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Leases

3 Months Ended

Mar. 31, 2021

As discussed in note 2 to the condensed consolidated financial statements, most of our equipment rental revenue is accounted for as lease revenue under Topic 842 (such lease revenue represented 74 percent of our total revenues for the three months ended March 31, 2021). 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).

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 right-of-use ("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 this re-rent revenue, 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 use the practical expedient that allows us to 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 as of March 31, 2021 and December 31, 2020, and for the three months ended March 31, 2021 and 2020.


	Classification	March 31, 2021		December 31, 2020
Assets
Operating lease assets	Operating lease right-of-use assets	$	681	$	688
Finance lease assets	Rental equipment	296		295
	Less accumulated depreciation	(86)		(86)
	Rental equipment, net	210		209
	Property and equipment, net:
	Non-rental vehicles	8		8
	Buildings	20		19
	Less accumulated depreciation and amortization	(13)		(11)
	Property and equipment, net	15		16
Total leased assets		906		913
Liabilities
Current
Operating	Accrued expenses and other liabilities	178		178
Finance	Short-term debt and current maturities of long-term debt	51		60
Long-term
Operating	Operating lease liabilities	541		549
Finance	Long-term debt	80		75
Total lease liabilities		$	850	$	862


Lease cost	Classification	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
Operating lease cost (1)	Cost of equipment rentals, excluding depreciation (1)	$	90	$	92
	Selling, general and administrative expenses	2		3
	Restructuring charge	1		1
Finance lease cost
Amortization of leased assets	Depreciation of rental equipment	7		7
	Non-rental depreciation and amortization	—		—
Interest on lease liabilities	Interest expense, net	1		3
Sublease income (2)		(32)		(34)
Net lease cost		$	69	$	72

_________________

(1) Includes variable lease costs, which are immaterial. Cost of equipment rentals, excluding depreciation includes $28 and $31 for the three months ended March 31, 2021 and 2020, respectively, of short-term lease costs associated with equipment that we rent from vendors and then rent to our customers, as discussed further above. Apart from these costs, short-term lease costs are immaterial.

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


Maturity of lease liabilities (as of March 31, 2021)	Operating leases (1)		Finance leases (2)
2021	$	155	$	46
2022	181		44
2023	150		32
2024	117		11
2025	81		2
Thereafter	111		5
Total	795		140
Less amount representing interest	(76)		(9)
Present value of lease liabilities	$	719	$	131

_________________

(1) Reflects payments for non-cancelable operating leases with initial or remaining terms of one year or more as of March 31, 2021. 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	March 31, 2021		December 31, 2020
Weighted-average remaining lease term (years)
Operating leases	4.9		5.0
Finance leases	3.0		3.0
Weighted-average discount rate
Operating leases	4.1	%	4.2	%
Finance leases	3.0	%	3.4	%


Other information	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	52	$	52
Operating cash flows from finance leases	1		3
Financing cash flows from finance leases	21		12
Leased assets obtained in exchange for new operating lease liabilities	41		48
Leased assets obtained in exchange for new finance lease liabilities	$	16	$	34

Leases

The tables below present financial information associated with our leases as of March 31, 2021 and December 31, 2020, and for the three months ended March 31, 2021 and 2020.


	Classification	March 31, 2021		December 31, 2020
Assets
Operating lease assets	Operating lease right-of-use assets	$	681	$	688
Finance lease assets	Rental equipment	296		295
	Less accumulated depreciation	(86)		(86)
	Rental equipment, net	210		209
	Property and equipment, net:
	Non-rental vehicles	8		8
	Buildings	20		19
	Less accumulated depreciation and amortization	(13)		(11)
	Property and equipment, net	15		16
Total leased assets		906		913
Liabilities
Current
Operating	Accrued expenses and other liabilities	178		178
Finance	Short-term debt and current maturities of long-term debt	51		60
Long-term
Operating	Operating lease liabilities	541		549
Finance	Long-term debt	80		75
Total lease liabilities		$	850	$	862


Lease cost	Classification	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
Operating lease cost (1)	Cost of equipment rentals, excluding depreciation (1)	$	90	$	92
	Selling, general and administrative expenses	2		3
	Restructuring charge	1		1
Finance lease cost
Amortization of leased assets	Depreciation of rental equipment	7		7
	Non-rental depreciation and amortization	—		—
Interest on lease liabilities	Interest expense, net	1		3
Sublease income (2)		(32)		(34)
Net lease cost		$	69	$	72

_________________

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


Maturity of lease liabilities (as of March 31, 2021)	Operating leases (1)		Finance leases (2)
2021	$	155	$	46
2022	181		44
2023	150		32
2024	117		11
2025	81		2
Thereafter	111		5
Total	795		140
Less amount representing interest	(76)		(9)
Present value of lease liabilities	$	719	$	131

_________________

(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	March 31, 2021		December 31, 2020
Weighted-average remaining lease term (years)
Operating leases	4.9		5.0
Finance leases	3.0		3.0
Weighted-average discount rate
Operating leases	4.1	%	4.2	%
Finance leases	3.0	%	3.4	%


Other information	Three Months Ended March 31, 2021		Three Months Ended March 31, 2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	52	$	52
Operating cash flows from finance leases	1		3
Financing cash flows from finance leases	21		12
Leased assets obtained in exchange for new operating lease liabilities	41		48
Leased assets obtained in exchange for new finance lease liabilities	$	16	$	34