UNITED RENTALS : Management's Discussion and Analysis of Financial Condition and Results of Operations (dollars in millions, except per share data and unless (form 10-K)

otherwise indicated)
COVID-19
As discussed in note 1 to our consolidated financial statements, the COVID-19
pandemic has significantly disrupted supply chains and businesses around the
world. The extent and duration of the COVID-19 impact, on the operations and
financial position of United Rentals, and on the global economy, is uncertain.
See "Item 1. Business- Industry Overview and Economic Outlook" above for a
discussion of market performance in 2020.
Prior to mid-March 2020, our performance was largely in line with expectations.
In early-March, we initiated contingency planning ahead of the impact of
COVID-19 on our end-markets. This planning has focused on five key work-streams
that are the basis for our crisis response plan:
1.Ensuring the safety and well-being of our employees and customers: Above all
else, we are committed to ensuring the health, safety and well-being of our
employees and customers. We have implemented a variety of COVID-19 safety
measures, including ensuring that branches have sufficient and adequate personal
protection equipment. We have also implemented appropriate social distancing
practices, and increased disinfecting of equipment and facilities.
2.Leveraging our competitive advantages to support the needs of customers: We
have made modifications to enhance safety measures in our operating processes
and protocols that support the needs of our customers. Additionally, our digital
capabilities allow customers to perform fully contactless transactions.
3.Disciplined capital expenditures: We have a substantial degree of flexibility
in managing our capital expenditures and fleet capacity. Net rental capital
expenditures (purchases of rental equipment less the proceeds from sales of
rental equipment) for 2020 decreased $1.198 billion, or 92 percent,
year-over-year.
4.Controlling core operating expenses: A significant portion of our cash
operating costs are variable in nature. Since March 2020, we have significantly
reduced overtime and temporary labor primarily in response to the impact of
COVID-19. Furthermore, we continue to leverage our current capacity to reduce
the need for third-party delivery and repair services, and minimize other
discretionary expenses across general and administrative areas.
5.Proactively managing the balance sheet with a focus on liquidity: We are
focused on ensuring that we maintain ample liquidity to meet our business needs
as the impact of COVID-19 evolves. As a result, our current $500 share
repurchase program was paused in mid-March 2020. At December 31, 2020, our total
liquidity was $3.073 billion, comprised of cash and cash equivalents, and
availability under the ABL and accounts receivable securitization facilities. We
have no note maturities until 2026.
The impact of COVID-19 on our business is discussed throughout this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." As discussed below, the response plan above helped mitigate the
impact of COVID-19 on our results.
Executive Overview
We are the largest equipment rental company in the world, with an integrated
network of 1,165 rental locations in the U.S., Canada and Europe. 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 $13.8 billion, and a
North American branch network that operates in 49 U.S. states and every Canadian
province, and serves 99 of the 100 largest 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. In 2020, equipment rental revenues represented 84 percent of our
total revenues.
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.
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We are currently managing the impact of COVID-19, as discussed above. Our
general strategy focuses on profitability and return on invested capital, and,
in particular, calls for:
•A consistently superior standard of service to customers, often provided
through a single lead contact who can coordinate the cross-selling of the
various services we offer throughout our network. We utilize a proprietary
software application, Total Control®, which provides our key customers with a
single in-house software application that enables them to monitor and manage all
their equipment needs. Total Control® is a unique customer offering that enables
us to develop strong, long-term relationships with our larger customers. Our
digital capabilities, including our Total Control® platform, allow our sales
teams to provide contactless end-to-end customer service;
•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;
•The continued expansion of our trench, power and fluid solutions footprint, as
well as our tools and onsite services offerings, and the cross-selling of these
services throughout our network. We believe that the expansion of our trench,
power and fluid solutions business, as well as our tools and onsite services
offerings, 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. Strategic acquisitions allow us to invest our capital to expand
our business, further driving our ability to accomplish our strategic goals.
In 2021, based on our analyses of industry forecasts and macroeconomic
indicators, we expect modest market recovery following the declines experienced
in 2020, which included the pronounced impact of COVID-19. See "Item 1.
Business- Industry Overview and Economic Outlook" above for a discussion of
market performance in 2020. Specifically, we expect that North American industry
equipment rental revenue will increase approximately 2 percent, with higher
growth expected in Canada than the U.S.
As discussed below, fleet productivity is a comprehensive metric that reflects
the combined impact of changes in rental rates, time utilization, and mix that
contribute to the variance in owned equipment rental revenue. For the full year
2020:
•Equipment rentals decreased 10.3 percent year-over-year, including the impact
of COVID-19 on volumes;
•Average OEC decreased 2.2 percent year-over-year;
•Fleet productivity decreased 6.9 percent, primarily due to the impact of
COVID-19 since March, when rental volume declined in response to
shelter-in-place orders and other market restrictions; and
•74 percent of equipment rental revenue was derived from key accounts, as
compared to 72 percent in 2019. Key accounts are each managed by a single point
of contact to enhance customer service.
Financial Overview
Prior to taking actions pertaining to our financial flexibility and liquidity,
we considered the impact of COVID-19 on liquidity, and assessed our available
sources and anticipated uses of cash, including, with respect to sources, cash
generated from operations and from the sale of rental equipment. In 2020, 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 4 percent Senior Notes due 2030;
•Issued $1.1 billion principal amount of 3 7/8 percent Senior Notes due 2031;
•Redeemed all $800 principal amount of our 5 1/2 percent Senior Notes due 2025;
•Redeemed all $1.1 billion principal amount of our 6 1/2 percent Senior Notes
due 2026;
•Redeemed all $750 principal amount of our 4 5/8 percent Senior Notes due 2025;
and
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•Amended and extended our accounts receivable securitization facility, including
a reduction in the size of the facility from $975 to $800.
We have also used cash generated from operations to reduce borrowings under the
ABL facility, and total debt has decreased $1.746 billion, or 15.3 percent,
since December 31, 2019. As discussed above, disciplined management of capital
expenditures and fleet capacity is a component of our COVID-19 response plan,
and, in 2020, capital expenditures decreased significantly year-over-year. The
decreased capital expenditures contributed to our ability to use proceeds from
operations to reduce borrowings under the ABL facility. As of December 31, 2020,
we had available liquidity of $3.073 billion, comprised of cash and cash
equivalents, and availability under the ABL and accounts receivable
securitization facilities.
Net income. Net income and diluted earnings per share for each of the three
years in the period ended December 31, 2020 are presented below.
                                                  Year Ended December 31,
                                                2020            2019         2018
            Net income                    $      890          $ 1,174      $ 1,096
            Diluted earnings per share    $    12.20          $ 15.11

$ 13.12

Net income and diluted earnings per share for each of the three years in the
period ended December 31, 2020 include the after-tax impacts of the items below.
The tax rates applied to the items below reflect the statutory rates in the
applicable entity.
                                                                                                                 Year Ended December 31,
                                                              2020                                                      2019                                                          2018
Tax rate applied to items below                   25.2       %                                            25.3        %                                                  25.5        %
                                                                          Impact on                                                  Impact on                                                      Impact on
                                         Contribution to net        

diluted earnings per Contribution to net diluted earnings per Contribution to net income diluted earnings per

                                          income (after-tax)                share                 income (after-tax)                   share                       (after-tax)                        share
Merger related costs (1)                $            -               $               -          $           (1)               $              (0.01)         $             (27)               $              (0.32)
Merger related intangible asset
amortization (2)                                  (163)                          (2.22)                   (194)                              (2.48)                      (147)                              (1.76)
Impact on depreciation related to
acquired fleet and property and
equipment (3)                                       (6)                          (0.08)                    (30)                              (0.39)                       (16)                              (0.19)
Impact of the fair value mark-up of
acquired fleet (4)                                 (37)                          (0.51)                    (56)                              (0.72)                       (49)                              (0.59)

Restructuring charge (5)                           (13)                          (0.18)                    (14)                              (0.18)                       (23)                              (0.28)
Asset impairment charge (6)                        (27)                          (0.37)                     (4)                              (0.05)                         -                                   -
Loss on extinguishment of debt
securities and amendment of ABL
facility (7)                                      (137)                          (1.88)                    (45)                              (0.58)                         -                                   -




