UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 ___________________________________

FORM 10-Q

___________________________________

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 1-14387

Commission File Number 1-13663

___________________________________ 

United Rentals, Inc.

United Rentals (North America), Inc.

(Exact Names of Registrants as Specified in Their Charters)

 ___________________________________

Delaware	06-1522496
Delaware	86-0933835
(States of Incorporation)	(I.R.S. Employer Identification Nos.)
100 First Stamford Place, Suite 700
Stamford
Connecticut	06902
(Address of Principal Executive Offices)	(Zip Code)

Registrants’ Telephone Number, Including Area Code: (203) 622-3131 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value, of United Rentals, Inc.	URI	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    o  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐Yes    x   No

As of October 14, 2019, there were 75,155,939 shares of United Rentals, Inc. common stock, $0.01 par value, outstanding. There is no market for the common stock of United Rentals (North America), Inc., all outstanding shares of which are owned by United Rentals, Inc.

This combined Form 10-Q is separately filed by (i) United Rentals, Inc. and (ii) United Rentals (North America), Inc. (which is a wholly owned subsidiary of United Rentals, Inc.). United Rentals (North America), Inc. meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this report with the reduced disclosure format permitted by such instruction.

UNITED RENTALS, INC.

UNITED RENTALS (NORTH AMERICA), INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

INDEX

		Page
PART I	FINANCIAL INFORMATION
Item 1	Unaudited Condensed Consolidated Financial Statements	6
	United Rentals, Inc. Condensed Consolidated Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018	6
	United Rentals, Inc. Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)	7
	United Rentals, Inc. Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)	8
	United Rentals, Inc. Condensed Consolidated Statement of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)	9
	United Rentals, Inc. Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018 (unaudited)	11
	Notes to Unaudited Condensed Consolidated Financial Statements	12
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3	Quantitative and Qualitative Disclosures About Market Risk	53
Item 4	Controls and Procedures	54
PART II	OTHER INFORMATION
Item 1	Legal Proceedings	55
Item 1A	Risk Factors	55
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 6	Exhibits	56
	Signatures	57

3

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

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

• the possibility that companies that we have acquired or may acquire, including BakerCorp International Holdings, Inc. (“BakerCorp”) and Vander Holding Corporation and its subsidiaries (“BlueLine”), could have undiscovered liabilities or involve other unexpected costs, may strain our management capabilities or may be difficult to integrate;

• the cyclical nature of our business, which is highly sensitive to North American construction and industrial activities; if construction or industrial activity decline, our revenues and, because many of our costs are fixed, our profitability may be adversely affected;

• our significant indebtedness (which totaled $11.7 billion at September 30, 2019) requires us to use a substantial portion of our cash flow for debt service and can constrain our flexibility in responding to unanticipated or adverse business conditions;

• inability to refinance our indebtedness on terms that are favorable to us, or at all;

• incurrence of additional debt, which could exacerbate the risks associated with our current level of indebtedness;

• noncompliance with financial or other covenants in our debt agreements, which could result in our lenders terminating the agreements and requiring us to repay outstanding borrowings;

• restrictive covenants and amount of borrowings permitted in our debt instruments, which can limit our financial and operational flexibility;

• overcapacity of fleet in the equipment rental industry;

• inability to benefit from government spending, including spending associated with infrastructure projects;

• fluctuations in the price of our common stock and inability to complete stock repurchases in the time frame and/or on the terms anticipated;

• rates we charge and time utilization we achieve being less than anticipated;

• inability to manage credit risk adequately or to collect on contracts with a large number of customers;

• inability to access the capital that our businesses or growth plans may require;

• incurrence of impairment charges;

• trends in oil and natural gas could adversely affect the demand for our services and products;

• the fact that our holding company structure requires us to depend in part on distributions from subsidiaries and such distributions could be limited by contractual or legal restrictions;

• increases in our loss reserves to address business operations or other claims and any claims that exceed our established levels of reserves;

• incurrence of additional expenses (including indemnification obligations) and other costs in connection with litigation, regulatory and investigatory matters;

• the outcome or other potential consequences of regulatory matters and commercial litigation;

• shortfalls in our insurance coverage;

• our charter provisions as well as provisions of certain debt agreements and our significant indebtedness may have the effect of making more difficult or otherwise discouraging, delaying or deterring a takeover or other change of control of us;

• turnover in our management team and inability to attract and retain key personnel;

• costs we incur being more than anticipated, and the inability to realize expected savings in the amounts or time frames planned;

• dependence on key suppliers to obtain equipment and other supplies for our business on acceptable terms;

• inability to sell our new or used fleet in the amounts, or at the prices, we expect;

• competition from existing and new competitors;

• risks related to security breaches, cybersecurity attacks, failure to protect personal information, compliance with data protection laws and other significant disruptions in our information technology systems;

• the costs of complying with environmental, safety and foreign law and regulations, as well as other risks associated with non-U.S. operations, including currency exchange risk (including as a result of Brexit), and tariffs;

4

• labor disputes, work stoppages or other labor difficulties, which may impact our productivity, and potential enactment of new legislation or other changes in law affecting our labor relations or operations generally;

• increases in our maintenance and replacement costs and/or decreases in the residual value of our equipment; and

• the effect of changes in tax law.

For a more complete description of these and other possible risks and uncertainties, please refer to our Annual Report on Form 10-K for the year ended December 31, 2018, as well as to our subsequent filings with the SEC. Our forward-looking statements contained herein speak only as of the date hereof, and we make no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations.

5

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

UNITED RENTALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

	September 30, 2019			December 31, 2018
	(unaudited)
ASSETS
Cash and cash equivalents	$	60		$	43
Accounts receivable, net of allowance for doubtful accounts of $103 at September 30, 2019 and $93 at December 31, 2018	1,595			1,545
Inventory	130			109
Prepaid expenses and other assets	96			64
Total current assets	1,881			1,761
Rental equipment, net	10,164			9,600
Property and equipment, net	587			614
Goodwill	5,143			5,058
Other intangible assets, net	961			1,084
Operating lease right-of-use assets (note 8)	650			—
Other long-term assets	19			16
Total assets	$	19,405		$	18,133
LIABILITIES AND STOCKHOLDERS’ EQUITY
Short-term debt and current maturities of long-term debt	$	973		$	903
Accounts payable	839			536
Accrued expenses and other liabilities	831			677
Total current liabilities	2,643			2,116
Long-term debt	10,691			10,844
Deferred taxes	1,800			1,687
Operating lease liabilities (note 8)	522			—
Other long-term liabilities	99			83
Total liabilities	15,755			14,730
Common stock—$0.01 par value, 500,000,000 shares authorized, 113,778,857 and 75,750,691 shares issued and outstanding, respectively, at September 30, 2019 and 112,907,209 and 79,872,956 shares issued and outstanding, respectively, at December 31, 2018	1			1
Additional paid-in capital	2,429			2,408
Retained earnings	4,937			4,101
Treasury stock at cost—38,028,166 and 33,034,253 shares at September 30, 2019 and December 31, 2018, respectively	(3,500		)	(2,870		)
Accumulated other comprehensive loss	(217		)	(237		)
Total stockholders’ equity	3,650			3,403
Total liabilities and stockholders’ equity	$	19,405		$	18,133

See accompanying notes.

6

UNITED RENTALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(In millions, except per share amounts)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2019			2018		2019			2018
Revenues:
Equipment rentals	$	2,147		$	1,861	$	5,902		$	4,951
Sales of rental equipment	198			140		587			478
Sales of new equipment	67			54		189			140
Contractor supplies sales	27			24		78			66
Service and other revenues	49			37		139			106
Total revenues	2,488			2,116		6,895			5,741
Cost of revenues:
Cost of equipment rentals, excluding depreciation	813			671		2,324			1,883
Depreciation of rental equipment	417			343		1,211			988
Cost of rental equipment sales	122			83		363			282
Cost of new equipment sales	58			46		163			121
Cost of contractor supplies sales	18			15		54			43
Cost of service and other revenues	27			20		75			58
Total cost of revenues	1,455			1,178		4,190			3,375
Gross profit	1,033			938		2,705			2,366
Selling, general and administrative expenses	273			265		824			736
Merger related costs	—			11		1			14
Restructuring charge	2			9		16			15
Non-rental depreciation and amortization	102			75		311			213
Operating income	656			578		1,553			1,388
Interest expense, net	147			118		478			339
Other income, net	(1		)	—		(6		)	(2		)
Income before provision for income taxes	510			460		1,081			1,051
Provision for income taxes	119			127		245			265
Net income	$	391		$	333	$	836		$	786
Basic earnings per share	$	5.10		$	4.05	$	10.70		$	9.44
Diluted earnings per share	$	5.08		$	4.01	$	10.66		$	9.34

See accompanying notes.

7

UNITED RENTALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In millions)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2019			2018		2019		2018
Net income	$	391		$	333	$	836	$	786
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (1)	(23		)	18		19		(28		)
Fixed price diesel swaps	—			—		1		1
Other comprehensive income (loss)	(23		)	18		20		(27		)
Comprehensive income (1)	$	368		$	351	$	856	$	759

(1)There were no material reclassifications from accumulated other comprehensive loss reflected in other comprehensive income (loss) during 2019 or 2018. There is no tax impact related to the foreign currency translation adjustments, as the earnings are considered permanently reinvested. We have historically considered the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested. We have not repatriated funds to the U.S. to satisfy domestic liquidity needs, nor do we anticipate the need to do so. If we determine that all or a portion of our foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes and U.S. state income taxes. There were no material taxes associated with other comprehensive income (loss) during 2019 or 2018.

See accompanying notes.

8

UNITED RENTALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(In millions)

	Three Months Ended September 30, 2019
	Common Stock								Treasury Stock
	Number of Shares (1)		Amount		Additional Paid-in Capital		Retained Earnings		Number of Shares	Amount			Accumulated Other Comprehensive Loss (2)
Balance at June 30, 2019	77		$	1	$	2,415	$	4,546	36	$	(3,290	)	$	(194	)
Net income							391
Foreign currency translation adjustments													(23		)
Stock compensation expense, net	1				14
Repurchase of common stock	(2	)							2	(210		)
Balance at September 30, 2019	76		$	1	$	2,429	$	4,937	38	$	(3,500	)	$	(217	)

	Three Months Ended September 30, 2018
	Common Stock									Treasury Stock
	Number of Shares (1)		Amount		Additional Paid-in Capital			Retained Earnings		Number of Shares	Amount			Accumulated Other Comprehensive Loss (2)
Balance at June 30, 2018	83		$	1	$	2,351		$	3,458	30	$	(2,450	)	$	(196	)
Net income								333
Foreign currency translation adjustments														18
Stock compensation expense, net	—				30
Shares repurchased and retired					(1		)
Repurchase of common stock	(1	)								1	(210		)
Balance at September 30, 2018	82		$	1	$	2,380		$	3,791	31	$	(2,660	)	$	(178	)

9

	Nine Months Ended September 30, 2019
	Common Stock									Treasury Stock
	Number of Shares (1)		Amount		Additional Paid-in Capital			Retained Earnings		Number of Shares	Amount			Accumulated Other Comprehensive Loss (2)
Balance at December 31, 2018	80		$	1	$	2,408		$	4,101	33	$	(2,870	)	$	(237	)
Net income								836
Foreign currency translation adjustments														19
Fixed price diesel swaps														1
Stock compensation expense, net	1				45
Exercise of common stock options					10
Shares repurchased and retired					(34		)
Repurchase of common stock	(5	)								5	(630		)
Balance at September 30, 2019	76		$	1	$	2,429		$	4,937	38	$	(3,500	)	$	(217	)

	Nine Months Ended September 30, 2018
	Common Stock									Treasury Stock
	Number of Shares (1)		Amount		Additional Paid-in Capital			Retained Earnings		Number of Shares	Amount			Accumulated Other Comprehensive Loss (2)
Balance at December 31, 2017	84		$	1	$	2,356		$	3,005	28	$	(2,105	)	$	(151	)
Net income								786
Foreign currency translation adjustments														(28		)
Fixed price diesel swaps														1
Stock compensation expense, net	1				73
Exercise of common stock options					2
Shares repurchased and retired					(51		)
Repurchase of common stock	(3	)								3	(555		)
Balance at September 30, 2018	82		$	1	$	2,380		$	3,791	31	$	(2,660	)	$	(178	)

(1)Common stock outstanding decreased by less than 5 million net shares during the year ended December 31, 2018.

(2)The Accumulated Other Comprehensive Loss balance primarily reflects foreign currency translation adjustments.

See accompanying notes.

10

UNITED RENTALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In millions)

	Nine Months Ended
	September 30,
	2019			2018
Cash Flows From Operating Activities:
Net income	$	836		$	786
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,522			1,201
Amortization of deferred financing costs and original issue discounts	11			9
Gain on sales of rental equipment	(224		)	(196		)
Gain on sales of non-rental equipment	(3		)	(4		)
Gain on insurance proceeds from damaged equipment	(18		)	(18		)
Stock compensation expense, net	45			73
Merger related costs	1			14
Restructuring charge	16			15
Loss on repurchase/redemption of debt securities and amendment of ABL facility	32			—
Increase in deferred taxes	117			190
Changes in operating assets and liabilities, net of amounts acquired:
Increase in accounts receivable	(30		)	(131		)
Increase in inventory	(17		)	(23		)
(Increase) decrease in prepaid expenses and other assets	(21		)	31
Increase in accounts payable	301			238
Increase (decrease) in accrued expenses and other liabilities	14			(62		)
Net cash provided by operating activities	2,582			2,123
Cash Flows From Investing Activities:
Purchases of rental equipment	(1,974		)	(1,962		)
Purchases of non-rental equipment	(157		)	(134		)
Proceeds from sales of rental equipment	587			478
Proceeds from sales of non-rental equipment	26			13
Insurance proceeds from damaged equipment	18			18
Purchases of other companies, net of cash acquired	(247		)	(805		)
Purchases of investments	(2		)	(1		)
Net cash used in investing activities	(1,749		)	(2,393		)
Cash Flows From Financing Activities:
Proceeds from debt	6,125			7,062
Payments of debt	(6,269		)	(6,464		)
Proceeds from the exercise of common stock options	10			2
Common stock repurchased	(664		)	(606		)
Payments of financing costs	(18		)	(1		)
Net cash used in financing activities	(816		)	(7		)
Effect of foreign exchange rates	—			(10		)
Net increase (decrease) in cash and cash equivalents	17			(287		)
Cash and cash equivalents at beginning of period	43			352
Cash and cash equivalents at end of period	$	60		$	65
Supplemental disclosure of cash flow information:
Cash paid for income taxes, net	$	96		$	50
Cash paid for interest	480			379

See accompanying notes.

