What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-01-27 compared with 2020-01-29 · 295 added, 176 removed, 486 unchanged (49% of the section changed)

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

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.

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:

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.

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.

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.

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.

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.

As discussed in note 4 to the consolidated financial statements, in July 2018, we completed the acquisition of BakerCorp, which allowed for our entry into select European markets.

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.

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In particular, we have focused on customer segmentation, customer service differentiation, rate management, fleet management and operational efficiency.

In 2020 , we expect to continue our disciplined focus on increasing our profitability and return on invested capital.

In particular, our strategy calls for:

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

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:

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and improving the effectiveness and efficiency of our repair and maintenance operations;

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

The continued expansion of our trench, power and fluid solutions footprint, as well as our tools and onsite services offerings, and the cross-selling of these services throughout our network, as exhibited by our recent acquisition of BakerCorp discussed above.

We plan to open at least 25 specialty rental branches/tool hubs/onsite services locations in 2020 and continue to invest in specialty rental fleet to further position United Rentals as a single source provider of total jobsite solutions through our extensive product and service resources and technology offerings;

The pursuit of strategic acquisitions to continue to expand our core equipment rental business , as exhibited by our recently completed acquisitions of NES, Neff and BlueLine (which is discussed further in note 4 to the consolidated financial statements).

• 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;

• 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 2020 , based on our analyses of industry forecasts and macroeconomic indicators, we expect that the majority of our end markets will continue to experience solid demand for equipment rental services.

Specifically, we expect that North American industry equipment rental revenue will increase approximately 3 percent, with similar growth expected in the U.S.

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.

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.

The pro forma metrics below include the standalone, pre-acquisition results of BakerCorp and BlueLine.

For the full year 2020:

Equipment rentals increased 14.8 percent and 4.1 percent year-over-year, on an actual and a pro forma basis, respectively;

Average OEC increased 17.7 percent and 4.9 percent year-over-year, on an actual and a pro forma basis, respectively;

Fleet productivity decreased 2.2 percent primarily due to the impact of the BakerCorp and BlueLine acquisitions.

On a pro forma basis, fleet productivity increased 0.6 percent;

• 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;

• 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.

The number of rental locations in our higher margin trench, power and fluid solutions (also referred to as "specialty") segment increased by 27 year-over-year primarily due to acquisitions and cold starts.

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 $750 principal amount of 3 7 / 8 percent Senior Secured Notes due 2027;

Redeemed all $850 principal amount of our 5 3 / 4 percent Senior Notes;

Redeemed all $1.0 billion principal amount of our 4 5 / 8 percent Senior Secured Notes;

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

Amended and extended our accounts receivable securitization facility.

As of December 31, 2019 , we had available liquidity of $ 2.143 billion , including cash and cash equivalents of $ 52 .

• 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;

• 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 and diluted earnings per share for each of the three years in the period ended December 31, 2020 are presented below.

Net income and diluted earnings per share for the year ended December 31, 2017 include a substantial benefit associated with the enactment of the Tax Cuts and Jobs Act (the "Tax Act").

The enactment of the Tax Act resulted in an estimated net income increase for the year ended December 31, 2017 of $689, or $8.05 per diluted share, primarily due to a one-time revaluation of our net deferred tax liability based on a U.S.

federal tax rate of 21 percent, which was partially offset by the impact of a one-time transition tax on our unremitted foreign earnings and profits, which we elected to pay over an eight-year period.

The Tax Act reduced the U.S.

federal statutory tax rate from 35 percent to 21 percent, and 2019 and 2018 reflect the lower tax rate.

The Tax Act is discussed further in note 14 to the consolidated financial statements.

Year Ended December 31,

2020 2019 2018

Net income $ 890 $ 1,174 $ 1,096

Diluted earnings per share $ 12.20 $ 15.11 $ 13.12

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The tax rates applied to the items below reflect the statutory rates in the applicable entity.

The reduced tax rates for 2019 and 2018 reflect the enactment of the Tax Act.