(1)This reflects transaction costs associated with the NES and Neff acquisitions
that were completed in 2017, and the BakerCorp and BlueLine acquisitions that
were completed in 2018. 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.
(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)As discussed in note 5 to our consolidated financial statements, this
primarily reflects severance costs and branch closure charges associated with
our restructuring programs.
(6)This reflects write-offs of leasehold improvements and other fixed assets. As
discussed in note 5 to our consolidated financial statements, the 2020 charges
primarily reflect the discontinuation of certain equipment programs, and were
not related to COVID-19.
(7)This primarily reflects the difference between the net carrying amount and
the total purchase price of the redeemed notes. For additional information, see
"Results of Operations-Other costs/(income)-Interest expense, net" below.
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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 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 net income and adjusted EBITDA margins represent net
income or adjusted EBITDA divided by total revenue. Management believes that
EBITDA and adjusted EBITDA, when viewed with the Company's results under U.S.
generally accepted accounting principles ("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:
                                                                Year Ended December 31,
                                                            2020           2019          2018
Net income                                               $    890       $ 1,174       $ 1,096

Provision for income taxes                                    249           340           380
Interest expense, net                                         669           648           481

Depreciation of rental equipment                            1,601         1,631         1,363
Non-rental depreciation and amortization                      387           407           308
EBITDA                                                      3,796         4,200         3,628
Merger related costs (1)                                        -             1            36
Restructuring charge (2)                                       17            18            31
Stock compensation expense, net (3)                            70            61           102

Impact of the fair value mark-up of acquired fleet (4) 49

 75            66

Adjusted EBITDA                                          $  3,932       $ 4,355       $ 3,863
Net income margin                                            10.4  %       12.6  %       13.6  %
Adjusted EBITDA margin                                       46.1  %       46.6  %       48.0  %

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

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                                                                      Year Ended December 31,
                                                              2020                 2019               2018
Net cash provided by operating activities               $    2,658

$ 3,024 $ 2,853 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

                                                (14)                  (15)               (12)
Gain on sales of rental equipment                              332                   313                278
Gain on sales of non-rental equipment                            8                     6                  6
Insurance proceeds from damaged equipment                       40                    24                 22
Merger related costs (1)                                         -                    (1)               (36)
Restructuring charge (2)                                       (17)                  (18)               (31)
Stock compensation expense, net (3)                            (70)                  (61)              (102)

Loss on extinguishment of debt securities and amendment of ABL facility (5)

                                           (183)                  (61)                 -

Changes in assets and liabilities                              241                   170                124
Cash paid for interest                                         483                   581                455
Cash paid for income taxes, net                                318                   238                 71
EBITDA                                                       3,796                 4,200              3,628
Add back:
Merger related costs (1)                                         -                     1                 36
Restructuring charge (2)                                        17                    18                 31
Stock compensation expense, net (3)                             70                    61                102

Impact of the fair value mark-up of acquired fleet (4) 49

          75                 66

Adjusted EBITDA                                         $    3,932             $   4,355          $   3,863


_________________

(1)This reflects transaction costs associated with the NES and Neff acquisitions
that were completed in 2017, and the BakerCorp and BlueLine acquisitions that
were completed in 2018. 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)As discussed in note 5 to our consolidated financial statements, this
primarily reflects severance costs and branch closure charges associated with
our restructuring programs.
(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.
(5)This primarily reflects the difference between the net carrying amount and
the total purchase price of the redeemed notes. For additional information, see
"Results of Operations-Other costs/(income)-Interest expense, net" below.
For the year ended December 31, 2020, net income decreased $284, or 24.2
percent, and net income margin decreased 220 basis points to 10.4 percent. For
the year ended December 31, 2020, adjusted EBITDA decreased $423, or 9.7
percent, and adjusted EBITDA margin decreased 50 basis points to 46.1 percent.
The year-over-year decrease in net income margin primarily reflected 1)
decreased gross margin from equipment rentals and 2) increased interest expense,
partially offset by lower year-over-year 3) income tax expense and 4) selling,
general and administrative ("SG&A") expense as a percentage of revenue.
Equipment rentals gross margin decreased 220 basis points year-over-year, with
190 basis points of the margin decline due to an increase in depreciation
expense as a percentage of revenue. Depreciation expense included a $30 asset
impairment charge, which was not related to COVID-19, associated with the
discontinuation of certain equipment programs. Excluding the impact of the asset
impairment charge, depreciation expense decreased slightly from 2019, but
increased as a percentage of revenue, primarily due to COVID-19. As noted above,
COVID-19 began to impact our operations in March 2020, and, since then,
equipment rentals have remained down year-over-year in response to
shelter-in-place orders and other market restrictions. The remaining 30 basis
point decline in equipment rentals gross margin was primarily due to the impact
of COVID-19, partially offset by actions we have taken to manage operating
costs, such as the reduction of overtime and temporary labor, and the leveraging
of our current capacity to reduce the need for third-party delivery and repair
services. See "Results of Operations-Gross Margin" below for further discussion
of
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equipment rentals gross margin. Interest expense, net increased $21
year-over-year. Interest expense, net for the years ended December 31, 2020 and
2019 included debt redemption losses of $183 and $61, respectively. Excluding
the impact of these losses, interest expense, net for the year ended
December 31, 2020 decreased primarily due to decreases in average debt and the
average cost of debt. Year-over-year, the effective income tax rate was largely
flat, but income tax expense decreased as a percentage of revenue. SG&A expense
as a percentage of revenue decreased primarily due to significant reductions in
professional fees and travel and entertainment expenses, which were implemented
in response to COVID-19, partially offset by increases in salaries and stock
compensation as a percentage of revenue. Total salary and stock compensation
expense was largely flat year-over-year, generally reflecting normal
variability, but increased as a percentage of revenue due in part to the
COVID-19 impact on revenue.
The decrease in the adjusted EBITDA margin primarily reflects 1) lower margins
from equipment rentals (excluding depreciation), sales of rental equipment
(excluding the adjustment reflected in the table above for the impact of the
fair value mark-up of acquired fleet) and service and other revenues and 2)
changes in revenue mix, in particular an increase in the proportion of revenue
from sales of rental equipment, partially offset by 3) the impact of decreased
SG&A expense (excluding stock compensation). Equipment rentals margin (excluding
depreciation) decreased 30 basis points primarily due to the impact of COVID-19,
partially offset by actions we have taken to manage operating costs, such as the
reduction of overtime and temporary labor, and the leveraging of our current
capacity to reduce the need for third-party delivery and repair services. See
"Results of Operations-Gross Margin" below for further discussion of equipment
rentals gross margin. Gross margin from sales of rental equipment (excluding the
adjustment reflected in the table above for the impact of the fair value mark-up
of acquired fleet) decreased primarily due to changes in pricing and the mix of
equipment sold. The decreased gross margin from service and other revenues
reflected the impact of COVID-19, which resulted in reduced training revenue
without a proportionate reduction in costs. SG&A expense (excluding stock
compensation) as a percentage of revenue decreased primarily due to significant
reductions in professional fees and travel and entertainment expenses, which
were implemented in response to COVID-19, partially offset by an increase in
salaries as a percentage of revenue. Salary expense was largely flat
year-over-year, generally reflecting normal variability, but increased as a
percentage of revenue due in part to the COVID-19 impact on revenue.
For the year ended December 31, 2019, net income increased $78, or 7.1 percent,
and net income margin decreased 100 basis points to 12.6 percent. For the year
ended December 31, 2019, adjusted EBITDA increased $492, or 12.7 percent, and
adjusted EBITDA margin decreased 140 basis points to 46.6 percent.
The year-over-year decrease in net income margin primarily reflected 1)
decreased gross margin from equipment rentals and 2) increased interest expense,
partially offset by lower year-over-year 3) income tax expense and 4) SG&A
expense as a percentage of revenue. Equipment rentals gross margin decreased 240
basis points year-over-year, due primarily to the impact of the BlueLine and
BakerCorp acquisitions and increased operating costs. The BlueLine and BakerCorp
acquisitions were significant drivers of the 19.7 percent depreciation increase,
which exceeded the equipment rentals increase of 14.8 percent. Operating costs
were impacted by repair and repositioning initiatives that resulted in increased
repairs and maintenance expense, which increased 22.4 percent (such increase
includes the impact of both 1) the BlueLine and BakerCorp acquisitions and 2)
the repair and repositioning initiatives). Net interest expense increased $167
year-over-year primarily due to the debt issued to fund the BakerCorp and
BlueLine acquisitions and a $61 debt redemption loss. Our effective tax rate
decreased 320 basis points year-over-year primarily due to federal tax credits
and favorable changes in the state jurisdictional mix of income. The decrease in
SG&A expense as a percentage of revenue primarily reflects a reduction in stock
compensation as a percentage of revenue, and decreased bad debt expense. The
reduced bad debt expense primarily reflects our adoption in 2019 of an updated
lease accounting standard (see note 13 to the consolidated financial statements
for further detail). This standard requires that we recognize doubtful accounts
associated with lease revenues as a reduction to equipment rentals revenue (such
amounts were recognized as SG&A expense prior to 2019).
As discussed above, we completed the acquisitions of BakerCorp and BlueLine in
July 2018 and October 2018, respectively, and the adjusted EBITDA increase for
2019 includes the impact of these acquisitions. The decrease in the adjusted
EBITDA margin primarily reflects the impact of the BakerCorp and BlueLine
acquisitions.
Revenues. Revenues for each of the three years in the period ended December 31,
2020 were as follows:
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                                                         Year Ended December 31,                                Change
                                                  2020              2019             2018              2020                2019
Equipment rentals*                            $   7,140          $ 7,964          $ 6,940            (10.3)%              14.8%
Sales of rental equipment                           858              831              664              3.2%               25.2%
Sales of new equipment                              247              268              208             (7.8)%              28.8%
Contractor supplies sales                            98              104               91             (5.8)%              14.3%
Service and other revenues                          187              184              144              1.6%               27.8%
Total revenues                                $   8,530          $ 9,351          $ 8,047             (8.8)%              16.2%
*Equipment rentals variance components:
Year-over-year change in average OEC                                                                  (2.2)%              17.7%
Assumed year-over-year inflation impact (1)                                                           (1.5)%              (1.5)%
Fleet productivity (2)                                                                                (6.9)%              (2.2)%
Contribution from ancillary and re-rent
revenue (3)                                                                                            0.3%                0.8%
Total change in equipment rentals                                                                    (10.3)%              14.8%
*Pro forma equipment rentals variance
components (4):
Year-over-year change in average OEC                                                                                       4.9%
Assumed year-over-year inflation impact (1)                                                                               (1.5)%
Fleet productivity (2)                                                                                                     0.6%
Contribution from ancillary and re-rent
revenue (3)                                                                                                                0.1%
Total change in equipment rentals                                                                                          4.1%


