. Increases or decreases in the estimated fair values of the net assets acquired may impact our statements of income in future periods. The tables below present unaudited pro forma consolidated income statement information as if NES, Neff and BakerCorp had been included in our consolidated results for the entire periods reflected. NES and Neff are excluded from the 2018 table because they are included in our results for the entire nine months ended September 30, 2018.



	Three Months Ended													Nine Months Ended
	September 30, 2017													September 30, 2017
	United Rentals		NES		Neff			BakerCorp			Total			United Rentals		NES			Neff			BakerCorp			Total
Historic/pro forma revenues	$	1,766	$	—	$	111		$	70		$	1,947		$	4,719	$	81		$	312		$	199		$	5,311
Historic/combined pretax income (loss)	322		—		16			(6		)	332			712		(12		)	38			(62		)	676
Pro forma adjustments to pretax income (loss):
Impact of fair value mark-ups/useful life changes on depreciation (1)			—		(3		)	(4		)	(7		)			(9		)	(8		)	(10		)	(27		)
Impact of the fair value mark-up of acquired fleet on cost of rental equipment sales (2)			—		—			—			—					(1		)	(1		)	—			(2		)
Intangible asset amortization (3)			—		(7		)	(8		)	(15		)			(6		)	(21		)	(25		)	(52		)
Goodwill impairment (4)			—		—			—			—					—			—			32			32
Interest expense (5)			—		(17		)	(5		)	(22		)			(9		)	(51		)	(14		)	(74		)
Elimination of historic interest (6)			—		11			10			21					12			34			30			76
Elimination of merger related costs (7)			1		15			—			16					17			15			—			32
Restructuring charges (8)			4		(3		)	—			1					(5		)	(19		)	(6		)	(30		)
Pro forma pretax income											$	326													$	631



	Three Months Ended								Nine Months Ended
	September 30, 2018								September 30, 2018
	United Rentals		BakerCorp			Total			United Rentals		BakerCorp			Total
Historic/pro forma revenues	$	2,116	$	28		$	2,144		$	5,741	$	184		$	5,925
Historic/combined pretax income (loss)	460		(63		)	397			1,051		(84		)	967
Pro forma adjustments to pretax income (loss):
Impact of fair value mark-ups/useful life changes on depreciation (1)			(1		)	(1		)			(8		)	(8		)
Intangible asset amortization (3)			(1		)	(1		)			(16		)	(16		)
Interest expense (5)			(2		)	(2		)			(14		)	(14		)
Elimination of historic interest (6)			9			9					30			30
Elimination of merger related costs (7)			65			65					66			66
Restructuring charges (8)			6			6					6			6
Pro forma pretax income						$	473							$	1,031

(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, Neff and BakerCorp 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. BakerCorp did not historically recognize a material amount of rental equipment sales, and accordingly no adjustment was required for BakerCorp.

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

(4) The goodwill impairment charge that BakerCorp recognized during the nine months ended September 30, 2017 was eliminated. If the acquisition had occurred as of the pro forma acquisition date, this impairment charge would not have been recognized (instead, we would have tested for goodwill impairment based on the post-acquisition reporting unit structure).

(5) As discussed above, we issued debt to partially fund the NES, Neff and BakerCorp 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, Neff and BakerCorp acquisitions were eliminated as they were assumed to have been recognized prior to the pro forma acquisition date. The adjustments for BakerCorp for the three and nine months ended September 30, 2018 include $57 of merger related costs recognized by BakerCorp prior to the acquisition.

(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, 2017. The adjustments above reflect the timing of the actual restructuring charges following the acquisitions (the pro forma restructuring charges above for the three and nine months ended September 30, 2017 reflect the actual restructuring charges recognized during the three and nine months following the acquisitions). We do not expect to incur significant additional restructuring charges for NES and Neff. We expect to incur additional restructuring charges for BakerCorp, however the remaining costs are not currently estimable, as we are still identifying the actions that will be undertaken.