11

UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

1. Organization, Description of Business and Basis of Presentation

United Rentals, Inc. (“Holdings,” “URI” or the “Company”) is principally a holding company and conducts its operations primarily through its wholly owned subsidiary, United Rentals (North America), Inc. (“URNA”), and subsidiaries of URNA. Holdings’ primary asset is its sole ownership of all issued and outstanding shares of common stock of URNA. URNA’s various credit agreements and debt instruments place restrictions on its ability to transfer funds to its shareholder.

We rent equipment to a diverse customer base that includes construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government entities in the United States, Canada and Europe. In addition to renting equipment, we sell new and used rental equipment, as well as related contractor supplies, parts and service.

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with the accounting policies described in our annual report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”) and the interim reporting requirements of Form 10-Q. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the 2018 Form 10-K.

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

New Accounting Pronouncements

Measurement of Credit Losses on Financial Instruments. In June 2016, the Financial Accounting Standards Board ("FASB") issued guidance that will require companies to present assets held at amortized cost and available for sale debt securities net of the amount expected to be collected. The guidance requires the measurement of expected credit losses to be based on relevant information from past events, including historical experiences, current conditions and reasonable and supportable forecasts that affect collectibility. The guidance will be effective for fiscal years and interim periods beginning after December 15, 2019 and early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Different components of the guidance require modified retrospective or prospective adoption. This guidance does not apply to receivables arising from operating leases. As discussed in note 2 to the condensed consolidated financial statements, most of our equipment rental revenue is accounted for as lease revenue (such revenue represented 78 percent of our total revenues for the nine months ended September 30, 2019). We expect to adopt this guidance when effective, and the impact on our financial statements, while limited to our non-operating lease receivables, is not currently estimable, as it will depend on market conditions and our forecast expectations upon, and following, adoption.

Simplifying the Test for Goodwill Impairment. In January 2017, the FASB issued guidance intended to simplify the subsequent accounting for goodwill acquired in a business combination. Prior guidance required utilizing a two-step process to review goodwill for impairment. A second step was required if there was an indication that an impairment may exist, and the second step required calculating the potential impairment by comparing the implied fair value of the reporting unit's goodwill (as if purchase accounting were performed on the testing date) with the carrying amount of the goodwill. The new guidance eliminates the second step from the goodwill impairment test. Under the new guidance, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and then recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value (although the loss should not exceed the total amount of goodwill allocated to the reporting unit). The guidance requires prospective adoption and will be effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption of this guidance is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are currently assessing whether we will early adopt. The guidance is not expected to have a significant impact on our financial statements.

Guidance Adopted in 2019

Leases. See note 8 to our condensed consolidated financial statements for a discussion of our lease accounting following our adoption of an updated FASB lease accounting standard in 2019.

2. Revenue Recognition

12

Revenue Recognition Accounting Standards

In May 2014, and in subsequent updates, the FASB issued guidance ("Topic 606") to clarify the principles for recognizing revenue. We adopted Topic 606 on January 1, 2018. Topic 606 includes the required steps to achieve the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

In March 2016, the FASB issued updated lease accounting guidance ("Topic 842"), as explained further in note 8 to the condensed 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 and 2) Topic 842. 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.

	Three Months Ended September 30,
			2019						2018
	Topic 842		Topic 606		Total		Topic 840		Topic 606		Total
Revenues:
Owned equipment rentals	$	1,831	$	—	$	1,831	$	1,589	$	—	$	1,589
Re-rent revenue	41		—		41		41		—		41
Ancillary and other rental revenues:
Delivery and pick-up	—		156		156		—		132		132
Other	95		24		119		78		21		99
Total ancillary and other rental revenues	95		180		275		78		153		231
Total equipment rentals	1,967		180		2,147		1,708		153		1,861
Sales of rental equipment	—		198		198		—		140		140
Sales of new equipment	—		67		67		—		54		54
Contractor supplies sales	—		27		27		—		24		24
Service and other revenues	—		49		49		—		37		37
Total revenues	$	1,967	$	521	$	2,488	$	1,708	$	408	$	2,116

13

	Nine Months Ended September 30,
			2019						2018
	Topic 842		Topic 606		Total		Topic 840		Topic 606		Total
Revenues:
Owned equipment rentals	$	5,029	$	—	$	5,029	$	4,260	$	—	$	4,260
Re-rent revenue	113		—		113		95		—		95
Ancillary and other rental revenues:
Delivery and pick-up	—		418		418		—		336		336
Other	262		80		342		198		62		260
Total ancillary and other rental revenues	262		498		760		198		398		596
Total equipment rentals	5,404		498		5,902		4,553		398		4,951
Sales of rental equipment	—		587		587		—		478		478
Sales of new equipment	—		189		189		—		140		140
Contractor supplies sales	—		78		78		—		66		66
Service and other revenues	—		139		139		—		106		106
Total revenues	$	5,404	$	1,491	$	6,895	$	4,553	$	1,188	$	5,741

Revenues by reportable segment and geographical market are presented in notes 4 and 11 of the condensed consolidated financial statements, respectively, using the revenue captions reflected in our condensed consolidated statements of operations. The majority of our revenue is recognized in our general rentals segment and in the U.S. (for the nine months ended September 30, 2019, 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 notes 4 and 11, 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 73 percent of total revenues for the nine months ended September 30, 2019) 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).

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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 842/840 and Topic 606) of $59 and $56 as of September 30, 2019 and December 31, 2018, 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. 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.

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.

“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.

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.

Receivables and contract assets and liabilities

As reflected above, most of our equipment rental revenue is accounted for under Topic 842 (such revenue represented 78 percent of our total revenues for the nine months ended September 30, 2019). 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 for the nine months ended September 30, 2019, and for each of the last three full years. Our customer with the largest receivable balance represented approximately one percent of total receivables at September 30, 2019 and December 31, 2018. 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. 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. During the nine months ended September 30, 2019 and 2018, we recognized total additions, excluding acquisitions, to our allowances for doubtful accounts of $33 and $27, respectively, primarily 1) as a reduction to equipment rental revenue or 2) as bad debt expense within selling, general and administrative expenses in our condensed consolidated statements of income.

15

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 three or nine months ended September 30, 2019 or 2018 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 three and nine months ended September 30, 2019 and 2018 were not material. We also do not expect to recognize material revenue in the future related to performance obligations that are unsatisfied (or partially unsatisfied) as of September 30, 2019.

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.

We monitor and review our estimated standalone selling prices on a regular basis.

3. Acquisitions

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:

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

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

•Expanded our strategic account base; and

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

The aggregate consideration paid was approximately $720. 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.

Accounts receivable, net of allowance for doubtful accounts (1)	$	74
Inventory	4
Rental equipment	268
Property and equipment	25
Intangibles (2)	171
Other assets	3
Total identifiable assets acquired	545
Current liabilities	(60		)
Deferred taxes	(13		)
Total liabilities assumed	(73		)
Net identifiable assets acquired	472
Goodwill (3)	248
Net assets acquired	$	720

(1) The fair value of accounts receivables acquired was $74, and the gross contractual amount was $81. We estimated that $7 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	$	166	8
Trade names and associated trademarks	5		5
Total	$	171

(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. $6 of goodwill is expected to be deductible for income tax purposes.

The three and nine months ended September 30, 2019 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 average OEC of 18.1 percent and 21.5 percent for the three and nine months ended September 30, 2019, respectively. Such increases include the impact of the acquisition of BlueLine discussed below.

BlueLine Acquisition

In October 2018, we completed the acquisition of BlueLine. BlueLine was one of the ten largest equipment rental companies in North America and served customers in the construction and industrial sectors with a focus on mid-sized and local accounts. BlueLine had 114 locations and over 1,700 employees based in 25 U.S. states, Canada and Puerto Rico. BlueLine had annual revenues of approximately $786. The acquisition:

•Expanded our equipment rental capacity in many of the largest metropolitan areas in North America,

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

including both U.S. coasts, the Gulf South and Ontario;

•Provided a well-diversified customer base with a balanced mix of commercial construction and industrial accounts;

•Added more mid-sized and local accounts to our customer base; and

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

The aggregate consideration paid was approximately $2.069 billion. The acquisition and related fees and expenses were funded through borrowings under a new $1 billion senior secured term loan credit facility (the “term loan facility”) and the issuance of $1.1 billion principal amount of 6 ¹/₂ percent Senior Notes due 2026.

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)	$	117
Inventory	7
Rental equipment	1,078
Property and equipment	71
Intangibles (customer relationships) (2)	230
Other assets	45
Total identifiable assets acquired	1,548
Short-term debt and current maturities of long-term debt (3)	(12		)
Current liabilities	(135		)
Long-term debt (3)	(25		)
Other long-term liabilities	(4		)
Total liabilities assumed	(176		)
Net identifiable assets acquired	1,372
Goodwill (4)	697
Net assets acquired	$	2,069

(1) The fair value of accounts receivables acquired was $117, and the gross contractual amount was $125. We estimated that $8 would be uncollectible.

(2) The customer relationships are being amortized over a 5 year life.

(3) The acquired debt reflects finance 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 BlueLine's going-concern value, the value of BlueLine'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. $25 of goodwill is expected to be deductible for income tax purposes.

The three and nine months ended September 30, 2019 include BlueLine 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 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.

Since the acquisition date, significant amounts of fleet have been moved between URI locations and the acquired BlueLine locations, and it is not practicable to reasonably estimate the amounts of revenue and earnings of BlueLine since the acquisition date. The impact of the BlueLine acquisition on our equipment rentals revenue is primarily reflected in the increases in average OEC of 18.1 percent and 21.5 percent for the three and nine months ended September 30, 2019, respectively. Such increases include the impact of the acquisition of BakerCorp discussed above.

Pro forma financial information

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

The pro forma information below gives effect to the BakerCorp and BlueLine acquisitions as if they had been completed on January 1, 2018 (“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 BakerCorp and BlueLine 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 period for BakerCorp has ended and the values assigned to the BakerCorp assets acquired and liabilities assumed are final. The opening balance sheet values assigned to the BlueLine 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 BakerCorp and BlueLine had been included in our consolidated results for the entire period reflected.

	Three Months Ended											Nine Months Ended
	September 30, 2018											September 30, 2018
	United Rentals		BlueLine			BakerCorp			Total			United Rentals		BlueLine			BakerCorp			Total
Historic/pro forma revenues	$	2,116	$	219		$	28		$	2,363		$	5,741	$	601		$	184		$	6,526
Historic/combined pretax income (loss)	460		—			(63		)	397			1,051		(30		)	(84		)	937
Pro forma adjustments to pretax income (loss):
Impact of fair value mark-ups/useful life changes on depreciation (1)			(2		)	(2		)	(4		)			(5		)	(8		)	(13		)
Impact of the fair value mark-up of acquired fleet on cost of rental equipment sales (2)			(5		)	—			(5		)			(13		)	—			(13		)
Intangible asset amortization (3)			(20		)	(4		)	(24		)			(58		)	(24		)	(82		)
Interest expense (4)			(28		)	(2		)	(30		)			(82		)	(14		)	(96		)
Elimination of historic interest (5)			32			9			41					95			30			125
Elimination of merger related costs (6)			3			65			68					5			66			71
Restructuring charges (7)			(3		)	5			2					(26		)	(4		)	(30		)
Pro forma pretax income									$	445										$	899

(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 BakerCorp and BlueLine acquisitions.

(2) Cost of rental equipment sales was adjusted for the fair value mark-ups of rental equipment acquired in the BlueLine acquisition. 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 BakerCorp and BlueLine acquisitions were amortized.

(4) As discussed above, we issued debt to fund the BakerCorp and BlueLine acquisitions. Interest expense was adjusted to reflect these changes in our debt portfolio.

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

(6) Merger related costs primarily comprised of financial and legal advisory fees associated with the BakerCorp and BlueLine 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. The adjustments for BlueLine for the three and nine months ended September 30, 2018 include $2 and $4, respectively, of merger related costs recognized by BlueLine prior to the acquisition.

(7) 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, 2018. The adjustments above reflect the timing of the actual restructuring charges following

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

the acquisitions (the pro forma restructuring charges above for the three and nine months ended September 30, 2018 reflect the actual restructuring charges recognized during the three and nine months following the acquisitions). As discussed in note 5 to the condensed consolidated financial statement, we expect to complete the BakerCorp/BlueLine restructuring program in 2019, and do not expect to incur significant additional expenses in connection with the program.

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

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 tables set forth financial information by segment.  