_________________

(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 3 to the 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 3 for further detail), excluding owned equipment
rental revenue.
(4)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. The pro forma components are
not reflected above for 2020 versus 2019 because BakerCorp and BlueLine are
fully reflected in our results for these periods.

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. Collectively, these
"ancillary fees" represented approximately 13 percent of equipment rental
revenue in 2020. Delivery and pick-up revenue, which represented approximately
seven percent of equipment rental revenue in 2020, is the most significant
ancillary revenue component. 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 3
to our consolidated financial statements for further discussion of our revenue
recognition accounting.
2020 total revenues of $8.5 billion decreased 8.8 percent compared with 2019.
Equipment rentals and sales of rental equipment are our largest revenue types
(together, they accounted for 94 percent of total revenue for the year ended
December 31, 2020). Equipment rentals decreased 10.3 percent. COVID-19 began to
impact our operations in March 2020. Through February 2020, equipment rentals
were up slightly year-over-year. Since March, equipment rentals have decreased
year-over-year, primarily due to the impact of COVID-19. Fleet productivity
decreased 6.9 percent, primarily due to the impact of COVID-19 since March, when
rental volume declined in response to shelter-in-place orders and other market
restrictions.
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Through February, fleet productivity was flat year-over-year and in line with
expectations. Sales of rental equipment did not change materially
year-over-year.
2019 total revenues of $9.4 billion increased 16.2 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 year ended
December 31, 2019). Equipment rentals increased 14.8 percent, primarily due to a
17.7 percent increase in average OEC, which includes the impact of the BakerCorp
and BlueLine acquisitions. On a pro forma basis including the standalone,
pre-acquisition results of BakerCorp and BlueLine, equipment rentals increased
4.1 percent, primarily due to a 4.9 percent increase in average OEC and a fleet
productivity increase of 0.6 percent, partially offset by the impact of fleet
inflation. Sales of rental equipment increased 25.2 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.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with GAAP. A
summary of our significant accounting policies is contained in note 2 to our
consolidated financial statements. In applying many accounting principles, we
make assumptions, estimates and/or judgments. These assumptions, estimates
and/or judgments are often subjective and may change based on changing
circumstances or changes in our analysis. Material changes in these assumptions,
estimates and/or judgments have the potential to materially alter our results of
operations. We have identified below our accounting policies that we believe
could potentially produce materially different results if we were to change
underlying assumptions, estimates and/or judgments. Although actual results may
differ from those estimates, we believe the estimates are reasonable and
appropriate.
Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts.
These allowances reflect our estimate of the amount of our receivables that we
will be unable to collect based on historical write-off experience and, as
applicable, current conditions and reasonable and supportable forecasts that
affect collectibility. Our allowance for doubtful accounts as of December 31,
2020 included an adjustment for the estimated impact of COVID-19 on future
collectibility that was not material to our financial statements. Our estimate
could require change based on changing circumstances, including changes in the
economy or in the particular circumstances of individual customers. Accordingly,
we may be required to increase or decrease our allowances. Trade receivables
that have contractual maturities of one year or less are written-off when they
are determined to be uncollectible based on the criteria necessary to qualify as
a deduction for federal tax purposes. Write-offs of such receivables require
management approval based on specified dollar thresholds. See note 3 to our
consolidated financial statements for further detail.
Useful Lives and Salvage Values of Rental Equipment and Property and Equipment.
We depreciate rental equipment and property and equipment over their estimated
useful lives, after giving effect to an estimated salvage value which ranges
from zero percent to 10 percent of cost. Rental equipment is depreciated whether
or not it is out on rent.
The useful life of an asset is determined based on our estimate of the period
over which the asset will generate revenues; such periods are periodically
reviewed for reasonableness. In addition, the salvage value, which is also
reviewed periodically for reasonableness, is determined based on our estimate of
the minimum value we will realize from the asset after such period. We may be
required to change these estimates based on changes in our industry or other
changing circumstances. If these estimates change in the future, we may be
required to recognize increased or decreased depreciation expense for these
assets.
To the extent that the useful lives of all of our rental equipment were to
increase or decrease by one year, we estimate that our annual depreciation
expense would decrease or increase by approximately $174 or $226, respectively.
If the estimated salvage values of all of our rental equipment were to increase
or decrease by one percentage point, we estimate that our annual depreciation
expense would change by approximately $18. Any change in depreciation expense as
a result of a hypothetical change in either useful lives or salvage values would
generally result in a proportional increase or decrease in the gross profit we
would recognize upon the ultimate sale of the asset. To the extent that the
useful lives of all of our depreciable property and equipment were to increase
or decrease by one year, we estimate that our annual non-rental depreciation
expense would decrease or increase by approximately $35 or $54, respectively.
Acquisition Accounting. We have made a number of acquisitions in the past and
may continue to make acquisitions in the future. The assets acquired and
liabilities assumed are recorded based on their respective fair values at the
date of acquisition. Long-lived assets (principally rental equipment), goodwill
and other intangible assets generally represent the largest components of our
acquisitions. Rental equipment is valued utilizing either a cost, market or
income approach, or a combination of certain of these methods, depending on the
asset being valued and the availability of market or income data. The intangible
assets that we have acquired are non-compete agreements, customer relationships
and trade names and associated trademarks. The estimated fair values of these
intangible assets reflect various assumptions about discount rates, revenue
growth rates, operating margins, terminal values, useful lives and other
prospective financial information. Goodwill is calculated as the excess of the
cost of the acquired entity over the net of the fair value of the assets
acquired and the liabilities
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assumed. Non-compete agreements, customer relationships and trade names and
associated trademarks are valued based on an excess earnings or income approach
based on projected cash flows.
Determining the fair value of the assets and liabilities acquired is judgmental
in nature and can involve the use of significant estimates and assumptions. The
significant judgments include estimation of future cash flows, which is
dependent on forecasts; estimation of the long-term rate of growth; estimation
of the useful life over which cash flows will occur; and determination of a
risk-adjusted weighted average cost of capital. When appropriate, our estimates
of the fair values of assets and liabilities acquired include assistance from
independent third-party appraisal firms. The judgments made in determining the
estimated fair value assigned to the assets acquired, as well as the estimated
life of the assets, can materially impact net income in periods subsequent to
the acquisition through depreciation and amortization, and in certain instances
through impairment charges, if the asset becomes impaired in the future. As
discussed below, we regularly review for impairments.
When we make an acquisition, we also acquire other assets and assume
liabilities. These other assets and liabilities typically include, but are not
limited to, parts inventory, accounts receivable, accounts payable and other
working capital items. Because of their short-term nature, the fair values of
these other assets and liabilities generally approximate the book values on the
acquired entities' balance sheets.
Evaluation of Goodwill Impairment. Goodwill is tested for impairment annually or
more frequently if an event or circumstance indicates that an impairment loss
may have been incurred. Application of the goodwill impairment test requires
judgment, including: the identification of reporting units; assignment of assets
and liabilities to reporting units; assignment of goodwill to reporting units;
determination of the fair value of each reporting unit; and an assumption as to
the form of the transaction in which the reporting unit would be acquired by a
market participant (either a taxable or nontaxable transaction).
We estimate the fair value of our reporting units (which are our regions) using
a combination of an income approach based on the present value of estimated
future cash flows and a market approach based on market price data of shares of
our Company and other corporations engaged in similar businesses as well as
acquisition multiples paid in recent transactions. We believe this approach,
which utilizes multiple valuation techniques, yields the most appropriate
evidence of fair value.
As discussed in note 2 to our consolidated financial statements, in 2020, we
adopted accounting guidance that eliminated the second step from the goodwill
impairment test (this guidance did not have a significant impact on our
financial statements). Prior guidance required utilizing a two-step process to
review goodwill for impairment. A second step was required if there was an
indication that an impairment may exist, and the second step required
calculating the potential impairment by comparing the implied fair value of the
reporting unit's goodwill (as if purchase accounting were performed on the
testing date) with the carrying amount of the goodwill. We did not perform this
second step for the goodwill impairment test conducted as of October 1, 2020 or
2019 (for 2020, because the adopted accounting guidance eliminated the second
step, and, for 2019, because there was no indication that an impairment may have
existed). The first step of the impairment test requires comparing the fair
value of a reporting unit with its carrying amount. Financial Accounting
Standards Board ("FASB") guidance permits entities to first assess qualitative
factors to determine whether it is more likely than not that the fair value of a
reporting unit is less than its carrying amount.
Inherent in our preparation of cash flow projections are assumptions and
estimates derived from a review of our operating results, business plans,
expected growth rates, cost of capital and tax rates. We also make certain
forecasts about future economic conditions, interest rates and other market
data. Many of the factors used in assessing fair value are outside the control
of management, and these assumptions and estimates may change in future periods.
Changes in assumptions or estimates could materially affect the estimate of the
fair value of a reporting unit, and therefore could affect the likelihood and
amount of potential impairment. The following assumptions are significant to our
income approach:
  Business Projections- We make assumptions about the level of equipment rental
activity in the marketplace and cost levels. These assumptions drive our
planning assumptions for pricing and utilization and also represent key inputs
for developing our cash flow projections. These projections are developed using
our internal business plans over a ten-year planning period that are updated at
least annually;
  Long-term Growth Rates- Beyond the planning period, we also utilize an assumed
long-term growth rate representing the expected rate at which a reporting unit's
cash flow stream is projected to grow. These rates are used to calculate the
terminal value of our reporting units, and are added to the cash flows projected
during our ten-year planning period; and
  Discount Rates- Each reporting unit's estimated future cash flows are
discounted at a rate that is consistent with a weighted-average cost of capital
that is likely to be expected by market participants. The weighted-average cost
of capital is an estimate of the overall after-tax rate of return required by
equity and debt holders of a business enterprise.