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

	General rentals		Trench, power and fluid solutions		Total
Three Months Ended September 30, 2019
Equipment rentals	$	1,642	$	505	$	2,147
Sales of rental equipment	183		15		198
Sales of new equipment	60		7		67
Contractor supplies sales	17		10		27
Service and other revenues	42		7		49
Total revenue	1,944		544		2,488
Depreciation and amortization expense	426		93		519
Equipment rentals gross profit	671		246		917
Three Months Ended September 30, 2018
Equipment rentals	$	1,444	$	417	$	1,861
Sales of rental equipment	130		10		140
Sales of new equipment	50		4		54
Contractor supplies sales	17		7		24
Service and other revenues	33		4		37
Total revenue	1,674		442		2,116
Depreciation and amortization expense	351		67		418
Equipment rentals gross profit	629		218		847
Nine Months Ended September 30, 2019
Equipment rentals	$	4,592	$	1,310	$	5,902
Sales of rental equipment	541		46		587
Sales of new equipment	167		22		189
Contractor supplies sales	53		25		78
Service and other revenues	119		20		139
Total revenue	5,472		1,423		6,895
Depreciation and amortization expense	1,254		268		1,522
Equipment rentals gross profit	1,765		602		2,367
Capital expenditures	1,800		331		2,131
Nine Months Ended September 30, 2018
Equipment rentals	$	3,977	$	974	$	4,951
Sales of rental equipment	446		32		478
Sales of new equipment	125		15		140
Contractor supplies sales	50		16		66
Service and other revenues	95		11		106
Total revenue	4,693		1,048		5,741
Depreciation and amortization expense	1,022		179		1,201
Equipment rentals gross profit	1,598		482		2,080
Capital expenditures	1,845		251		2,096

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

	September 30, 2019		December 31, 2018
Total reportable segment assets
General rentals	$	16,383	$	15,597
Trench, power and fluid solutions	3,022		2,536
Total assets	$	19,405	$	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:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Total equipment rentals gross profit	$	917		$	847		$	2,367		$	2,080
Gross profit from other lines of business	116			91			338			286
Selling, general and administrative expenses	(273		)	(265		)	(824		)	(736		)
Merger related costs	—			(11		)	(1		)	(14		)
Restructuring charge	(2		)	(9		)	(16		)	(15		)
Non-rental depreciation and amortization	(102		)	(75		)	(311		)	(213		)
Interest expense, net	(147		)	(118		)	(478		)	(339		)
Other income, net	1			—			6			2
Income before provision for income taxes	$	510		$	460		$	1,081		$	1,051

5. Restructuring 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 restructuring program was initiated in 2008, we have completed four restructuring programs and have incurred total restructuring charges of $331.

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 September 30, 2019, the total liability associated with the closed restructuring programs was $12.

BakerCorp/BlueLine Restructuring Program

In the third quarter of 2018, we initiated a restructuring program following the closing of the BakerCorp acquisition discussed in note 3 to the condensed consolidated financial statements. The restructuring program also includes actions undertaken associated with the BlueLine acquisition discussed in note 3 to the condensed consolidated financial statements. We expect to complete the restructuring program in 2019, and do not expect to incur significant additional expenses in connection with the program.

The table below provides certain information concerning restructuring activity under the BakerCorp/BlueLine restructuring program during the nine months ended September 30, 2019:

	Reserve Balance at		Charged to Costs and Expenses (1)		Payments and Other			Reserve Balance at
	December 31, 2018							September 30, 2019
Branch closure charges	$	3	$	14	$	(5	)	$	12
Severance and other	9		6		(13		)	2
Total	$	12	$	20	$	(18	)	$	14

 

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

_________________

(1)    Reflected in our condensed consolidated statements of income as “Restructuring charge” (such charge also includes activity under our closed restructuring programs). These charges are not allocated to our reportable segments. 

6. Fair Value Measurements

As of September 30, 2019 and December 31, 2018, 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 condensed consolidated balance sheets for accounts receivable, accounts payable and accrued expenses and other liabilities approximate fair value due to the immediate to short-term maturity of these financial instruments. The fair values of our ABL, accounts receivable securitization and term loan facilities and finance/capital leases (the classification of such leases changed upon adoption of a new lease accounting standard, as explained further in note 8 to the condensed consolidated financial statements) approximated their book values as of September 30, 2019 and December 31, 2018. The estimated fair values of our financial instruments, all of which are categorized in Level 1 of the fair value hierarchy, as of September 30, 2019 and December 31, 2018 have been calculated based upon available market information, and were as follows: 

	September 30, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Senior notes	$	8,008	$	8,455	$	8,102	$	7,632

7. Debt

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

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

	September 30, 2019			December 31, 2018
Accounts Receivable Securitization Facility expiring 2020 (1) (2)	$	925		$	850
$3.75 billion ABL Facility expiring 2024 (1) (3)	1,630			1,685
Term loan facility expiring 2025 (1)	981			988
4 5/8 percent Senior Secured Notes due 2023	995			994
5 3/4 percent Senior Notes due 2024 (4)	—			842
5 1/2 percent Senior Notes due 2025	795			794
4 5/8 percent Senior Notes due 2025	742			741
5 7/8 percent Senior Notes due 2026	999			999
6 1/2 percent Senior Notes due 2026	1,088			1,087
5 1/2 percent Senior Notes due 2027	992			991
4 7/8 percent Senior Notes due 2028 (5)	1,652			1,650
4 7/8 percent Senior Notes due 2028 (5)	4			4
5 1/4 percent Senior Notes due 2030 (6)	741			—
Finance leases (7)	120			—
Capital leases (7)	—			122
Total debt	11,664			11,747
Less short-term portion (8)	(973		)	(903		)
Total long-term debt	$	10,691		$	10,844

 ___________________

(1)The table below presents financial information associated with our variable rate indebtedness as of and for the nine months ended September 30, 2019. 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	$	2,051		$	50		$	—
Letters of credit	57
Interest rate at September 30, 2019	3.4		%	2.9		%	3.8		%
Average month-end debt outstanding	1,585			914			994
Weighted-average interest rate on average debt outstanding	3.8		%	3.2		%	4.1		%
Maximum month-end debt outstanding	1,691			967			998

(2) In June 2019, the accounts receivable securitization facility was amended, primarily to extend the maturity date which may be further extended on a 364-day basis by mutual agreement with the purchasers under the facility. The facility expires on June 26, 2020. Borrowings under the accounts receivable securitization facility are permitted only to the extent that the face amount of the receivables in the collateral pool, net of applicable reserves and other deductions, exceeds the outstanding loans. As of September 30, 2019, there were $1.050 billion of receivables, net of applicable reserves and other deductions, in the collateral pool.

(3) In February 2019, the ABL facility was amended, primarily to increase the facility size to $3.75 billion, extend the maturity date to February 2024 and make a portion of the facility available for borrowing in British Pounds and Euros by certain subsidiaries of URNA in Europe.

(4) In May 2019, URNA redeemed all of its 5 ³/₄ percent Senior Notes. Upon redemption, we recognized a loss of $32 in interest expense, net. The loss represented the difference between the net carrying amount and the total purchase price of the redeemed notes.

25

UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

(5) URNA separately issued 4 ⁷/₈ percent Senior Notes in August 2017 and in September 2017. Following the issuances, URNA 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.

(6) 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; (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 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.

(7) As discussed in note 8 to the condensed consolidated financial statements, we adopted an updated lease accounting standard on January 1, 2019. Upon adoption of the new standard, 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.

(8) As of September 30, 2019, our short-term debt primarily reflects $925 of borrowings under our accounts receivable securitization facility.

Loan Covenants and Compliance

As of September 30, 2019, 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 maintenance covenant that currently exists under the ABL facility is the fixed charge coverage ratio. Subject to certain limited exceptions specified in the ABL facility, the fixed charge coverage ratio covenant under the ABL facility will only apply in the future if specified availability under the ABL facility falls below 10 percent of the maximum revolver amount under the ABL facility. When certain conditions are met, cash and cash equivalents and borrowing base collateral in excess of the ABL facility size may be included when calculating specified availability under the ABL facility. As of September 30, 2019, specified availability under the ABL facility exceeded the required threshold and, as a result, this financial maintenance covenant was inapplicable. Under our accounts receivable securitization facility, we are required, among other things, to maintain certain financial tests relating to: (i) the default ratio, (ii) the delinquency ratio, (iii) the dilution ratio and (iv) days sales outstanding. The accounts receivable securitization facility also requires us to comply with the fixed charge coverage ratio under the ABL facility, to the extent the ratio is applicable under the ABL facility.

8. 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

26

UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

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 2 to the condensed consolidated financial statements, most of our equipment rental revenues, which accounted for 86 percent of total revenues for the nine months ended September 30, 2019, 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 2 to the condensed consolidated financial statements for a discussion of our revenue accounting (such discussion includes lessor disclosures required under Topic 842).

The adoption of Topic 842 had a material impact on our condensed consolidated balance sheet due to the recognition of right-of-use (“ROU”) assets and lease liabilities, as discussed further below. The adoption of Topic 842 did not have a material impact on our condensed 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 condensed 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 2 to the condensed consolidated financial statements. Apart from the re-rent revenue discussed in note 2, 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 three and nine months ended, September 30, 2019 because, as noted above, we adopted Topic 842 using a transition method that does not require application to periods prior to adoption.

27

UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

	Classification	September 30, 2019
Assets
Operating lease assets	Operating lease right-of-use assets	$	650
Finance lease assets	Rental equipment	276
	Less accumulated depreciation	(90		)
	Rental equipment, net	186
	Property and equipment, net:
	Non-rental vehicles	8
	Buildings	16
	Less accumulated depreciation and amortization	(19		)
	Property and equipment, net	5
Total leased assets		841
Liabilities
Current
Operating	Accrued expenses and other liabilities	174
Finance	Short-term debt and current maturities of long-term debt	38
Long-term
Operating	Operating lease liabilities	522
Finance	Long-term debt	82
Total lease liabilities		$	816

Lease cost	Classification	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease cost (1)	Cost of equipment rentals, excluding depreciation (1)	$	95		$	270
	Selling, general and administrative expenses	3			8
	Restructuring charge	1			14
Finance lease cost
Amortization of leased assets	Depreciation of rental equipment	7			21
	Non-rental depreciation and amortization	1			2
Interest on lease liabilities	Interest expense, net	2			5
Sublease income (2)		(42		)	(114		)
Net lease cost		$	67		$	206

_________________

(1)    Includes variable lease costs, which are immaterial. Cost of equipment rentals, excluding depreciation for the three and nine months ended, September 30, 2019 includes $40 and $103, 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.

28

UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

Maturity of lease liabilities (as of September 30, 2019)	Operating leases (1)			Finance leases (2)
2019	$	53		$	12
2020	199			42
2021	170			42
2022	130			18
2023	96			6
Thereafter	137			7
Total	785			127
Less amount representing interest	(89		)	(7		)
Present value of lease liabilities	$	696		$	120

_________________

(1)    Reflects payments for non-cancelable operating leases with initial or remaining terms of one year or more as of September 30, 2019. 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	September 30, 2019
Weighted-average remaining lease term (years)
Operating leases	4.8
Finance leases	3.4
Weighted-average discount rate
Operating leases	4.8	%
Finance leases	4.0	%

Other information	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	151
Operating cash flows from finance leases	5
Financing cash flows from finance leases	35
Leased assets obtained in exchange for new operating lease liabilities	147
Leased assets obtained in exchange for new finance lease liabilities	$	36

9. Legal and Regulatory Matters

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

10. Earnings Per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares plus the effect of dilutive potential common shares

29

UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

outstanding during the period. The following table sets forth the computation of basic and diluted earnings per share (shares in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Numerator:
Net income available to common stockholders	$	391	$	333	836		786
Denominator:
Denominator for basic earnings per share—weighted-average common shares	76,699		82,344		78,111		83,345
Effect of dilutive securities:
Employee stock options	30		372		144		389
Restricted stock units	128		456		186		477
Denominator for diluted earnings per share—adjusted weighted-average common shares	76,857		83,172		78,441		84,211
Basic earnings per share	$	5.10	$	4.05	$	10.70	$	9.44
Diluted earnings per share	$	5.08	$	4.01	$	10.66	$	9.34

30

UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

11. Condensed Consolidating Financial Information of Guarantor Subsidiaries

URNA is 100 percent owned by Holdings (“Parent”) and has certain outstanding indebtedness that is guaranteed by both Parent and, with the exception of its U.S. special purpose vehicle which holds receivable assets relating to the Company’s accounts receivable securitization facility (the “SPV”), all of URNA’s U.S. subsidiaries (the “guarantor subsidiaries”). Other than the guarantee by certain Canadian subsidiaries of URNA's indebtedness under the ABL facility, none of URNA’s indebtedness is guaranteed by URNA's foreign subsidiaries or the SPV (together, the “non-guarantor subsidiaries”). The receivable assets owned by the SPV have been sold or contributed by URNA to the SPV and are not available to satisfy the obligations of URNA or Parent’s other subsidiaries. The guarantor subsidiaries are all 100 percent-owned and the guarantees are made on a joint and several basis. The guarantees are not full and unconditional because a guarantor subsidiary can be automatically released and relieved of its obligations under certain circumstances, including sale of the guarantor subsidiary, the sale of all or substantially all of the guarantor subsidiary's assets, the requirements for legal defeasance or covenant defeasance under the applicable indenture being met, designating the guarantor subsidiary as an unrestricted subsidiary for purposes of the applicable covenants or the notes being 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. The guarantees are also subject to subordination provisions (to the same extent that the obligations of the issuer under the relevant notes are subordinated to other debt of the issuer) and to a standard limitation which provides that the maximum amount guaranteed by each guarantor will not exceed the maximum amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws. Based on our understanding of Rule 3-10 of Regulation S-X ("Rule 3-10"), we believe that the guarantees of the guarantor subsidiaries comply with the conditions set forth in Rule 3-10 and therefore continue to utilize Rule 3-10 to present condensed consolidating financial information for Holdings, URNA, the guarantor subsidiaries and the non-guarantor subsidiaries. Separate consolidated financial statements of the guarantor subsidiaries have not been presented because management believes that such information would not be material to investors. However, condensed consolidating financial information is presented.