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The market approach is one of the other methods used for estimating the fair
value of our reporting units' business enterprise. This approach takes two
forms: The first is based on the market value (market capitalization plus
interest-bearing liabilities) and operating metrics (e.g., revenue and EBITDA)
of companies engaged in the same or similar line of business. The second form is
based on multiples paid in recent acquisitions of companies.
In connection with our goodwill impairment test that was conducted as of October
1, 2020, we bypassed the qualitative assessment for each reporting unit and
quantitatively compared the fair values of our reporting units with their
carrying amounts. We considered the impact of COVID-19 when performing the test,
and it did not have a material impact on the test results. Our goodwill
impairment testing as of this date indicated that all of our reporting units,
excluding our Fluid Solutions Europe reporting unit, had estimated fair values
which exceeded their respective carrying amounts by at least 42 percent. As
discussed above, in July 2018, we completed the acquisition of BakerCorp. All of
the assets in the Fluid Solutions Europe reporting unit were acquired in the
BakerCorp acquisition. The estimated fair value of our Fluid Solutions Europe
reporting unit exceeded its carrying amount by 22 percent. As all of the assets
in the Fluid Solutions Europe reporting unit were recorded at fair value as of
the July 2018 acquisition date, we expected the percentage by which the Fluid
Solutions Europe reporting unit's fair value exceeded its carrying value to be
significantly less than the equivalent percentages determined for our other
reporting units.
In connection with our goodwill impairment test that was conducted as of October
1, 2019, we bypassed the qualitative assessment for each reporting unit and
proceeded directly to the first step of the goodwill impairment test. Our
goodwill impairment testing as of this date indicated that all of our reporting
units, excluding our Fluid Solutions Europe reporting unit, had estimated fair
values which exceeded their respective carrying amounts by at least 32 percent.
As discussed above, in July 2018, we completed the acquisition of BakerCorp. All
of the assets in the Fluid Solutions Europe reporting unit were acquired in the
BakerCorp acquisition. The estimated fair value of our Fluid Solutions Europe
reporting unit exceeded its carrying amount by 12 percent. As all of the assets
in the Fluid Solutions Europe reporting unit were recorded at fair value as of
the July 2018 acquisition date, we expected the percentage by which the Fluid
Solutions Europe reporting unit's fair value exceeded its carrying value to be
significantly less than the equivalent percentages determined for our other
reporting units.
Impairment of Long-lived Assets (Excluding Goodwill). We review the
recoverability of our rental equipment and property and equipment when events or
changes in circumstances occur that indicate that the carrying value of the
assets may not be recoverable. If there are such indications, we assess our
ability to recover the carrying value of the assets from their expected future
pre-tax cash flows (undiscounted and without interest charges). If the expected
cash flows are less than the carrying value of the assets, an impairment loss is
recognized for the difference between the estimated fair value and carrying
value. We also conduct impairment reviews in connection with branch
consolidations and other changes in our business. As discussed in note 5 to our
consolidated financial statements, during the year ended December 31, 2020, we
recorded asset impairment charges of $36, which principally relate to the
discontinuation of certain equipment programs, and were not related to COVID-19.
We recognized immaterial asset impairment charges during the years ended
December 31, 2019 and 2018.
In support of our review for indicators of impairment, we perform a review of
all assets at the district level relative to district performance and conclude
whether indicators of impairment exist associated with our long-lived assets,
including rental equipment. We also specifically review the financial
performance of our rental equipment. Such review includes an estimate of the
future rental revenues from our rental assets based on current and expected
utilization levels, the age of the assets and their remaining useful lives.
Additionally, we estimate when the assets are expected to be removed or retired
from our rental fleet as well as the expected proceeds to be realized upon
disposition. Based on our most recently completed quarterly reviews, there were
no indications of impairment associated with our rental equipment or property
and equipment.
Income Taxes. We recognize deferred tax assets and liabilities for certain
future deductible or taxable temporary differences expected to be reported in
our income tax returns. These deferred tax assets and liabilities are computed
using the tax rates that are expected to apply in the periods when the related
future deductible or taxable temporary difference is expected to be settled or
realized. In the case of deferred tax assets, the future realization of the
deferred tax benefits and carryforwards are determined with consideration to
historical profitability, projected future taxable income, the expected timing
of the reversals of existing temporary differences, and tax planning strategies.
After consideration of all these factors, we recognize deferred tax assets when
we believe that it is more likely than not that we will realize them. The most
significant positive evidence that we consider in the recognition of deferred
tax assets is the expected reversal of cumulative deferred tax liabilities
resulting from book versus tax depreciation of our rental equipment fleet that
is well in excess of the deferred tax assets.
We use a two-step approach for recognizing and measuring tax benefits taken or
expected to be taken in a tax return regarding uncertainties in income tax
positions. The first step is recognition: we determine whether it is more likely
than not that a tax position will be sustained upon examination, including
resolution of any related appeals or litigation processes, based on the
technical merits of the position. In evaluating whether a tax position has met
the more-likely-than-not recognition threshold, we presume that the position
will be examined by the appropriate taxing authority with full knowledge of all
relevant
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information. The second step is measurement: a tax position that meets the
more-likely-than-not recognition threshold is measured to determine the amount
of benefit to recognize in the financial statements. The tax position is
measured at the largest amount of benefit that is greater than 50 percent likely
of being realized upon ultimate settlement.
We are subject to ongoing tax examinations and assessments in various
jurisdictions. Accordingly, accruals for tax contingencies are established based
on the probable outcomes of such matters. Our ongoing assessments of the
probable outcomes of the examinations and related tax accruals require judgment
and could increase or decrease our effective tax rate as well as impact our
operating results.
We have historically considered the undistributed earnings of our foreign
subsidiaries to be indefinitely reinvested, and, accordingly, no taxes were
provided on such earnings prior to the fourth quarter of 2020. In the fourth
quarter of 2020, we identified $135 of cash in our foreign operations in excess
of near-term working capital needs, and determined that this amount could no
longer be considered indefinitely reinvested. As a result, our prior assertion
that all undistributed earnings of our foreign subsidiaries should be considered
indefinitely reinvested has changed, and, in the fourth quarter of 2020, we
recorded the immaterial taxes on a distribution of the $135 of cash.
We continue to expect that the remaining balance of our undistributed foreign
earnings will be indefinitely reinvested. If we determine that all or a portion
of such foreign earnings are no longer indefinitely reinvested, we may be
subject to additional foreign withholding taxes and U.S. state income taxes.
The Tax Act discussed above required a one-time transition tax for deemed
repatriation of accumulated undistributed earnings of certain foreign
investments, which we primarily recognized upon adoption of the Tax Act in 2017.
As discussed in note 14 to the consolidated financial statements, we completed
our accounting for the tax effects of enactment of the Tax Act in 2018.
Reserves for Claims. We are exposed to various claims relating to our business,
including those for which we retain portions of the losses through the
application of deductibles and self-insured retentions, which we sometimes refer
to as "self-insurance." These claims include (i) workers' compensation claims
and (ii) claims by third parties for injury or property damage involving our
equipment, vehicles or personnel. These types of claims may take a substantial
amount of time to resolve and, accordingly, the ultimate liability associated
with a particular claim may not be known for an extended period of time. Our
methodology for developing self-insurance reserves is based on management
estimates, which incorporate periodic actuarial valuations. Our estimation
process considers, among other matters, the cost of known claims over time, cost
inflation and incurred but not reported claims. These estimates may change based
on, among other things, changes in our claims history or receipt of additional
information relevant to assessing the claims. Further, these estimates may prove
to be inaccurate due to factors such as adverse judicial determinations or
settlements at higher than estimated amounts. Accordingly, we may be required to
increase or decrease our reserve levels.

Results of Operations
As discussed in note 4 to our 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.
This 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. This segment operates throughout the
United States and in Canada and Europe.
As discussed in note 4 to our consolidated financial statements, we aggregate
our eleven 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 December 31, 2020, three of our general
rentals' regions had an equipment rentals gross margin that varied by between 10
percent and 25 percent from the equipment rentals gross margins of the
aggregated general rentals' regions over the same period. For the five year
period ended December 31, 2020, the general rentals' region with the lowest
equipment rentals gross margin was Western Canada. The Western Canada region's
equipment rentals gross margin of 30.9 percent for the five year period ended
December 31, 2020 was 25 percent less than the equipment rentals gross margins
of the aggregated general rentals' regions over the same period. The Western
Canada region's equipment rentals gross margin was less than the
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other general rentals' regions during this period primarily due to declines in
the oil and gas business in the region. 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. As such,
there is not a long history of the acquired locations' rental margins included
in the trench, power and fluid solutions 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.
These segments align our external segment reporting with how management
evaluates business performance 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               Trench,
                                       rentals      power and fluid 

solutions Total

Year Ended December 31, 2020

     Equipment rentals                $ 5,472      $                    

1,668 $ 7,140

     Sales of rental equipment            785                              73          858
     Sales of new equipment               214                              33          247
     Contractor supplies sales             64                              34           98
     Service and other revenues           164                              23          187
     Total revenue                    $ 6,699      $                   

1,831 $ 8,530

Year Ended December 31, 2019

     Equipment rentals                $ 6,202      $                    

1,762 $ 7,964

     Sales of rental equipment            768                              63          831
     Sales of new equipment               238                              30          268
     Contractor supplies sales             71                              33          104
     Service and other revenues           157                              27          184
     Total revenue                    $ 7,436      $                   

1,915 $ 9,351

Year Ended December 31, 2018

     Equipment rentals                $ 5,550      $                    

1,390 $ 6,940

     Sales of rental equipment            619                              45          664
     Sales of new equipment               186                              22          208
     Contractor supplies sales             68                              23           91
     Service and other revenues           127                              17          144
     Total revenue                    $ 6,550      $                    1,497      $ 8,047


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Equipment rentals. 2020 equipment rentals of $7.1 billion decreased 10.3
percent. COVID-19 began to impact our operations in March 2020. Through February
2020, equipment rentals were up slightly year-over-year. Since March, equipment
rentals have decreased year-over-year, primarily due to the impact of COVID-19.
Fleet productivity decreased 6.9 percent, primarily due to the impact of
COVID-19 since March, when rental volume declined in response to
shelter-in-place orders and other market restrictions. Through February, fleet
productivity was flat year-over-year and in line with expectations. Equipment
rentals represented 84 percent of total revenues in 2020.
On a segment basis, equipment rentals represented 82 percent and 91 percent of
total revenues for general rentals and trench, power and fluid solutions,
respectively. General rentals equipment rentals decreased 11.8 percent as
compared to 2019, primarily due to COVID-19. As noted above, COVID-19 began to
impact our operations in March 2020, when rental volume declined in response to
shelter-in-place orders and other market restrictions. Trench, power and fluid
solutions equipment rentals decreased 5.3 percent as compared to 2019, primarily
due to COVID-19, partially offset by a slight increase in average OEC.
2019 equipment rentals of $8.0 billion increased 14.8 percent, primarily due to
a 17.7 percent increase in average OEC, which includes the impact of the
BakerCorp and BlueLine acquisitions. On a pro forma basis including the
standalone, pre-acquisition results of BakerCorp and BlueLine, equipment rentals
increased 4.1 percent, primarily due to a 4.9 percent increase in average OEC
and a fleet productivity increase of 0.6 percent, partially offset by the impact
of inflation. Equipment rentals represented 85 percent of total revenues in
2019.
On a segment basis, equipment rentals represented 83 percent and 92 percent of
total revenues for general rentals and trench, power and fluid solutions,
respectively. General rentals equipment rentals increased 11.7 percent as
compared to 2018, primarily reflecting a 15.4 percent increase in average OEC,
which includes the impact of the BlueLine acquisition. On a pro forma basis
including the standalone, pre-acquisition results of BlueLine, equipment rental
revenue increased 1.8 percent year-over-year, primarily due to a 3.8 percent
increase in average OEC, partially offset by the impact of fleet inflation.
Trench, power and fluid solutions equipment rentals increased 26.8 percent as
compared to 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 12.8
percent year-over-year, primarily due to a 14.1 percent increase in average OEC,
partially offset by the impact of fleet inflation. The pro forma increase in
average OEC includes the impact of cold starts and acquisitions other than
BakerCorp.
Sales of rental equipment. For the three years in the period ended December 31,
2020, sales of rental equipment represented approximately 9 percent of our total
revenues. Our general rentals segment accounted for most of these sales. 2020
sales of rental equipment did not change materially from 2019. 2019 sales of
rental equipment of $831 increased 25.2 percent from 2018 primarily reflecting
increased volume, which included the impact of the BlueLine acquisition, driven
by a larger fleet size in a strong used equipment market. Average OEC for the
year ended December 31, 2019 increased 17.7 percent year-over-year.
Sales of new equipment. For the three years in the period ended December 31,
2020, sales of new equipment represented approximately 3 percent of our total
revenues. Our general rentals segment accounted for most of these sales. 2020
sales of new equipment of $247 decreased 7.8 percent from 2019 primarily due to
the impact of COVID-19. 2019 sales of new equipment of $268 increased 28.8
percent from 2018 primarily reflecting increased volume driven by broad-based
demand.
Sales of contractor supplies. For the three years in the period ended
December 31, 2020, sales of contractor supplies represented approximately 1
percent of our total revenues. Our general rentals segment accounted for most of
these sales. 2020 sales of contractor supplies did not change materially from
2019, and 2019 sales of contractor supplies did not change materially from 2018.
Service and other revenues. For the three years in the period ended December 31,
2020, service and other revenues represented approximately 2 percent of our
total revenues. Our general rentals segment accounted for most of these sales.
2020 service and other revenues did not change materially from 2019. 2019
service and other revenues of $184 increased 27.8 percent from 2018 primarily
reflecting an increased emphasis on this line of business and the impact of the
BlueLine acquisition.
Fourth Quarter 2020 Items. As discussed in note 12 to our consolidated financial
statements, in the fourth quarter of 2020, we redeemed all of our 4 5/8 percent
Senior Notes due 2025, using borrowings available under our ABL facility. Upon
redemption, we recognized a loss of $24 in interest expense, net, reflecting the
difference between the net carrying amount and the total purchase price of the
redeemed notes.