Covenants in the ABL, accounts receivable securitization and term loan facilities, and the other agreements governing our debt, impose operating and financial restrictions on URNA, Parent and the guarantor subsidiaries, including limitations on the ability to make share repurchases and dividend payments. As of September 30, 2019, the amount available for distribution under the most restrictive of these covenants was $702. The Company’s total available capacity for making share repurchases and dividend payments includes the intercompany receivable balance of Parent. As of September 30, 2019, our total available capacity for making share repurchases and dividend payments, which includes URNA’s capacity to make restricted payments and the intercompany receivable balance of Parent, was $2.809 billion.

The condensed consolidating financial information of Parent and its subsidiaries is as follows:

31

UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

CONDENSED CONSOLIDATING BALANCE SHEET

September 30, 2019  

	Parent		URNA			Guarantor Subsidiaries			Non-Guarantor Subsidiaries					Eliminations			Total
									Foreign			SPV
ASSETS
Cash and cash equivalents	$	—	$	35		$	—		$	25		$	—	$	—		$	60
Accounts receivable, net	—		—			—			159			1,436		—			1,595
Intercompany receivable (payable)	2,107		(1,980		)	(111		)	(16		)	—		—			—
Inventory	—		118			—			12			—		—			130
Prepaid expenses and other assets	—		80			—			16			—		—			96
Total current assets	2,107		(1,747		)	(111		)	196			1,436		—			1,881
Rental equipment, net	—		9,370			—			794			—		—			10,164
Property and equipment, net	65		389			82			51			—		—			587
Investments in subsidiaries	1,488		1,675			1,033			—			—		(4,196		)	—
Goodwill	—		4,760			—			383			—		—			5,143
Other intangible assets, net	—		895			—			66			—		—			961
Operating lease right-of-use assets	—		193			387			70			—		—			650
Other long-term assets	11		8			—			—			—		—			19
Total assets	$	3,671	$	15,543		$	1,391		$	1,560		$	1,436	$	(4,196	)	$	19,405
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Short-term debt and current maturities of long-term debt	$	—	$	46		$	—		$	2		$	925	$	—		$	973
Accounts payable	—		751			—			88			—		—			839
Accrued expenses and other liabilities	—		661			115			53			2		—			831
Total current liabilities	—		1,458			115			143			927		—			2,643
Long-term debt	—		10,656			8			27			—		—			10,691
Deferred taxes	21		1,692			—			87			—		—			1,800
Operating lease liabilities	—		151			313			58			—		—			522
Other long-term liabilities	—		98			—			1			—		—			99
Total liabilities	21		14,055			436			316			927		—			15,755
Total stockholders’ equity (deficit)	3,650		1,488			955			1,244			509		(4,196		)	3,650
Total liabilities and stockholders’ equity (deficit)	$	3,671	$	15,543		$	1,391		$	1,560		$	1,436	$	(4,196	)	$	19,405

32

UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2018

	Parent		URNA			Guarantor Subsidiaries			Non-Guarantor Subsidiaries					Eliminations			Total
									Foreign			SPV
ASSETS
Cash and cash equivalents	$	—	$	1		$	—		$	42		$	—	$	—		$	43
Accounts receivable, net	—		—			—			159			1,386		—			1,545
Intercompany receivable (payable)	1,534		(1,423		)	(96		)	(15		)	—		—			—
Inventory	—		96			—			13			—		—			109
Prepaid expenses and other assets	—		60			—			4			—		—			64
Total current assets	1,534		(1,266		)	(96		)	203			1,386		—			1,761
Rental equipment, net	—		8,910			—			690			—		—			9,600
Property and equipment, net	57		462			40			55			—		—			614
Investments in subsidiaries	1,826		1,646			980			—			—		(4,452		)	—
Goodwill	—		4,661			—			397			—		—			5,058
Other intangible assets, net	—		1,004			—			80			—		—			1,084
Other long-term assets	9		7			—			—			—		—			16
Total assets	$	3,426	$	15,424		$	924		$	1,425		$	1,386	$	(4,452	)	$	18,133
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Short-term debt and current maturities of long-term debt	$	1	$	50		$	—		$	2		$	850	$	—		$	903
Accounts payable	—		481			—			55			—		—			536
Accrued expenses and other liabilities	—		619			14			42			2		—			677
Total current liabilities	1		1,150			14			99			852		—			2,116
Long-term debt	—		10,778			9			57			—		—			10,844
Deferred taxes	22		1,587			—			78			—		—			1,687
Other long-term liabilities	—		83			—			—			—		—			83
Total liabilities	23		13,598			23			234			852		—			14,730
Total stockholders’ equity (deficit)	3,403		1,826			901			1,191			534		(4,452		)	3,403
Total liabilities and stockholders’ equity (deficit)	$	3,426	$	15,424		$	924		$	1,425		$	1,386	$	(4,452	)	$	18,133

33

UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME

For the Three Months Ended September 30, 2019

	Parent			URNA			Guarantor Subsidiaries			Non-Guarantor Subsidiaries						Eliminations			Total
										Foreign			SPV
Revenues:
Equipment rentals	$	—		$	1,971		$	—		$	176		$	—		$	—		$	2,147
Sales of rental equipment	—			181			—			17			—			—			198
Sales of new equipment	—			60			—			7			—			—			67
Contractor supplies sales	—			24			—			3			—			—			27
Service and other revenues	—			46			—			3			—			—			49
Total revenues	—			2,282			—			206			—			—			2,488
Cost of revenues:
Cost of equipment rentals, excluding depreciation	—			737			—			76			—			—			813
Depreciation of rental equipment	—			378			—			39			—			—			417
Cost of rental equipment sales	—			113			—			9			—			—			122
Cost of new equipment sales	—			52			—			6			—			—			58
Cost of contractor supplies sales	—			16			—			2			—			—			18
Cost of service and other revenues	—			26			—			1			—			—			27
Total cost of revenues	—			1,322			—			133			—			—			1,455
Gross profit	—			960			—			73			—			—			1,033
Selling, general and administrative expenses	(7		)	251			—			25			4			—			273
Merger related costs	—			—			—			—			—			—			—
Restructuring charge	—			2			—			—			—			—			2
Non-rental depreciation and amortization	4			89			—			9			—			—			102
Operating income (loss)	3			618			—			39			(4		)	—			656
Interest (income) expense, net	(18		)	158			—			—			7			—			147
Other (income) expense, net	(201		)	230			—			15			(45		)	—			(1		)
Income before provision for income taxes	222			230			—			24			34			—			510
Provision for income taxes	56			48			—			6			9			—			119
Income before equity in net earnings (loss) of subsidiaries	166			182			—			18			25			—			391
Equity in net earnings (loss) of subsidiaries	225			43			12			—			—			(280		)	—
Net income (loss)	391			225			12			18			25			(280		)	391
Other comprehensive (loss) income	(23		)	(23		)	(12		)	(21		)	—			56			(23		)
Comprehensive income (loss)	$	368		$	202		$	—		$	(3	)	$	25		$	(224	)	$	368

34

UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME

For the Three Months Ended September 30, 2018

	Parent			URNA		Guarantor Subsidiaries			Non-Guarantor Subsidiaries					Eliminations			Total
									Foreign		SPV
Revenues:
Equipment rentals	$	—		$	1,715	$	—		$	146	$	—		$	—		$	1,861
Sales of rental equipment	—			128		—			12		—			—			140
Sales of new equipment	—			46		—			8		—			—			54
Contractor supplies sales	—			22		—			2		—			—			24
Service and other revenues	—			32		—			5		—			—			37
Total revenues	—			1,943		—			173		—			—			2,116
Cost of revenues:
Cost of equipment rentals, excluding depreciation	—			614		—			57		—			—			671
Depreciation of rental equipment	—			316		—			27		—			—			343
Cost of rental equipment sales	—			76		—			7		—			—			83
Cost of new equipment sales	—			40		—			6		—			—			46
Cost of contractor supplies sales	—			14		—			1		—			—			15
Cost of service and other revenues	—			16		—			4		—			—			20
Total cost of revenues	—			1,076		—			102		—			—			1,178
Gross profit	—			867		—			71		—			—			938
Selling, general and administrative expenses	28			197		—			24		16			—			265
Merger related costs	—			11		—			—		—			—			11
Restructuring charge	—			8		—			1		—			—			9
Non-rental depreciation and amortization	3			65		—			7		—			—			75
Operating (loss) income	(31		)	586		—			39		(16		)	—			578
Interest (income) expense, net	(11		)	122		(1		)	1		7			—			118
Other (income) expense, net	(172		)	196		—			13		(37		)	—			—
Income before provision for income taxes	152			268		1			25		14			—			460
Provision for income taxes	45			71		—			8		3			—			127
Income before equity in net earnings (loss) of subsidiaries	107			197		1			17		11			—			333
Equity in net earnings (loss) of subsidiaries	226			29		17			—		—			(272		)	—
Net income (loss)	333			226		18			17		11			(272		)	333
Other comprehensive income (loss)	18			18		18			18		—			(54		)	18
Comprehensive income (loss)	$	351		$	244	$	36		$	35	$	11		$	(326	)	$	351

 

35

UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME

For the Nine Months Ended September 30, 2019

	Parent			URNA		Guarantor Subsidiaries		Non-Guarantor Subsidiaries						Eliminations			Total
								Foreign			SPV
Revenues:
Equipment rentals	$	—		$	5,407	$	—	$	494		$	1		$	—		$	5,902
Sales of rental equipment	—			535		—		52			—			—			587
Sales of new equipment	—			166		—		23			—			—			189
Contractor supplies sales	—			70		—		8			—			—			78
Service and other revenues	—			124		—		15			—			—			139
Total revenues	—			6,302		—		592			1			—			6,895
Cost of revenues:
Cost of equipment rentals, excluding depreciation	—			2,086		—		237			1			—			2,324
Depreciation of rental equipment	—			1,109		—		102			—			—			1,211
Cost of rental equipment sales	—			334		—		29			—			—			363
Cost of new equipment sales	—			143		—		20			—			—			163
Cost of contractor supplies sales	—			49		—		5			—			—			54
Cost of service and other revenues	—			67		—		8			—			—			75
Total cost of revenues	—			3,788		—		401			1			—			4,190
Gross profit	—			2,514		—		191			—			—			2,705
Selling, general and administrative expenses	14			693		—		84			33			—			824
Merger related costs	—			1		—		—			—			—			1
Restructuring charge	—			17		—		(1		)	—			—			16
Non-rental depreciation and amortization	14			271		—		26			—			—			311
Operating (loss) income	(28		)	1,532		—		82			(33		)	—			1,553
Interest (income) expense, net	(51		)	506		—		—			23			—			478
Other (income) expense, net	(560		)	640		—		44			(130		)	—			(6		)
Income before provision for income taxes	583			386		—		38			74			—			1,081
Provision for income taxes	132			90		—		4			19			—			245
Income before equity in net earnings (loss) of subsidiaries	451			296		—		34			55			—			836
Equity in net earnings (loss) of subsidiaries	385			89		24		—			—			(498		)	—
Net income (loss)	836			385		24		34			55			(498		)	836
Other comprehensive income (loss)	20			20		30		20			—			(70		)	20
Comprehensive income (loss)	$	856		$	405	$	54	$	54		$	55		$	(568	)	$	856

36

UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME

For the Nine Months Ended September 30, 2018

	Parent			URNA			Guarantor Subsidiaries			Non-Guarantor Subsidiaries						Eliminations			Total
										Foreign			SPV
Revenues:
Equipment rentals	$	—		$	4,568		$	—		$	383		$	—		$	—		$	4,951
Sales of rental equipment	—			435			—			43			—			—			478
Sales of new equipment	—			123			—			17			—			—			140
Contractor supplies sales	—			58			—			8			—			—			66
Service and other revenues	—			92			—			14			—			—			106
Total revenues	—			5,276			—			465			—			—			5,741
Cost of revenues:
Cost of equipment rentals, excluding depreciation	—			1,710			—			173			—			—			1,883
Depreciation of rental equipment	—			911			—			77			—			—			988
Cost of rental equipment sales	—			259			—			23			—			—			282
Cost of new equipment sales	—			107			—			14			—			—			121
Cost of contractor supplies sales	—			38			—			5			—			—			43
Cost of service and other revenues	—			49			—			9			—			—			58
Total cost of revenues	—			3,074			—			301			—			—			3,375
Gross profit	—			2,202			—			164			—			—			2,366
Selling, general and administrative expenses	33			604			—			66			33			—			736
Merger related costs	—			14			—			—			—			—			14
Restructuring charge	—			14			—			1			—			—			15
Non-rental depreciation and amortization	11			185			—			17			—			—			213
Operating (loss) income	(44		)	1,385			—			80			(33		)	—			1,388
Interest (income) expense, net	(26		)	349			—			—			17			(1		)	339
Other (income) expense, net	(469		)	529			—			37			(99		)	—			(2		)
Income before provision for income taxes	451			507			—			43			49			1			1,051
Provision for income taxes	105			135			—			13			12			—			265
Income before equity in net earnings (loss) of subsidiaries	346			372			—			30			37			1			786
Equity in net earnings (loss) of subsidiaries	440			68			30			—			—			(538		)	—
Net income (loss)	786			440			30			30			37			(537		)	786
Other comprehensive (loss) income	(27		)	(27		)	(28		)	(95		)	—			150			(27		)
Comprehensive income (loss)	$	759		$	413		$	2		$	(65	)	$	37		$	(387	)	$	759

37

UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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

CONDENSED CONSOLIDATING CASH FLOW INFORMATION

For the Nine Months Ended September 30, 2019

	Parent			URNA			Guarantor Subsidiaries		Non-Guarantor Subsidiaries						Eliminations		Total
									Foreign			SPV
Net cash provided by operating activities	$	21		$	2,403		$	—	$	151		$	7		$	—	$	2,582
Net cash used in investing activities	(21		)	(1,592		)	—		(136		)	—			—		(1,749		)
Net cash used in financing activities	—			(777		)	—		(32		)	(7		)	—		(816		)
Net increase (decrease) in cash and cash equivalents	—			34			—		(17		)	—			—		17
Cash and cash equivalents at beginning of period	—			1			—		42			—			—		43
Cash and cash equivalents at end of period	$	—		$	35		$	—	$	25		$	—		$	—	$	60

CONDENSED CONSOLIDATING CASH FLOW INFORMATION

For the Nine Months Ended September 30, 2018

	Parent			URNA			Guarantor Subsidiaries			Non-Guarantor Subsidiaries						Eliminations		Total
										Foreign			SPV
Net cash provided by (used in) operating activities	$	22		$	2,354		$	(1	)	$	(50	)	$	(202	)	$	—	$	2,123
Net cash used in investing activities	(22		)	(2,259		)	—			(112		)	—			—		(2,393		)
Net cash (used in) provided by financing activities	—			(101		)	1			(109		)	202			—		(7		)
Effect of foreign exchange rates	—			—			—			(10		)	—			—		(10		)
Net decrease in cash and cash equivalents	—			(6		)	—			(281		)	—			—		(287		)
Cash and cash equivalents at beginning of period	—			23			—			329			—			—		352
Cash and cash equivalents at end of period	$	—		$	17		$	—		$	48		$	—		$	—	$	65

38

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in millions, except per share data, unless otherwise indicated)

Executive Overview

We are the largest equipment rental company in the world, with an integrated network of 1,183 rental locations in the United States, Canada and Europe. As discussed in note 3 to the condensed consolidated financial statements, in July 2018, we completed the acquisition of BakerCorp, which allowed for our entry into select European markets. Although the equipment rental industry is highly fragmented and diverse, we believe that we are well positioned to take advantage of this environment because, as a larger company, we have more extensive resources and certain competitive advantages. These include a fleet of rental equipment with a total original equipment cost (“OEC”) of $15.0 billion, and a national branch network that operates in 49 U.S. states and every Canadian province, and serves 99 of the largest 100 metropolitan areas in the U.S. The BakerCorp acquisition discussed above added 11 European locations in France, Germany, the United Kingdom and the Netherlands to our branch network. Our size also gives us greater purchasing power, the ability to provide customers with a broader range of equipment and services, the ability to provide customers with equipment that is more consistently well-maintained and therefore more productive and reliable, and the ability to enhance the earning potential of our assets by transferring equipment among branches to satisfy customer needs.

We offer approximately 4,000 classes of equipment for rent to a diverse customer base that includes construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government entities. Our revenues are derived from the following sources: equipment rentals, sales of rental equipment, sales of new equipment, contractor supplies sales and service and other revenues. Equipment rentals represented 86 percent of total revenues for the nine months ended September 30, 2019.

For the past several years, we have executed a strategy focused on improving the profitability of our core equipment rental business through revenue growth, margin expansion and operational efficiencies. In particular, we have focused on customer segmentation, customer service differentiation, rate management, fleet management and operational efficiency.

In 2019, we have continued our disciplined focus on increasing our profitability and return on invested capital. In particular, our strategy calls for:

• A consistently superior standard of service to customers, often provided through a single point of contact;

• The further optimization of our customer mix and fleet mix, with a dual objective: to enhance our performance in serving our current customer base, and to focus on the accounts and customer types that are best suited to our strategy for profitable growth. We believe these efforts will lead to even better service of our target accounts, primarily large construction and industrial customers, as well as select local contractors. Our fleet team's analyses are aligned with these objectives to identify trends in equipment categories and define action plans that can generate improved returns;

• A continued focus on “Lean” management techniques, including kaizen processes focused on continuous improvement. We continue to implement Lean kaizen processes across our branch network, with the objectives of: reducing the cycle time associated with renting our equipment to customers; improving invoice accuracy and service quality; reducing the elapsed time for equipment pickup and delivery; and improving the effectiveness and efficiency of our repair and maintenance operations;

• A continued focus on Project XL, which is a set of eight specific work streams focused on driving profitable growth through revenue opportunities and generating incremental profitability through cost savings across our business;

• The continued expansion of our trench, power and fluid solutions footprint, as well as our tools offering, and the cross-selling of these services throughout our network, as exhibited by our acquisition of BakerCorp discussed in note 3 to the condensed consolidated financial statements. We believe that the expansion of our trench, power and fluid solutions business, as well as our tools offering, will further position United Rentals as a single source provider of total jobsite solutions through our extensive product and service resources and technology offerings; and

• The pursuit of strategic acquisitions to continue to expand our core equipment rental business, as exhibited by our recently completed acquisitions of NES Rentals Holdings II, Inc. (“NES”), Neff Corporation ("Neff") and BlueLine (which is discussed further in note 3 to the condensed consolidated financial statements). Strategic acquisitions allow us to invest our capital to expand our business, further driving our ability to accomplish our strategic goals.

Financial Overview

In 2019, we took the following actions to improve our financial flexibility and liquidity, and to position us to invest the necessary capital in our business:

• Issued $750 principal amount of 5 ¹/₄ percent Senior Notes due 2030;

39

• Redeemed all of our 5 ³/₄ percent Senior Notes;

• Amended and extended our ABL facility, including an increase in the facility size from $3.0 billion to $3.75 billion; and

• Amended and extended our accounts receivable securitization facility.

As of September 30, 2019, we had available liquidity of $2.161 billion, including cash and cash equivalents of $60.

Net income. Net income and diluted earnings per share for the three and nine months ended September 30, 2019 and 2018 are presented below. 

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Net income	$	391	$	333	$	836	$	786
Diluted earnings per share	$	5.08	$	4.01	$	10.66	$	9.34

Net income and diluted earnings per share for the three and nine months ended September 30, 2019 and 2018 include the after-tax impacts of the items below. The tax rates applied to the items below reflect the statutory rates in the applicable entities.

	Three Months Ended September 30,												Nine Months Ended September 30,
	2019						2018						2019						2018
Tax rate applied to items below	25.1		%				25.4		%				25.3		%				25.3		%
	Contribution to net income (after-tax)			Impact on diluted earnings per share			Contribution to net income (after-tax)			Impact on diluted earnings per share			Contribution to net income (after-tax)			Impact on diluted earnings per share			Contribution to net income (after-tax)			Impact on diluted earnings per share
Merger related costs (1)	$	—		$	—		$	(7	)	$	(0.09	)	$	(1	)	$	(0.01	)	$	(10	)	$	(0.12	)
Merger related intangible asset amortization (2)	(47		)	(0.63		)	(35		)	(0.42		)	(148		)	(1.90		)	(99		)	(1.18		)
Impact on depreciation related to acquired fleet and property and equipment (3)	(5		)	(0.07		)	(1		)	(0.02		)	(26		)	(0.33		)	(16		)	(0.19		)
Impact of the fair value mark-up of acquired fleet (4)	(11		)	(0.14		)	(10		)	(0.11		)	(43		)	(0.55		)	(40		)	(0.47		)
Restructuring charge (5)	(2		)	(0.02		)	(7		)	(0.09		)	(12		)	(0.15		)	(11		)	(0.13		)
Asset impairment charge (6)	(2		)	(0.02		)	—			—			(5		)	(0.06		)	—			—
Loss on repurchase/redemption of debt securities and amendment of ABL facility	—			—			—			—			(24		)	(0.30		)	—			—

(1) This reflects transaction costs associated with the NES and Neff acquisitions that were completed in 2017, and the BakerCorp and BlueLine acquisitions discussed in note 3 to our condensed consolidated financial statements. Merger related costs only include costs associated with major acquisitions that significantly impact our operations. For additional information, see "Results of Operations-Other costs/(income)-merger related costs" below.

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

(3) 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.

40

(4) 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 that was subsequently sold.

(5) This primarily reflects severance and branch closure charges associated with our restructuring programs. For additional information, see note 5 to our condensed consolidated financial statements.

(6) This reflects write-offs of leasehold improvements and other fixed assets.

EBITDA GAAP Reconciliations. EBITDA represents the sum of net income, provision for income taxes, interest expense, net, depreciation of rental equipment and non-rental depreciation and amortization. Adjusted EBITDA represents EBITDA plus the sum of the merger related costs, restructuring charge, stock compensation expense, net and the impact of the fair value mark-up of the acquired fleet. These items are excluded from adjusted EBITDA internally when evaluating our operating performance and for strategic planning and forecasting purposes, and allow investors to make a more meaningful comparison between our core business operating results over different periods of time, as well as with those of other similar companies. The EBITDA and adjusted EBITDA margins represent EBITDA or adjusted EBITDA divided by total revenue. Management believes that EBITDA and adjusted EBITDA, when viewed with the Company’s results under GAAP and the accompanying reconciliations, provide useful information about operating performance and period-over-period growth, and provide additional information that is useful for evaluating the operating performance of our core business without regard to potential distortions. Additionally, management believes that EBITDA and adjusted EBITDA help investors gain an understanding of the factors and trends affecting our ongoing cash earnings, from which capital investments are made and debt is serviced. However, EBITDA and adjusted EBITDA are not measures of financial performance or liquidity under GAAP and, accordingly, should not be considered as alternatives to net income or cash flow from operating activities as indicators of operating performance or liquidity.

The table below provides a reconciliation between net income and EBITDA and adjusted EBITDA: 

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Net income	$	391	$	333	$	836	$	786
Provision for income taxes	119		127		245		265
Interest expense, net	147		118		478		339
Depreciation of rental equipment	417		343		1,211		988
Non-rental depreciation and amortization	102		75		311		213
EBITDA	$	1,176	$	996	$	3,081	$	2,591
Merger related costs (1)	—		11		1		14
Restructuring charge (2)	2		9		16		15
Stock compensation expense, net (3)	14		30		45		73
Impact of the fair value mark-up of acquired fleet (4)	15		13		58		53
Adjusted EBITDA	$	1,207	$	1,059	$	3,201	$	2,746

The table below provides a reconciliation between net cash provided by operating activities and EBITDA and adjusted EBITDA:

41

	Nine Months Ended
	September 30,
	2019			2018
Net cash provided by operating activities	$	2,582		$	2,123
Adjustments for items included in net cash provided by operating activities but excluded from the calculation of EBITDA:
Amortization of deferred financing costs and original issue discounts	(11		)	(9		)
Gain on sales of rental equipment	224			196
Gain on sales of non-rental equipment	3			4
Gain on insurance proceeds from damaged equipment	18			18
Merger related costs (1)	(1		)	(14		)
Restructuring charge (2)	(16		)	(15		)
Stock compensation expense, net (3)	(45		)	(73		)
Loss on repurchase/redemption of debt securities and amendment of ABL facility	(32		)	—
Changes in assets and liabilities	(217		)	(68		)
Cash paid for interest	480			379
Cash paid for income taxes, net	96			50
EBITDA	$	3,081		$	2,591
Add back:
Merger related costs (1)	1			14
Restructuring charge (2)	16			15
Stock compensation expense, net (3)	45			73
Impact of the fair value mark-up of acquired fleet (4)	58			53
Adjusted EBITDA	$	3,201		$	2,746

 ___________________

(1) This reflects transaction costs associated with the NES and Neff acquisitions that were completed in 2017, and the BakerCorp and BlueLine acquisitions discussed in note 3 to our condensed consolidated financial statements. Merger related costs only include costs associated with major acquisitions that significantly impact our operations. For additional information, see "Results of Operations-Other costs/(income)-merger related costs" below.

(2) This primarily reflects severance and branch closure charges associated with our restructuring programs. For additional information, see note 5 to our condensed consolidated financial statements.

(3) Represents non-cash, share-based payments associated with the granting of equity instruments.

(4) 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 that was subsequently sold.

For the three months ended September 30, 2019, EBITDA increased $180, or 18.1 percent, and adjusted EBITDA increased $148, or 14.0 percent. For the three months ended September 30, 2019, EBITDA margin increased 20 basis points to 47.3 percent, and adjusted EBITDA margin decreased 150 basis points to 48.5 percent. As discussed in note 3 to our condensed consolidated financial statements, we completed the acquisitions of BakerCorp in July 2018 and BlueLine in October 2018, and EBITDA and adjusted EBITDA for 2019 include the impact of BakerCorp and BlueLine. The decrease in the adjusted EBITDA margin primarily reflects i) the impact of the BakerCorp and BlueLine acquisitions, ii) changes in revenue mix and iii) increased operating costs. Operating costs were impacted by repair and repositioning initiatives that resulted in increased repairs and maintenance and delivery expenses, which increased 27.3 percent and 22.5 percent, respectively, both of which exceeded the total revenue increase of 17.6 percent.

For the nine months ended September 30, 2019, EBITDA increased $490, or 18.9 percent, and adjusted EBITDA increased $455, or 16.6 percent. For the nine months ended September 30, 2019, EBITDA margin decreased 40 basis points to 44.7 percent, and adjusted EBITDA margin decreased 140 basis points to 46.4 percent. As discussed in note 3 to our condensed consolidated financial statements, we completed the acquisitions of BakerCorp in July 2018 and BlueLine in October 2018, and EBITDA and adjusted EBITDA for 2019 include the impact of BakerCorp and BlueLine. The decrease in the adjusted EBITDA margin primarily reflects i) the impact of the BakerCorp and BlueLine acquisitions, ii) changes in revenue mix and iii)

42

increased operating costs. Operating costs were impacted by repair and repositioning initiatives that resulted in increased repairs and maintenance, which increased 25.7 percent, which exceeded the total revenue increase of 20.1 percent.