Fourth Quarter 2019 Items. In the fourth quarter of 2019, we issued $750 aggregate principal amount of 3 7/8 percent Senior Secured Notes due 2027 and redeemed all of our 4 5/8 percent Senior Secured Notes. Upon redemption, we recognized a

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loss of $29 in interest expense, net. The loss represented the difference
between the net carrying amount and the total purchase price of the redeemed
notes. In the fourth quarter of 2019, we also completed the $1.25 billion share
repurchase program that commenced in July 2018.
Segment Equipment Rentals Gross Profit
Segment equipment rentals gross profit and gross margin for each of the three
years in the period ended December 31, 2020 were as follows:
                                     General                 Trench,
                                     rentals        power and fluid 

solutions Total

   2020
   Equipment Rentals Gross Profit   $ 1,954       $                  765           $ 2,719
   Equipment Rentals Gross Margin      35.7  %                      45.9      %       38.1  %
   2019
   Equipment Rentals Gross Profit   $ 2,407       $                  800           $ 3,207
   Equipment Rentals Gross Margin      38.8  %                      45.4      %       40.3  %
   2018
   Equipment Rentals Gross Profit   $ 2,293       $                  670           $ 2,963
   Equipment Rentals Gross Margin      41.3  %                      48.2      %       42.7  %



General rentals. For the three years in the period ended December 31, 2020,
general rentals accounted for 75 percent of our total equipment rentals gross
profit. This contribution percentage is consistent with general rentals'
equipment rental revenue contribution over the same period. For the year ended
December 31, 2020, general rentals' equipment rentals gross profit decreased by
$453, and equipment rentals gross margin decreased by 310 basis points, from
2019, with 240 basis points of the margin decline due to an increase in
depreciation expense as a percentage of revenue. The increase in depreciation
expense includes a $26 asset impairment charge, which was not related to
COVID-19, associated with the discontinuation of certain equipment programs.
Excluding the impact of the asset impairment charge, depreciation expense
decreased slightly from 2019, but increased as a percentage of revenue,
primarily due to COVID-19. As noted above, COVID-19 began to impact our
operations in March 2020, and, since then, equipment rentals have remained down
year-over-year in response to shelter-in-place orders and other market
restrictions. The remaining 70 basis point decline in equipment rentals gross
margin was primarily due to the impact of COVID-19, partially offset by the
impact of actions we have taken to manage operating costs, such as the reduction
of overtime and temporary labor, and the leveraging of our current capacity to
reduce the need for third-party delivery and repair services.

General rentals' equipment rentals gross profit in 2019 increased by $114,
primarily due to increased equipment rentals, including the impact of the
BlueLine acquisition. As discussed above, equipment rentals increased 11.7
percent as compared to 2018, primarily reflecting a 15.4 percent increase in
average OEC. Equipment rentals gross margin decreased 250 basis points from
2018, due primarily to the impact of the BlueLine acquisition and increased
operating costs. The BlueLine acquisition was a significant driver of the 17.7
percent depreciation increase, which exceeded the equipment rentals increase of
11.7 percent. Operating costs were impacted by repair and repositioning
initiatives that resulted in increased repairs and maintenance expense, which
increased 19.8 percent (such increase includes the impact of both the BlueLine
acquisition and the repair and repositioning initiatives).
Trench, power and fluid solutions. For the year ended December 31, 2020,
equipment rentals gross profit decreased by $35, and equipment rentals gross
margin increased by 50 basis points from 2019. The increased gross margin
primarily reflected decreases in certain operating costs, including delivery,
repairs and labor, partially offset by increases in depreciation expense and
certain fixed expenses, such as facility costs, as a percentage of revenue. As
noted above, we have reduced overtime and temporary labor primarily in response
to the impact of COVID-19, and have leveraged our current capacity to reduce the
need for third-party delivery and repair services. Depreciation expense was
largely flat year-over-year, but increased as a percentage of revenue, primarily
due to COVID-19.
For the year ended December 31, 2019, equipment rentals gross profit increased
by $130 and equipment rentals gross margin decreased 280 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 26.8 percent and average OEC
increased 36.0 percent primarily due to 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
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12.8 percent year-over-year, primarily due to a 14.1 percent increase in average
OEC. The decrease in the equipment rentals gross margin was primarily due to the
impact of acquisitions.
Gross Margin. Gross margins by revenue classification were as follows:
                                        Year Ended December 31,                           Change
                                 2020              2019             2018         2020               2019
 Total gross margin             37.3%             39.2%             41.8%  

(190) bps (260) bps

 Equipment rentals              38.1%             40.3%             42.7%   

(220) bps (240) bps

 Sales of rental equipment      38.7%             37.7%             41.9%   

100 bps (420) bps

 Sales of new equipment         13.4%             13.8%             13.9%      (40) bps           (10) bps
 Contractor supplies sales      29.6%             29.8%             34.1%   

(20) bps (430) bps

 Service and other revenues     37.4%             44.6%             43.8%      (720) bps           80 bps


2020 gross margin of 37.3 percent decreased 190 basis points from 2019.
Equipment rentals gross margin decreased 220 basis points year-over-year, with
190 basis points of the margin decline due to an increase in depreciation
expense as a percentage of revenue. Depreciation expense included a $30 asset
impairment charge, which was not related to COVID-19, associated with the
discontinuation of certain equipment programs. Excluding the impact of the asset
impairment charge, depreciation expense decreased slightly from 2019, but
increased as a percentage of revenue, primarily due to COVID-19. As noted above,
COVID-19 began to impact our operations in March 2020, and, since then,
equipment rentals have remained down year-over-year in response to
shelter-in-place orders and other market restrictions. The remaining 30 basis
point decline in equipment rentals gross margin was primarily due to the impact
of COVID-19, partially offset by the impact of actions we have taken to manage
operating costs, such as the reduction of overtime and temporary labor, and the
leveraging of our current capacity to reduce the need for third-party delivery
and repair services. Gross margin from sales of rental equipment increased 100
basis points from 2019 primarily due to lower margin sales of fleet acquired in
the BlueLine acquisition in 2019. The gross margin fluctuations from sales of
new equipment, contractor supplies sales and service and other revenues
generally reflect normal variability and, to varying degrees, the impact of
COVID-19, and such revenue types did not account for a significant portion of
total gross profit (gross profit for these revenue types represented 4 percent
of total gross profit for the year ended December 31, 2020). Gross margin from
service and other revenues was particularly impacted by COVID-19, which resulted
in reduced training revenue without a proportionate reduction in costs.

2019 gross margin of 39.2 percent decreased 260 basis points from 2018.
Equipment rentals gross margin decreased 240 basis points year-over-year, due
primarily to the impact of the BlueLine and BakerCorp acquisitions and increased
operating costs. The BlueLine and BakerCorp acquisitions were significant
drivers of the 19.7 percent depreciation increase, which exceeded the equipment
rentals increase of 14.8 percent. Operating costs were impacted by repair and
repositioning initiatives that resulted in increased repairs and maintenance
expense, which increased 22.4 percent (such increase includes the impact of both
1) the BlueLine and BakerCorp acquisitions and 2) the repair and repositioning
initiatives). On a pro forma basis including the standalone, pre-acquisition
results of BakerCorp and BlueLine, equipment rentals increased 4.1 percent,
primarily due to a 4.9 percent increase in average OEC and a fleet productivity
increase of 0.6 percent, partially offset by the impact of inflation. Gross
margin from sales of rental equipment decreased 420 basis points from 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 year
ended December 31, 2019).
Other costs/(income)
The table below includes the other costs/(income) in our consolidated statements
of income, as well as key associated metrics, for the three years in the period
ended December 31, 2020:
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                                                     Year Ended December 31,                                  Change
                                             2020              2019             2018               2020                    2019
Selling, general and administrative
("SG&A") expense                          $    979          $ 1,092          $ 1,038              (10.3)%                  5.2%

SG&A expense as a percentage of revenue 11.5 % 11.7 %

    12.9  %          (20) bps               (120) bps
Merger related costs                             -                1               36             (100.0)%                (97.2)%
Restructuring charge                            17               18               31              (5.6)%                 (41.9)%
Non-rental depreciation and amortization       387              407              308              (4.9)%                  32.1%
Interest expense, net                          669              648              481               3.2%                   34.7%