Revenues were as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019		2018		Change		2019		2018		Change
Equipment rentals*	$	2,147	$	1,861	15.4	%	$	5,902	$	4,951	19.2	%
Sales of rental equipment	198		140		41.4	%	587		478		22.8	%
Sales of new equipment	67		54		24.1	%	189		140		35.0	%
Contractor supplies sales	27		24		12.5	%	78		66		18.2	%
Service and other revenues	49		37		32.4	%	139		106		31.1	%
Total revenues	$	2,488	$	2,116	17.6	%	$	6,895	$	5,741	20.1	%
*Equipment rentals variance components:
Year-over-year change in average OEC					18.1	%					21.5	%
Assumed year-over-year inflation impact (1)					(1.5	)%					(1.5	)%
Fleet productivity (2)					(1.3	)%					(1.9	)%
Contribution from ancillary and re-rent revenue (3)					0.1	%					1.1	%
Total change in equipment rentals					15.4	%					19.2	%
*Pro forma equipment rentals variance components (4):
Year-over-year change in average OEC					4.4	%					5.2	%
Assumed year-over-year inflation impact (1)					(1.5	)%					(1.5	)%
Fleet productivity (2)					1.7	%					1.4	%
Contribution from ancillary and re-rent revenue (3)					(0.4	)%					0.2	%
Total change in equipment rentals					4.2	%					5.3	%

 ___________________

(1) Reflects the estimated impact of inflation on the revenue productivity of fleet based on OEC, which is recorded at cost.

(2) Reflects the combined impact of changes in rental rates, time utilization, and mix that contribute to the variance in owned equipment rental revenue. See note 2 to the condensed consolidated financial statements for a discussion of the different types of equipment rentals revenue. Rental rate changes are calculated based on the year-over-year variance in average contract rates, weighted by the prior period revenue mix. Time utilization is calculated by dividing the amount of time an asset is on rent by the amount of time the asset has been owned during the year. Mix includes the impact of changes in customer, fleet, geographic and segment mix.

(3) Reflects the combined impact of changes in the other types of equipment rentals revenue (see note 2 for further detail), excluding owned equipment rental revenue.

(4) As discussed in note 3 to the condensed consolidated financial statements, we completed the acquisitions of BakerCorp and BlueLine in July 2018 and October 2018, respectively. The pro forma information includes the standalone, pre-acquisition results of BakerCorp and BlueLine.

Equipment rentals include our revenues from renting equipment, as well as revenue related to the fees we charge customers: for equipment delivery and pick-up; to protect the customer against liability for damage to our equipment while on rent; for fuel; and for environmental costs. Sales of rental equipment represent our revenues from the sale of used rental equipment. Sales of new equipment represent our revenues from the sale of new equipment. Contractor supplies sales represent our sales of supplies utilized by contractors, which include construction consumables, tools, small equipment and safety supplies. Services and other revenues primarily represent our revenues earned from providing repair and maintenance services on our customers’ fleet (including parts sales). See note 2 to the condensed consolidated financial statements for a discussion of our revenue recognition accounting.

For the three months ended September 30, 2019, total revenues of $2.488 billion increased 17.6 percent compared with 2018. Equipment rentals and sales of rental equipment are our largest revenue types (together, they accounted for 94 percent of total revenue for the three months ended September 30, 2019). Equipment rentals increased 15.4 percent, primarily due to an 18.1 percent increase in average OEC, which includes the impact of the BakerCorp and BlueLine acquisitions discussed in note 3 to the condensed consolidated financial statements. As explained further above, fleet productivity is a measure of the

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decisions made to optimize the balance of rental rates, time utilization and mix to produce revenue and drive efficient growth. On a pro forma basis including the standalone, pre-acquisition results of BakerCorp and BlueLine, equipment rentals increased 4.2 percent, primarily due to a 4.4 percent increase in average OEC and a fleet productivity increase of 1.7 percent, partially offset by the impact of inflation. Sales of rental equipment increased 41.4 percent primarily due to increased volume, which included the impact of the BlueLine acquisition, driven by a larger fleet size in a strong used equipment market.

For the nine months ended September 30, 2019, total revenues of $6.895 billion increased 20.1 percent compared with 2018. Equipment rentals increased 19.2 percent, primarily due to a 21.5 percent increase in average OEC, which includes the impact of the BakerCorp and BlueLine acquisitions discussed in note 3 to the condensed consolidated financial statements. On a pro forma basis including the standalone, pre-acquisition results of BakerCorp and BlueLine, equipment rentals increased 5.3 percent, primarily due to a 5.2 percent increase in average OEC and a fleet productivity increase of 1.4 percent, partially offset by the impact of inflation. Sales of rental equipment increased 22.8 percent primarily due to increased volume, which included the impact of the BlueLine acquisition, driven by a larger fleet size in a strong used equipment market.

Results of Operations

As discussed in note 4 to our condensed consolidated financial statements, our reportable segments are general rentals and trench, power and fluid solutions. The general rentals segment includes the rental of construction, aerial, industrial and homeowner equipment and related services and activities. The general rentals segment’s customers include construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government entities. The general rentals segment operates throughout the United States and Canada. The trench, power and fluid solutions segment is comprised of i) the Trench Safety region, which rents trench safety equipment such as trench shields, aluminum hydraulic shoring systems, slide rails, crossing plates, construction lasers and line testing equipment for underground work, ii) the Power and HVAC region, which rents power and HVAC equipment such as portable diesel generators, electrical distribution equipment, and temperature control equipment including heating and cooling equipment, and iii) the Fluid Solutions and iv) Fluid Solutions Europe regions, both of which rent equipment primarily used for fluid containment, transfer and treatment. The trench, power and fluid solutions segment’s customers include construction companies involved in infrastructure projects, municipalities and industrial companies. The trench, power and fluid solutions segment operates throughout the United States and in Canada and Europe.

As discussed in note 4 to our condensed consolidated financial statements, we aggregate our 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—into our general rentals reporting segment. Historically, there have been variances in the levels of equipment rentals gross margins achieved by these regions. For the five year period ended September 30, 2019, three of our general rentals' regions had an equipment rentals gross margin that varied by between 10 percent and 19 percent from the equipment rentals gross margins of the aggregated general rentals' regions over the same period. The rental industry is cyclical, and there historically have been regions with equipment rentals gross margins that varied by greater than 10 percent from the equipment rentals gross margins of the aggregated general rentals' regions, though the specific regions with margin variances of over 10 percent have fluctuated. We expect margin convergence going forward given the cyclical nature of the rental industry, and monitor the margin variances and confirm the expectation of future convergence on a quarterly basis. When monitoring for margin convergence, we include projected future results.

We similarly monitor the margin variances for the regions in the trench, power and fluid solutions segment. The trench, power and fluid solutions segment includes the locations acquired in the July 2018 BakerCorp acquisition discussed in note 3 to the condensed consolidated financial statements. As such, there is not a long history of the acquired locations' rental margins included in the trench, power and pump segment. When monitoring for margin convergence, we include projected future results. We monitor the trench, power and fluid solutions segment margin variances and confirm the expectation of future convergence on a quarterly basis. The historic, pre-acquisition margins for the acquired BakerCorp locations are lower than the margins achieved at the other locations in the segment. We expect that the margins at the acquired locations will increase as we realize synergies following the acquisition, as a result of which, we expect future margin convergence.

We believe that the regions that are aggregated into our 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. Although we believe aggregating these regions into our reporting segments for segment reporting purposes is appropriate, to the extent that there are significant margin variances that do not converge, we may be required to disaggregate the regions into separate reporting segments. Any such disaggregation would have no impact on our consolidated results of operations.

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These segments align our external segment reporting with how management evaluates and allocates resources. We evaluate segment performance primarily based on segment equipment rentals gross profit. Our revenues, operating results, and financial condition fluctuate from quarter to quarter reflecting the seasonal rental patterns of our customers, with rental activity tending to be lower in the winter.

Revenues by segment were as follows: 

	General rentals		Trench, power and fluid solutions		Total
Three Months Ended September 30, 2019
Equipment rentals	$	1,642	$	505	$	2,147
Sales of rental equipment	183		15		198
Sales of new equipment	60		7		67
Contractor supplies sales	17		10		27
Service and other revenues	42		7		49
Total revenue	$	1,944	$	544	$	2,488
Three Months Ended September 30, 2018
Equipment rentals	$	1,444	$	417	$	1,861
Sales of rental equipment	130		10		140
Sales of new equipment	50		4		54
Contractor supplies sales	17		7		24
Service and other revenues	33		4		37
Total revenue	$	1,674	$	442	$	2,116
Nine Months Ended September 30, 2019
Equipment rentals	$	4,592	$	1,310	$	5,902
Sales of rental equipment	541		46		587
Sales of new equipment	167		22		189
Contractor supplies sales	53		25		78
Service and other revenues	119		20		139
Total revenue	$	5,472	$	1,423	$	6,895
Nine Months Ended September 30, 2018
Equipment rentals	$	3,977	$	974	$	4,951
Sales of rental equipment	446		32		478
Sales of new equipment	125		15		140
Contractor supplies sales	50		16		66
Service and other revenues	95		11		106
Total revenue	$	4,693	$	1,048	$	5,741

Equipment rentals. For the three months ended September 30, 2019, equipment rentals of $2.147 billion increased $286, or 15.4 percent, as compared to the same period in 2018, primarily due to an 18.1 percent increase in average OEC, which includes the impact of the BakerCorp and BlueLine acquisitions discussed in note 3 to our condensed consolidated financial statements. On a pro forma basis including the standalone, pre-acquisition results of BakerCorp and BlueLine, equipment rental revenue increased 4.2 percent year-over-year, primarily due to a 4.4 percent increase in average OEC and a fleet productivity increase of 1.7 percent, partially offset by the impact of inflation. As explained further above (see "Financial Overview-Revenues"), fleet productivity is a comprehensive measure of the combined impact of key decisions made daily by our managers regarding rental rates, time utilization and mix on the year-over-year change in owned equipment rental revenue. Equipment rentals represented 86 percent of total revenues for the three months ended September 30, 2019.

For the nine months ended September 30, 2019, equipment rentals of $5.902 billion increased $951, or 19.2 percent, as compared to the same period in 2018, primarily due to a 21.5 percent increase in average OEC, which includes the impact of the BakerCorp and BlueLine acquisitions discussed in note 3 to our condensed consolidated financial statements. On a pro forma basis including the standalone, pre-acquisition results of BakerCorp and BlueLine, equipment rental revenue increased

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5.3 percent year-over-year, primarily due to a 5.2 percent increase in average OEC and a fleet productivity increase of 1.4 percent, partially offset by the impact of inflation. Equipment rentals represented 86 percent of total revenues for the nine months ended September 30, 2019.

For the three months ended September 30, 2019, general rentals equipment rentals increased $198, or 13.7 percent, as compared to the same period in 2018, primarily due to a 17.0 percent increase in average OEC, which includes the impact of the BlueLine acquisition. The equipment rentals increase was less than the average OEC increase primarily due to the impact of the BlueLine acquisition and decreases in time utilization in certain locations. Additionally, in 2019, we adopted an updated lease accounting standard (see note 8 to the condensed consolidated financial statements for further detail) that requires that we recognize doubtful accounts associated with lease revenues as a reduction to equipment rentals revenue which decreased equipment rentals revenue in 2019. On a pro forma basis including the standalone, pre-acquisition results of BlueLine, equipment rental revenue increased 1.6 percent year-over-year, primarily due to a 3.2 percent increase in average OEC, partially offset by the impact of inflation. For the three months ended September 30, 2019, equipment rentals represented 84 percent of total revenues for the general rentals segment.

For the nine months ended September 30, 2019, general rentals equipment rentals increased $615, or 15.5 percent, as compared to the same period in 2018, primarily due to an 18.5 percent increase in average OEC, which includes the impact of the BlueLine acquisition. The equipment rentals increase was less than the average OEC increase primarily due to 1) the impact of the BlueLine acquisition, 2) decreases in time utilization in certain locations and 3) the impact of the change in accounting for doubtful accounts discussed above. On a pro forma basis including the standalone, pre-acquisition results of BlueLine, equipment rental revenue increased 3.0 percent year-over-year, primarily due to a 4.1 percent increase in average OEC, partially offset by the impact of inflation. For the nine months ended September 30, 2019, equipment rentals represented 84 percent of total revenues for the general rentals segment.

For the three months ended September 30, 2019, trench, power and fluid solutions equipment rentals increased $88, or 21.1 percent, as compared to the same period in 2018, primarily reflecting the impact of acquisitions, including BakerCorp, and cold starts. On a pro forma basis including the standalone, pre-acquisition results of BakerCorp, equipment rental revenue increased 13.9 percent year-over-year, primarily due to a 14.3 percent increase in average OEC. The pro forma increase in average OEC includes the impact of cold starts and acquisitions other than BakerCorp. For the three months ended September 30, 2019, equipment rentals represented 93 percent of total revenues for the trench, power and fluid solutions segment.

For the nine months ended September 30, 2019, trench, power and fluid solutions equipment rentals increased $336, or 34.5 percent, as compared to the same period in 2018, primarily reflecting the impact of acquisitions, including BakerCorp, and cold starts. On a pro forma basis including the standalone, pre-acquisition results of BakerCorp, equipment rental revenue increased 14.3 percent year-over-year, primarily due to a 14.3 percent increase in average OEC. The pro forma increase in average OEC includes the impact of cold starts and acquisitions other than BakerCorp. For the nine months ended September 30, 2019, equipment rentals represented 92 percent of total revenues for the trench, power and fluid solutions segment.

Sales of rental equipment. For the nine months ended September 30, 2019, sales of rental equipment represented approximately 9 percent of our total revenues. Our general rentals segment accounted for most of these sales. For the three and nine months ended September 30, 2019, sales of rental equipment increased 41.4 percent and 22.8 percent, respectively, from the same periods in 2018. Sales of rental equipment for the three and nine months ended September 30, 2019 increased primarily due to increased volume, which included the impact of the BlueLine acquisition, driven by a larger fleet size in a strong used equipment market.