Other income, net                               (8)             (10)              (6)             (20.0)%                 66.7%
Provision (benefit) for income taxes           249              340              380              (26.8)%                (10.5)%
Effective tax rate                            21.9  %          22.5  %          25.7  %          (60) bps               (320) 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. The decrease in SG&A expense as a
percentage of revenue for the year ended December 31, 2020 primarily reflects
significant reductions in professional fees and travel and entertainment
expenses, which were implemented in response to COVID-19, partially offset by
increases in salaries and stock compensation as a percentage of revenue. Total
salary and stock compensation expense was largely flat year-over-year, generally
reflecting normal variability, but increased as a percentage of revenue due in
part to the COVID-19 impact on revenue. The decrease in SG&A expense as a
percentage of revenue for the year ended December 31, 2019 primarily reflects a
reduction in stock compensation as a percentage of revenue, and decreased bad
debt expense. The reduced bad debt expense primarily reflects our adoption in
2019 of an updated lease accounting standard (see note 13 to the consolidated
financial statements for further detail). This standard requires that we
recognize doubtful accounts associated with lease revenues as a reduction to
equipment rentals revenue (such amounts were recognized as SG&A expense prior to
2019).
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 that were completed in 2018. 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, National Pump, which had annual revenues of over $200
prior to the acquisition, NES, which had annual revenues of approximately $369
prior to the acquisition, Neff, which had annual revenues of approximately $413
prior to the acquisition, BakerCorp, which had annual revenues of approximately
$295 prior to the acquisition, and BlueLine, which had annual revenues of
approximately $786 prior to the acquisition.
The restructuring charges for the years ended December 31, 2020, 2019 and 2018
primarily reflect severance costs and branch closure charges associated with our
restructuring programs. See note 5 to our consolidated financial statements for
additional information.
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 increase in non-rental
depreciation and amortization for the year ended December 31, 2019 primarily
reflects the impact of the BakerCorp and BlueLine acquisitions discussed above.
Interest expense, net for the years ended December 31, 2020 and 2019 included
aggregate debt redemption losses of $183 and $61, respectively. The debt
redemption losses primarily reflect the difference between the net carrying
amount and the total purchase price of the redeemed notes. Excluding the impact
of these losses, interest expense, net for the year ended December 31, 2020
decreased by 17.2 percent year-over-year primarily due to decreases in average
debt and the average cost of debt. Excluding the impact of the 2019 losses,
interest expense, net for the year ended December 31, 2019 increased
year-over-year primarily due to the impact of higher average debt. The
year-over-year increase in average debt includes the impact of the debt used to
finance the BakerCorp and BlueLine acquisitions discussed above.
A detailed reconciliation of the effective tax rates to the U.S. federal
statutory income tax rate is included in note 14 to our consolidated financial
statements.
In March 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES
Act") was enacted. The CARES Act, among other things, includes provisions
relating to net operating loss carryback periods, alternative minimum tax credit
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refunds, modifications to the net interest deduction limitations, technical
corrections to tax depreciation methods for qualified improvement property and
deferral of employer payroll taxes. The CARES Act did not materially impact our
effective tax rate for the year ended December 31, 2020, although it will impact
the timing of future cash payments for taxes. As of December 31, 2020, we have
deferred employer payroll taxes of $54 under the CARES Act, with approximately
half of the deferral due in each of 2021 and 2022.
Balance sheet. Accounts receivable, net decreased by $215, or 14.1 percent, from
December 31, 2019 to December 31, 2020 primarily due to decreased revenue, which
included the impact of COVID-19. Prepaid expenses and other assets increased by
$235, or 167.9 percent, from December 31, 2019 to December 31, 2020, primarily
due to deposits placed on rental equipment as of December 31, 2020, as discussed
further in note 6 to our consolidated financial statements.
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 the 2020 capital
structure actions taken to improve our financial flexibility and liquidity.
Since 2012, we have repurchased a total of $3.7 billion of Holdings' common
stock under five completed share repurchase programs. On January 28, 2020, our
Board of Directors authorized a new $500 share repurchase program, which
commenced in the first quarter of 2020 and was intended to run for 12 months.
Through March 18, 2020, when the program was paused due to the COVID-19
pandemic, we repurchased $257 of common stock under the program. We are
currently unable to estimate when, or if, the program will be restarted, and we
expect to provide an update at a future date.
Our principal existing sources of cash are cash generated from operations and
from the sale of rental equipment, and borrowings available under our ABL and
accounts receivable securitization facilities. As of December 31, 2020, we had
cash and cash equivalents of $202. Cash equivalents at December 31, 2020 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 year
December 31, 2020:

ABL facility:

      Borrowing capacity, net of letters of credit                   $ 

2,705

      Outstanding debt, net of debt issuance costs (1)                   977
      Interest rate at December 31, 2020                                 1.4  %
      Average month-end principal amount of debt outstanding (1)         794
      Weighted-average interest rate on average debt outstanding         1.9  %

Maximum month-end principal amount of debt outstanding (1) 1,494

      Accounts receivable securitization facility:
      Borrowing capacity                                                 166
      Outstanding debt, net of debt issuance costs                       634
      Interest rate at December 31, 2020                                 1.5  %
      Average month-end principal amount of debt outstanding             667
      Weighted-average interest rate on average debt outstanding         1.8  %
      Maximum month-end principal amount of debt outstanding             811

___________________

(1)The outstanding amount of debt under the ABL facility and the average
outstanding amount are less than the maximum outstanding amount primarily due to
the use of proceeds (i) from the issuance of 4 percent Senior Notes discussed in
note 12 to the consolidated financial statements and (ii) from operations to
reduce borrowings under the facility. At the time of the 4 percent Senior Notes
offering, we indicated our expectation that we would re-borrow an amount equal
to the net proceeds from the offering, along with additional borrowings under
the ABL facility, to redeem the $800 principal amount of our 5 1/2 percent
Senior Notes due 2025 on or after July 15, 2020. Prior to redeeming the 5 1/2
percent Senior Notes due 2025, we considered the impact of COVID-19 on
liquidity, and assessed our available sources and anticipated uses of cash,
including, with respect to sources, cash generated from operations and from the
sale of rental equipment. In August 2020, we redeemed the 5 1/2 percent Senior
Notes due 2025. As discussed above, disciplined management of capital
expenditures and fleet capacity is a component of our COVID-19 response plan,
and, in 2020, capital expenditures
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decreased significantly year-over-year. The decreased capital expenditures
contributed to our ability to use proceeds from operations to reduce borrowings
under the ABL facility.
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. For
information on the scheduled principal and interest payments coming due on our
outstanding debt and on the payments coming due under our existing operating
leases, see "Certain Information Concerning Contractual Obligations."
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 January 25, 2021
were as follows:
                                        Corporate Rating       Outlook
                 Moody's                      Ba2              Positive
                 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.
The amount of our future capital expenditures will depend on a number of
factors, including general economic conditions and growth prospects. We expect
that we will fund such expenditures from cash generated from operations,
proceeds from the sale of rental and non-rental equipment and, if required,
borrowings available under the ABL facility and accounts receivable
securitization facility. Net rental capital expenditures (defined as purchases
of rental equipment less the proceeds from sales of rental equipment) were $103
and $1.301 billion in 2020 and 2019, respectively. As discussed above,
disciplined management of capital expenditures and fleet capacity is a component
of our COVID-19 response plan, which contributed to the year-over-year decrease
in net rental capital expenditures.
Loan Covenants and Compliance. As of December 31, 2020, we were in compliance
with the covenants and other provisions of the ABL, accounts receivable
securitization and term loan facilities and the senior notes. Any failure to be
in compliance with any material provision or covenant of these agreements could
have a material adverse effect on our liquidity and operations.
The only financial covenant that currently exists under the ABL facility is the
fixed charge coverage ratio. Subject to certain limited exceptions specified in
the ABL facility, the fixed charge coverage ratio covenant under the ABL
facility will only apply in the future if specified availability under the ABL
facility falls below 10 percent of the maximum revolver amount under the ABL
facility. When certain conditions are met, cash and cash equivalents and
borrowing base collateral in excess of the ABL facility size may be included
when calculating specified availability under the ABL facility. As of
December 31, 2020, specified availability under the ABL facility exceeded the
required threshold and, as a result, this financial covenant was inapplicable.
Under our accounts receivable securitization facility, we are required, among
other things, to maintain certain financial tests relating to: (i) the default
ratio, (ii) the delinquency ratio, (iii) the dilution ratio and (iv) days sales
outstanding. The accounts receivable securitization facility also requires us to
comply with the fixed charge coverage ratio under the ABL facility, to the
extent the ratio is applicable under the ABL facility.
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 2020, we (i) generated cash from operating
activities of $2.658 billion, which included $300 of cash outflow for refundable
deposits on expected rental equipment purchases, as discussed further in note 6
to the consolidated financial statements, and (ii) generated cash from the sale
of rental and non-rental equipment of $900. We used cash during this period
principally to (i) purchase rental and non-rental equipment of $1.158 billion,
(ii) make debt payments, net of proceeds, of $1.985 billion and (iii) purchase
shares of our common stock for $286. During 2019, we (i) generated cash from
operating activities of $3.024 billion and (ii) generated cash from the sale of
rental and non-rental equipment of $868. We used cash during this period
principally to (i) purchase rental and non-rental equipment of $2.350 billion,
(ii) purchase other companies for $249, (iii) make debt payments, net of
proceeds, of $418 and (iv) purchase shares of our common stock for $870.
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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.
                                                           Year Ended 

December 31,

                                                        2020           2019 

2018

Net cash provided by operating activities $ 2,658 $ 3,024 $ 2,853

     Purchases of rental equipment                      (961)         

(2,132) (2,106)

     Purchases of non-rental equipment                  (197)           

(218) (185)

     Proceeds from sales of rental equipment             858             831          664
     Proceeds from sales of non-rental equipment          42              37           23
     Insurance proceeds from damaged equipment            40              24           22

     Free cash flow                                $   2,440         $ 1,566      $ 1,271



Free cash flow for the year ended December 31, 2020 was $2.440 billion, an
increase of $874 as compared to $1.566 billion for the year ended December 31,
2019. Free cash flow increased primarily due to decreased net rental capital
expenditures (purchases of rental equipment less the proceeds from sales of
rental equipment), partially offset by reduced net cash provided by operating
activities, which included the impact of a $300 cash outflow in 2020 for
refundable deposits on expected rental equipment purchases, as discussed further
in note 6 to the consolidated financial statements. Net rental capital
expenditures decreased $1.198 billion, or 92 percent, year-over-year. As
discussed above, disciplined management of capital expenditures and fleet
capacity is a component of our COVID-19 response plan, which contributed to the
year-over-year decrease in net rental capital expenditures. Free cash flow for
the year ended December 31, 2019 was $1.566 billion, an increase of $295 as
compared to $1.271 billion for the year ended December 31, 2018. Free cash flow
increased primarily due to increased cash provided by operating activities and
increased proceeds from sales of rental equipment. Net rental capital
expenditures decreased $141, or 10 percent, year-over-year.
Certain Information Concerning Contractual Obligations. The table below provides
certain information concerning the payments coming due under certain categories
of our existing contractual obligations as of December 31, 2020:
                                      2021       2022       2023       2024       2025      Thereafter     Total
Debt and finance leases (1)        $   704    $    47    $    36    $ 1,004    $   939    $     7,025    $  9,755
Interest due on debt (2)               376        371        370        357        351            853       2,678
Operating leases (1)                   205        176        144        112         76            113         826

Service agreements (3)                  16         15         16          -          -              -          47
Purchase obligations (4)             1,569          -          -          -          -              -       1,569
Transition tax on unremitted
foreign earnings and profits (5)         -          -          -          -          -              5           5
Total (6)                          $ 2,870    $   609    $   566    $ 1,473    $ 1,366    $     7,996    $ 14,880



_________________
(1)  The payments due with respect to a period represent (i) in the case of debt
and finance leases, the scheduled principal payments due in such period, and
(ii) in the case of operating leases, the payments due in such period for
non-cancelable operating leases with initial or remaining terms of one year or
more. See note 12 to the consolidated financial statements for further debt
information, and note 13 for further finance lease and operating lease
information.
(2)  Estimated interest payments have been calculated based on the principal
amount of debt and the applicable interest rates as of December 31, 2020.
(3)  These primarily represent service agreements with third parties to provide
wireless and network services.
(4)  As of December 31, 2020, we had outstanding advance purchase orders, which
were negotiated in the ordinary course of business, with our equipment and
inventory suppliers. These purchase orders can generally be cancelled by us
without cancellation penalties. The equipment and inventory receipts from the
suppliers pursuant to these purchase orders and the related payments to the
suppliers are expected to be completed throughout 2021. The total above includes
$300 for
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refundable deposits on expected rental equipment purchases, as discussed further
in note 6 to the consolidated financial statements. In 2020, due primarily to
COVID-19, we canceled a significant portion of our purchase orders. In the
fourth quarter of 2020, we entered into a significant amount of purchase
commitments, which increased the obligations to levels that are consistent with
historic obligations. The obligations above reflect our continuing assessment of
the impact of COVID-19, which will also inform our future purchases.
(5)  The Tax Cuts and Jobs Act, which was enacted in December 2017, included a
transition tax on unremitted foreign earnings and profits. We have elected to
pay the transition tax amount payable of $55 over an eight-year period. The
amount that we expect to pay as reflected in the table above represents the
total we owe, net of an overpayment of federal taxes, which we are required to
apply to the transition tax
(6)  This information excludes $10 of unrecognized tax benefits. It is not
possible to estimate the time period during which these unrecognized tax
benefits may be paid to tax authorities. Additionally, we are exposed to various
claims relating to our business, including those for which we retain portions of
the losses through the application of deductibles and self-insured retentions,
which we sometimes refer to as "self-insurance." Our self-insurance reserves
totaled $127 at December 31, 2020. Self-insurance liabilities are based on
estimates and actuarial assumptions and can fluctuate in both amount and in
timing of cash settlement because historical trends are not necessarily
predictive of the future, and, accordingly, are not included in the table above.
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.
Information Regarding Guarantors of URNA Indebtedness
URNA is 100 percent owned by Holdings and has certain outstanding indebtedness
that is guaranteed by both Holdings 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 our Canadian
subsidiary 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 Holdings' other subsidiaries. Holdings consolidates each
of URNA and the guarantor subsidiaries in its consolidated financial statements.
URNA and the guarantor subsidiaries are all 100 percent-owned and controlled by
Holdings. Holdings' guarantees of URNA's indebtedness are full and
unconditional, except that the guarantees may be automatically released and
relieved upon satisfaction of the requirements for legal defeasance or covenant
defeasance under the applicable indenture being met. The Holdings 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 Holdings will not exceed the maximum amount that can be
guaranteed without making the guarantee void under fraudulent conveyance laws.
The guarantees of Holdings and the guarantor subsidiaries are made on a joint
and several basis. The guarantees of the guarantor subsidiaries 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. Like the Holdings
guarantees, the guarantees of the guarantors subsidiaries are 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.
All of the existing guarantees by Holdings and the guarantor subsidiaries rank
equally in right of payment with all of the guarantors' existing and future
senior indebtedness. The secured indebtedness of Holdings and the guarantor
subsidiaries (including guarantees of URNA's existing and future secured
indebtedness) will rank effectively senior to guarantees of any unsecured
indebtedness to the extent of the value of the assets securing such
indebtedness. Future guarantees of subordinated indebtedness will rank junior to
any existing and future senior indebtedness of the guarantors. The guarantees of
URNA's indebtedness are effectively junior to any indebtedness of our
subsidiaries that are not guarantors, including our foreign subsidiaries. As of
December 31, 2020, indebtedness of our non-guarantors included (i) $634 of
outstanding borrowings by the
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SPV in connection with the Company's accounts receivable securitization
facility, (ii) $5 of outstanding borrowings under the ABL facility by
non-guarantor subsidiaries and (iii) $11 of finance leases of our non-guarantor
subsidiaries.
Covenants in the ABL facility, accounts receivable securitization and term loan
facilities, and the other agreements governing our debt, impose operating and
financial restrictions on URNA, Holdings and the guarantor subsidiaries,
including limitations on the ability to make share repurchases and dividend
payments. As of December 31, 2020, the amount available for distribution under
the most restrictive of these covenants was $1.060 billion. The Company's total
available capacity for making share repurchases and dividend payments includes
the intercompany receivable balance of Holdings. As of December 31, 2020, 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 Holdings, was $4.064 billion.
Based on our understanding of Rule 3-10 of Regulation S-X ("Rule 3-10"), we
believe that Holdings' guarantees of URNA indebtedness comply with the
conditions set forth in Rule 3-10, which enable us to present summarized
financial information for Holdings, URNA and the consolidated guarantor
subsidiaries in accordance with Rule 13-01 of Regulation S-X. The summarized
financial information excludes information regarding the non-guarantor
subsidiaries. In accordance with Rule 3-10, separate financial statements of the
guarantor subsidiaries have not been presented.
The summarized financial information of Holdings, URNA and the guarantor
subsidiaries on a combined basis is as follows:
                                             December 31, 2020
              Current assets                        $496
              Long-term assets                     16,461
              Total assets                         16,957
              Current liabilities                  1,151
              Long-term liabilities                11,261
              Total liabilities                    12,412
                                        Year Ended December 31, 2020
              Total revenues                       $7,796
              Gross profit                         2,910
              Net income                            890

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