Sales of new equipment. For the nine months ended September 30, 2019, sales of new equipment represented approximately 3 percent of our total revenues. Our general rentals segment accounted for most of these sales. For the three and nine months ended September 30, 2019, sales of new equipment increased 24.1 percent and 35.0 percent, respectively, from the same periods in 2018 primarily due to increased volume driven by broad-based demand.

Contractor supplies sales. Contractor supplies sales represent our revenues associated with selling a variety of supplies, including construction consumables, tools, small equipment and safety supplies. For the nine months ended September 30, 2019, contractor supplies sales represented approximately 1 percent of our total revenues. Our general rentals segment accounted for most of these sales. Contractor supplies sales for the three and nine months ended September 30, 2019 increased 12.5 percent and 18.2 percent, respectively, from the same periods in 2018 primarily due to the impact of the BakerCorp acquisition.

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Service and other revenues. Service and other revenues primarily represent our revenues earned from providing repair and maintenance services on our customers’ fleet (including parts sales). For the nine months ended September 30, 2019, service and other revenues represented approximately 2 percent of our total revenues. Our general rentals segment accounted for most of these sales. For the three and nine months ended September 30, 2019, service and other revenues increased 32.4 percent and 31.1 percent, respectively, from the same periods in 2018, primarily reflecting an increased emphasis on this line of business and the impact of the BlueLine acquisition.

Segment Equipment Rentals Gross Profit

Segment equipment rentals gross profit and gross margin were as follows:

	General rentals			Trench, power and fluid solutions			Total
Three Months Ended September 30, 2019
Equipment Rentals Gross Profit	$	671		$	246		$	917
Equipment Rentals Gross Margin	40.9		%	48.7		%	42.7		%
Three Months Ended September 30, 2018
Equipment Rentals Gross Profit	$	629		$	218		$	847
Equipment Rentals Gross Margin	43.6		%	52.3		%	45.5		%
Nine Months Ended September 30, 2019
Equipment Rentals Gross Profit	$	1,765		$	602		$	2,367
Equipment Rentals Gross Margin	38.4		%	46.0		%	40.1		%
Nine Months Ended September 30, 2018
Equipment Rentals Gross Profit	$	1,598		$	482		$	2,080
Equipment Rentals Gross Margin	40.2		%	49.5		%	42.0		%

General rentals. For the three months ended September 30, 2019, equipment rentals gross profit increased by $42, primarily due to increased equipment rentals, including the impact of the BlueLine acquisition. As discussed above, equipment rentals increased 13.7 percent, primarily due to a 17.0 percent increase in average OEC, which includes the impact of the BlueLine acquisition. The equipment rentals increase was less than the average OEC increase primarily due to the impact of the BlueLine acquisition and decreases in time utilization in certain locations. Additionally, in 2019, we adopted an updated lease accounting standard (see note 8 to the condensed consolidated financial statements for further detail) that requires that we recognize doubtful accounts associated with lease revenues as a reduction to equipment rentals revenue which decreased equipment rentals revenue in 2019. Equipment rentals gross margin decreased 270 basis points from 2018, due primarily to the impact of the BlueLine acquisition and increased operating costs. Depreciation of rental equipment increased 19.6 percent, which exceeded the equipment rentals increase of 13.7 percent, and the BlueLine acquisition was a significant driver of the depreciation increase. Operating costs were impacted by repair and repositioning initiatives that resulted in increased repairs and maintenance and delivery expenses, which increased 27.0 percent and 19.6 percent, respectively. Additionally, the change in accounting for doubtful accounts discussed above decreased the equipment rentals gross margin in 2019.

For the nine months ended September 30, 2019, equipment rentals gross profit increased by $167, primarily due to increased equipment rentals, including the impact of the BlueLine acquisition. As discussed above, equipment rentals increased 15.5 percent, primarily due to an 18.5 percent increase in average OEC, which includes the impact of the BlueLine acquisition. The equipment rentals increase was less than the average OEC increase primarily due to 1) the impact of the BlueLine acquisition, 2) decreases in time utilization in certain locations and 3) the impact of the change in accounting for doubtful accounts discussed above. Equipment rentals gross margin decreased 180 basis points from 2018, due primarily to the impact of the BlueLine acquisition and increased operating costs. Depreciation of rental equipment increased 20.0 percent, which exceeded the equipment rentals increase of 15.5 percent, and the BlueLine acquisition was a significant driver of the depreciation increase. Operating costs were impacted by repair and repositioning initiatives that resulted in increased repairs and maintenance, which increased 22.2 percent. Additionally, the change in accounting for doubtful accounts discussed above decreased the equipment rentals gross margin in 2019.

Trench, power and fluid solutions. For the three months ended September 30, 2019, equipment rentals gross profit increased by $28 and equipment rentals gross margin decreased by 360 basis points from 2018. The increase in equipment rentals gross profit primarily reflects increased equipment rentals revenue on a larger fleet. Year-over-year, trench, power and fluid solutions equipment rentals increased 21.1 percent and average OEC increased 26.3 percent primarily due to the impact of acquisitions, including BakerCorp, and cold starts. The equipment rentals increase was less than the average OEC increase

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primarily due to the impact of the BakerCorp acquisition. On a pro forma basis including the standalone, pre-acquisition results of BakerCorp, equipment rental revenue increased 13.9 percent year-over-year, primarily due to a 14.3 percent increase in average OEC. The decrease in the equipment rentals gross margin was primarily due to the impact of acquisitions, including BakerCorp, and cold starts, and, to a lesser extent, higher than anticipated operating costs including repairs and maintenance. The historic, pre-acquisition margins for the acquired BakerCorp locations are lower than the margins achieved at the other locations in the segment, although we expect that the margins will improve over time as we realize synergies following the acquisition.

For the nine months ended September 30, 2019, equipment rentals gross profit increased by $120 and equipment rentals gross margin decreased by 350 basis points from 2018. The increase in equipment rentals gross profit primarily reflects increased equipment rentals revenue on a larger fleet. Year-over-year, trench, power and fluid solutions equipment rentals increased 34.5 percent and average OEC increased 46.4 percent primarily due to the impact of acquisitions, including BakerCorp, and cold starts. The equipment rentals increase was less than the average OEC increase primarily due to the impact of the BakerCorp acquisition. On a pro forma basis including the standalone, pre-acquisition results of BakerCorp, equipment rental revenue increased 14.3 percent year-over-year, primarily due to a 14.3 percent increase in average OEC. The decrease in the equipment rentals gross margin was primarily due to the impact of acquisitions, including BakerCorp, and cold starts, and, to a lesser extent, higher than anticipated operating costs including repairs and maintenance.

Gross Margin. Gross margins by revenue classification were as follows:  

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018		Change	2019	2018	Change
Total gross margin	41.5	%	44.3	%	(280) bps	39.2%	41.2%	(200) bps
Equipment rentals	42.7	%	45.5	%	(280) bps	40.1%	42.0%	(190) bps
Sales of rental equipment	38.4	%	40.7	%	(230) bps	38.2%	41.0%	(280) bps
Sales of new equipment	13.4	%	14.8	%	(140) bps	13.8%	13.6%	20 bps
Contractor supplies sales	33.3	%	37.5	%	(420) bps	30.8%	34.8%	(400) bps
Service and other revenues	44.9	%	45.9	%	(100) bps	46.0%	45.3%	70 bps

For the three months ended September 30, 2019, total gross margin decreased 280 basis points from the same period in 2018. Equipment rentals gross margin decreased 280 basis points year-over-year, due primarily to the impact of the BlueLine and BakerCorp acquisitions and increased operating costs. Depreciation of rental equipment increased 21.6 percent, which exceeded the equipment rentals increase of 15.4 percent, and the BlueLine and BakerCorp acquisitions were significant drivers of the depreciation increase. Operating costs were impacted by repair and repositioning initiatives that resulted in increased repairs and maintenance and delivery expenses, which increased 27.3 percent and 22.5 percent, respectively. Additionally, in 2019, we adopted an updated lease accounting standard (see note 8 to the condensed consolidated financial statements for further detail) that requires that we recognize doubtful accounts associated with lease revenues as a reduction to equipment rentals revenue which decreased equipment rentals gross margin in 2019. On a pro forma basis including the standalone, pre-acquisition results of BakerCorp and BlueLine, equipment rental revenue increased 4.2 percent year-over-year, primarily due to a 4.4 percent increase in average OEC and a fleet productivity increase of 1.7 percent, partially offset by the impact of inflation. As explained further above (see "Financial Overview-Revenues"), fleet productivity is a comprehensive measure of the combined impact of key decisions made daily by our managers regarding rental rates, time utilization and mix on the year-over-year change in owned equipment rental revenue. Gross margin from sales of rental equipment decreased 230 basis points from the same period in 2018 primarily due to changes in the mix of equipment sold and channel mix. The gross margin fluctuations from sales of new equipment, contractor supplies sales and service and other revenues generally reflect normal variability, and such margins did not have a significant impact on total gross margin (gross profit for these revenue types represented 4 percent of total gross profit for the three months ended September 30, 2019).

For the nine months ended September 30, 2019, total gross margin decreased 200 basis points from the same period in 2018. Equipment rentals gross margin decreased 190 basis points year-over-year, due primarily to the impact of the BlueLine and BakerCorp acquisitions and increased operating costs. Depreciation of rental equipment increased 22.6 percent, which exceeded the equipment rentals increase of 19.2 percent, and the BlueLine and BakerCorp acquisitions were significant drivers of the depreciation increase. Operating costs were impacted by repair and repositioning initiatives that resulted in increased repairs and maintenance expense, which increased 25.7 percent. Additionally, the change in accounting for doubtful accounts discussed above decreased the equipment rentals gross margin in 2019. On a pro forma basis including the standalone, pre-acquisition results of BakerCorp and BlueLine, equipment rental revenue increased 5.3 percent year-over-year, primarily due to a 5.2 percent increase in average OEC and a fleet productivity increase of 1.4 percent, partially offset by the impact of inflation.

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Gross margin from sales of rental equipment decreased 280 basis points from the same period in 2018 primarily due to lower margin sales of fleet acquired in the BlueLine acquisition and changes in the mix of equipment sold and channel mix. The gross margin fluctuations from sales of new equipment, contractor supplies sales and service and other revenues generally reflect normal variability, and such margins did not have a significant impact on total gross margin (gross profit for these revenue types represented 4 percent of total gross profit for the nine months ended September 30, 2019).

Other costs/(income)

The table below includes the other costs/(income) in our condensed consolidated statements of income, as well as key associated metrics, for the three and nine months ended September 30, 2019 and 2018:    

	Three Months Ended September 30,			Nine Months Ended September 30,
	2019	2018	Change	2019	2018	Change
Selling, general and administrative ("SG&A") expense	$273	$265	3.0%	$824	$736	12.0%
SG&A expense as a percentage of revenue	11.0%	12.5%	(150) bps	12.0%	12.8%	(80) bps
Merger related costs	—	11	(100.0)%	1	14	(92.9)%
Restructuring charge	2	9	(77.8)%	16	15	6.7%
Non-rental depreciation and amortization	102	75	36.0%	311	213	46.0%
Interest expense, net	147	118	24.6%	478	339	41.0%
Other income, net	(1)	—	—%	(6)	(2)	200.0%
Provision for income taxes	119	127	(6.3)%	245	265	(7.5)%
Effective tax rate	23.3%	27.6%	(430) bps	22.7%	25.2%	(250) bps

SG&A expense primarily includes sales force compensation, information technology costs, third party professional fees, management salaries, bad debt expense and clerical and administrative overhead. SG&A expense as a percentage of revenue for the three and nine months ended September 30, 2019 decreased from the same periods in 2018 primarily due to a reduction in stock compensation and bonuses as a percentage of revenue.

The merger related costs reflect transaction costs associated with the NES and Neff acquisitions that were completed in 2017, and the BakerCorp and BlueLine acquisitions discussed in note 3 to our condensed consolidated financial statements. We have made a number of acquisitions in the past and may continue to make acquisitions in the future. Merger related costs only include costs associated with major acquisitions that significantly impact our operations. The historic acquisitions that have included merger related costs are RSC, which had annual revenues of approximately $1.5 billion prior to the acquisition, and National Pump, which had annual revenues of over $200 prior to the acquisition. NES had annual revenues of approximately $369 and Neff had annual revenues of approximately $413. As discussed in note 3 to our condensed consolidated financial statements, BakerCorp had annual revenues of approximately $295 and BlueLine had annual revenues of approximately $786.

The restructuring charges primarily reflect severance and branch closure charges associated with our restructuring programs. In the third quarter of 2018, we initiated a restructuring program following the closing of the BakerCorp acquisition discussed in note 3 to the condensed consolidated financial statements. The restructuring program also includes actions undertaken associated with the BlueLine acquisition, which is also discussed in note 3. For additional information, see note 5 to the condensed consolidated financial statements.

Non-rental depreciation and amortization includes i) the amortization of other intangible assets and ii) depreciation expense associated with equipment that is not offered for rent (such as computers and office equipment) and amortization expense associated with leasehold improvements. Our other intangible assets consist of customer relationships, non-compete agreements and trade names and associated trademarks. The year-over-year increases in non-rental depreciation and amortization for the three and nine months ended September 30, 2019 primarily reflect the impact of the BakerCorp and BlueLine acquisitions discussed in note 3 to the condensed consolidated financial statements.

Interest expense, net for the three months ended September 30, 2019 increased year-over-year primarily due to the impact of higher average debt. Interest expense, net for the nine months ended September 30, 2019 included a loss of $32 primarily associated with the full redemption of our 5 ³/₄ percent Senior Notes. Excluding the impact of this loss, interest expense, net for the nine months ended September 30, 2019 increased year-over-year primarily due to the impact of higher averag

49

e debt. The year-over-year increases in average debt include the impact of the debt used to finance the BakerCorp and BlueLine acquisitions discussed in note 3 to the condensed consolidated financial statements.

The differences between the 2019 and 2018 effective tax rates and the federal statutory rate of 21 percent primarily reflect the geographical mix of income between foreign and domestic operations, the impact of state and local taxes, and certain deductible and nondeductible charges. The year-over-year decreases in the effective tax rates primarily reflect the release of foreign tax credit valuation allowances in 2019 and 2018 transition tax adjustments associated with accounting for the tax effects of the enactment of the Tax Cuts and Jobs Act of 2017.

Balance sheet. As discussed in note 8 to the condensed consolidated financial statement, in 2019, we adopted an updated lease accounting standard that resulted in the recognition of operating lease right-of-use assets and lease liabilities. We adopted this standard using a transition method that does not require application to periods prior to adoption. Accrued expenses and other liabilities increased by $154, or 22.7 percent, from December 31, 2018 to September 30, 2019, primarily due to the accounting for operating leases under the updated accounting standard (accrued expenses and other liabilities as of September 30, 2019 includes $174 of current operating lease liabilities). Accounts payable increased by $303, or 56.5 percent, from December 31, 2018 to September 30, 2019, primarily due to a seasonal increase in capital expenditures.

Liquidity and Capital Resources

We manage our liquidity using internal cash management practices, which are subject to (i) the policies and cooperation of the financial institutions we utilize to maintain and provide cash management services, (ii) the terms and other requirements of the agreements to which we are a party and (iii) the statutes, regulations and practices of each of the local jurisdictions in which we operate. See "Financial Overview" above for a summary of recent capital structure actions taken to improve our financial flexibility and liquidity.

Since 2012, we have repurchased a total of $2.45 billion of Holdings' common stock under four completed share repurchase programs. Additionally, in April 2018, our Board authorized a new $1.25 billion share repurchase program, which commenced in July 2018. As of September 30, 2019, we have repurchased $1.050 billion of Holdings' common stock under the $1.25 billion share repurchase program, which we intend to complete in 2019.

Our principal existing sources of cash are cash generated from operations and from the sale of rental equipment, and borrowings available under our ABL facility and accounts receivable securitization facility. As of September 30, 2019, we had cash and cash equivalents of $60. Cash equivalents at September 30, 2019 consist of direct obligations of financial institutions rated A or better. We believe that our existing sources of cash will be sufficient to support our existing operations over the next 12 months. The table below presents financial information associated with our principal sources of cash as of and for the nine months ended September 30, 2019:

ABL facility:
Borrowing capacity, net of letters of credit	$	2,051
Outstanding debt, net of debt issuance costs	1,630
Interest rate at September 30, 2019	3.4		%
Average month-end principal amount of debt outstanding	1,585
Weighted-average interest rate on average debt outstanding	3.8		%
Maximum month-end principal amount of debt outstanding	1,691
Accounts receivable securitization facility:
Borrowing capacity	50
Outstanding debt, net of debt issuance costs	925
Interest rate at September 30, 2019	2.9		%
Average month-end principal amount of debt outstanding	914
Weighted-average interest rate on average debt outstanding	3.2		%
Maximum month-end principal amount of debt outstanding	967

We expect that our principal needs for cash relating to our operations over the next 12 months will be to fund (i) operating activities and working capital, (ii) the purchase of rental equipment and inventory items offered for sale, (iii) payments due under operating leases, (iv) debt service, (v) share repurchases and (vi) acquisitions. We plan to fund such cash requirements from our existing sources of cash. In addition, we may seek additional financing through the securitization of some of our real estate, the use of additional operating leases or other financing sources as market conditions permit.

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To access the capital markets, we rely on credit rating agencies to assign ratings to our securities as an indicator of credit quality. Lower credit ratings generally result in higher borrowing costs and reduced access to debt capital markets. Credit ratings also affect the costs of derivative transactions, including interest rate and foreign currency derivative transactions. As a result, negative changes in our credit ratings could adversely impact our costs of funding. Our credit ratings as of October 14, 2019 were as follows: 

	Corporate Rating	Outlook
Moody’s	Ba2	Stable
Standard & Poor’s	BB	Stable

A security rating is not a recommendation to buy, sell or hold securities. There is no assurance that any rating will remain in effect for a given period of time or that any rating will not be revised or withdrawn by a rating agency in the future.

Loan Covenants and Compliance. As of September 30, 2019, 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 maintenance covenant that currently exists under the ABL facility is the fixed charge coverage ratio. Subject to certain limited exceptions specified in the ABL facility, the fixed charge coverage ratio covenant under the ABL facility will only apply in the future if specified availability under the ABL facility falls below 10 percent of the maximum revolver amount under the ABL facility. When certain conditions are met, cash and cash equivalents and borrowing base collateral in excess of the ABL facility size may be included when calculating specified availability under the ABL facility. As of September 30, 2019, specified availability under the ABL facility exceeded the required threshold and, as a result, this financial maintenance covenant was inapplicable. Under our accounts receivable securitization facility, we are required, among other things, to maintain certain financial tests relating to: (i) the default ratio, (ii) the delinquency ratio, (iii) the dilution ratio and (iv) days sales outstanding. The accounts receivable securitization facility also requires us to comply with the fixed charge coverage ratio under the ABL facility, to the extent the ratio is applicable under the ABL facility.

URNA’s payment capacity is restricted under the covenants in the ABL and term loan facilities and the indentures governing its outstanding indebtedness. Although this restricted capacity limits our ability to move operating cash flows to Holdings, because of certain intercompany arrangements, we do not expect any material adverse impact on Holdings’ ability to meet its cash obligations.

Sources and Uses of Cash. During the nine months ended September 30, 2019, we (i) generated cash from operating activities of $2.582 billion and (ii) generated cash from the sale of rental and non-rental equipment of $613. We used cash during this period principally to (i) purchase rental and non-rental equipment of $2.131 billion, (ii) purchase other companies for $247, (iii) make debt payments, net of proceeds, of $144 and (iv) purchase shares of our common stock for $664. During the nine months ended September 30, 2018, we (i) generated cash from operating activities of $2.123 billion, (ii) generated cash from the sale of rental and non-rental equipment of $491 and (iii) received cash from debt proceeds, net of payments, of $598. We used cash during this period principally to (i) purchase rental and non-rental equipment of $2.096 billion, (ii) purchase other companies for $805 and (iii) purchase shares of our common stock for $606.

Free Cash Flow GAAP Reconciliation. We define “free cash flow” as net cash provided by operating activities less purchases of, and plus proceeds from, equipment. The equipment purchases and proceeds are included in cash flows from investing activities. Management believes that free cash flow provides useful additional information concerning cash flow available to meet future debt service obligations and working capital requirements. However, free cash flow is not a measure of financial performance or liquidity under GAAP. Accordingly, free cash flow should not be considered an alternative to net income or cash flow from operating activities as an indicator of operating performance or liquidity. The table below provides a reconciliation between net cash provided by operating activities and free cash flow.

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	Nine Months Ended
	September 30,
	2019			2018
Net cash provided by operating activities	$	2,582		$	2,123
Purchases of rental equipment	(1,974		)	(1,962		)
Purchases of non-rental equipment	(157		)	(134		)
Proceeds from sales of rental equipment	587			478
Proceeds from sales of non-rental equipment	26			13
Insurance proceeds from damaged equipment	18			18
Free cash flow	$	1,082		$	536

Free cash flow for the nine months ended September 30, 2019 was $1.082 billion, an increase of $546 as compared to $536 for the nine months ended September 30, 2018. Free cash flow increased primarily due to increased net cash provided by operating activities. Net rental capital expenditures (defined as purchases of rental equipment less the proceeds from sales of rental equipment) decreased $97, or 7 percent, year-over-year.

Relationship between Holdings and URNA. Holdings is principally a holding company and primarily conducts its operations through its wholly owned subsidiary, URNA, and subsidiaries of URNA. Holdings licenses its tradename and other intangibles and provides certain services to URNA in connection with its operations. These services principally include: (i) senior management services; (ii) finance and tax-related services and support; (iii) information technology systems and support; (iv) acquisition-related services; (v) legal services; and (vi) human resource support. In addition, Holdings leases certain equipment and real property that are made available for use by URNA and its subsidiaries.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our exposure to market risk primarily consists of (i) interest rate risk associated with our variable and fixed rate debt and (ii) foreign currency exchange rate risk associated with our foreign operations.

Interest Rate Risk. As of September 30, 2019, we had an aggregate of $3.5 billion of indebtedness that bears interest at variable rates, comprised of borrowings under the ABL, accounts receivable securitization and term loan facilities. The amount of variable rate indebtedness outstanding under these facilities may fluctuate significantly. See note 7 to the condensed consolidated financial statements for the amounts outstanding, and the interest rates thereon, as of September 30, 2019 under these facilities. As of September 30, 2019, based upon the amount of our variable rate debt outstanding, our annual after-tax earnings would decrease by approximately $27 for each one percentage point increase in the interest rates applicable to our variable rate debt.

At September 30, 2019, we had an aggregate of $8.1 billion of indebtedness that bears interest at fixed rates. A one percentage point decrease in market interest rates as of September 30, 2019 would increase the fair value of our fixed rate indebtedness by approximately six percent. For additional information concerning the fair value of our fixed rate debt, see note 6 (see “Fair Value of Financial Instruments”) to our condensed consolidated financial statements.

Currency Exchange Risk. We operate in the U.S., Canada and Europe. As discussed in note 3 to the condensed consolidated financial statements, in July 2018, we completed the acquisition of BakerCorp, which allowed for our entry into select European markets. During the nine months ended September 30, 2019, our foreign subsidiaries accounted for $592, or 9 percent, of our total revenue of $6.895 billion, and $38, or 4 percent, of our total pretax income of $1.081 billion. Based on the size of our foreign operations relative to the Company as a whole, we do not believe that a 10 percent change in exchange rates would have a material impact on our earnings. We do not engage in purchasing forward exchange contracts for speculative purposes.

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Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company’s management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a–15(e) and 15d–15(e) of the Exchange Act, as of September 30, 2019. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2019.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information set forth under note 9 to our unaudited condensed consolidated financial statements of this quarterly report on Form 10-Q is incorporated by reference in answer to this item. Such information is limited to certain recent developments.

Item 1A. Risk Factors

Our results of operations and financial condition are subject to numerous risks and uncertainties described in our 2018 Form 10-K, which risk factors are incorporated herein by reference. You should carefully consider these risk factors in conjunction with the other information contained in this report. Should any of these risks materialize, our business, financial condition and future prospects could be negatively impacted.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) The following table provides information about purchases of Holdings’ common stock by Holdings during the third quarter of 2019: 

Period	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Dollar Amount of Shares That May Yet Be Purchased Under the Program (2)
July 1, 2019 to July 31, 2019	546,936	(1)	$	128.38	545,267	—
August 1, 2019 to August 31, 2019	620,191	(1)	$	113.35	617,725	—
September 1, 2019 to September 30, 2019	557,911	(1)	$	125.89	556,004	—
Total	1,725,038		$	122.17	1,718,996	$	200,071,794

(1) In July 2019, August 2019 and September 2019, 1,669, 2,466 and 1,907 shares, respectively, were withheld by Holdings to satisfy tax withholding obligations upon the vesting of restricted stock unit awards. These shares were not acquired pursuant to any repurchase plan or program.

(2) On April 17, 2018, our Board authorized a $1.25 billion share repurchase program which commenced in July 2018. We intend to complete the program in 2019.

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Item 6. Exhibits

2(a)	Agreement and Plan of Merger, dated as of June 30, 2018, by and among United Rentals, Inc., UR Merger Sub IV Corporation and BakerCorp International Holdings, Inc. (incorporated by reference to Exhibit 2.1 of the United Rentals, Inc. and United Rentals (North America), Inc. Current Report on Form 8-K filed on July 2, 2018)
2(b)	Agreement and Plan of Merger, dated as of September  10, 2018, by and among United Rentals, Inc., UR Merger Sub V Corporation, Vander Holding Corporation and Platinum Equity Advisors, LLC, solely in its capacity as the initial Holder Representative thereunder (incorporated by reference to Exhibit 2.1 of the United Rentals, Inc. and United Rentals (North America), Inc. Current Report on Form 8-K filed on September 10, 2018)
3(a)	Fourth Restated Certificate of Incorporation of United Rentals, Inc., dated June 1, 2017 (incorporated by reference to Exhibit 3.2 of the United Rentals, Inc. and United Rentals (North America), Inc. Current Report on Form 8-K filed on June 2, 2017)
3(b)	Amended and Restated By-Laws of United Rentals, Inc., amended as of May 4, 2017 (incorporated by reference to Exhibit 3.4 of the United Rentals, Inc. and United Rentals (North America), Inc. Current Report on Form 8-K filed on May 4, 2017)
3(c)	Restated Certificate of Incorporation of United Rentals (North America), Inc., dated April 30, 2012 (incorporated by reference to Exhibit 3(c) of the United Rentals, Inc. and United Rentals (North America), Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2013)
3(d)	By-laws of United Rentals (North America), Inc. dated May 8, 2013 (incorporated by reference to Exhibit 3(d) of the United Rentals, Inc. and United Rentals (North America), Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2013)
31(a)*	Rule 13a-14(a) Certification by Chief Executive Officer
31(b)*	Rule 13a-14(a) Certification by Chief Financial Officer
32(a)**	Section 1350 Certification by Chief Executive Officer
32(b)**	Section 1350 Certification by Chief Financial Officer
101.INS	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

** Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K under the Exchange Act.

‡ Management contract, compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		UNITED RENTALS, INC.
Dated:	October 16, 2019	By:	/S/ ANDREW B. LIMOGES
			Andrew B. Limoges Vice President, Controller and Principal Accounting Officer
		UNITED RENTALS (NORTH AMERICA), INC.
Dated:	October 16, 2019	By:	/S/ ANDREW B. LIMOGES
			Andrew B. Limoges Vice President, Controller and Principal Accounting Officer

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