Year Ended December 31,

2020 2019 2018

Tax rate applied to items below 25.2 % 25.3 % 25.5 %

Contribution to net income (after-tax)

Impact on diluted earnings per share

Contribution to net income (after-tax)

Impact on diluted earnings per share

Contribution to net income (after-tax)

Impact on diluted earnings per share

Contribution to net income (after-tax) Impact on diluted earnings per share Contribution to net income (after-tax) Impact on diluted earnings per share Contribution to net income (after-tax) Impact on diluted earnings per share

Merger related costs (1) $ — $ — $ (1) $ (0.01) $ (27) $ (0.32)

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Loss on extinguishment of debt securities and amendment of ABL facility (7) (137) (1.88) (45) (0.58) — —

This reflects transaction costs associated with the NES and Neff acquisitions that were completed in 2017, and the BakerCorp and BlueLine acquisitions discussed in note 4 to the consolidated financial statements.

(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.

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(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.

EBITDA GAAP Reconciliations .

EBITDA represents the sum of net income, provision (benefit) for income taxes, interest expense, net, depreciation of rental equipment and non-rental depreciation and amortization.

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 EBITDA and adjusted EBITDA margins represent EBITDA or adjusted EBITDA divided by total revenue.

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.

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Year Ended December 31,

Provision (benefit) for income taxes

2020 2019 2018

Net income $ 890 $ 1,174 $ 1,096

Provision for income taxes 249 340 380

Interest expense, net 669 648 481

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Non-rental depreciation and amortization 387 407 308

EBITDA 3,796 4,200 3,628

Merger related costs (1) — 1 36

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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:

Year Ended December 31,

2020 2019 2018

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

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Gain on sales of non-rental equipment 8 6 6

Gain on insurance proceeds from damaged equipment

Insurance proceeds from damaged equipment 40 24 22

Merger related costs (1) — (1) (36)

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Cash paid for income taxes, net 318 238 71

EBITDA 3,796 4,200 3,628

Merger related costs (1) — 1 36

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_________________

(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.

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(4) This reflects additional costs recorded in cost of rental equipment sales associated with the fair value mark-up of rental equipment acquired in the RSC, NES, Neff and BlueLine acquisitions that was subsequently sold.

For the year ended December 31, 2019 , EBITDA increased $ 572 , or 15.8 percent, and adjusted EBITDA increased $ 492 , or 12.7 percent.

For the year ended December 31, 2019 , EBITDA margin decreased 20 basis points to 44.9 percent, and adjusted EBITDA margin decreased 140 basis points to 46.6 percent.

As discussed above, we completed the acquisitions of BakerCorp and BlueLine in July 2018 and October 2018, respectively, and the EBITDA and adjusted EBITDA increases for 2019 include the impact of these acquisitions.

(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

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.

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.

For the year ended December 31, 2018, EBITDA increased $733, or 25.3 percent, and adjusted EBITDA increased $699, or 22.1 percent.

For the year ended December 31, 2018, EBITDA margin increased 150 basis points to 45.1 percent, and adjusted EBITDA margin increased 40 basis points to 48.0 percent.

As discussed above, we completed the acquisitions of NES, Neff, BakerCorp and BlueLine in April 2017, October 2017, July 2018 and October 2018, respectively, and EBITDA and adjusted EBITDA for 2018 include the impact of these acquisitions.

The increase in the EBITDA margin primarily reflects i) a decrease in selling, general and administrative ("SG&A") expense as a percentage of revenue primarily due to a reduction in salaries and bonuses as a percentage of revenue and ii) reduced merger related costs and restructuring charges.

The increase in the adjusted EBITDA margin primarily reflects a decrease in SG&A expense as a percentage of revenue primarily due to a reduction in salaries and bonuses as a percentage of revenue.

Revenues for each of the three years in the period ended December 31, 2020 were as follows:

Year Ended December 31,

Year Ended December 31, Change

2020 2019 2018 2020 2019

Equipment rentals* $ 7,140 $ 7,964 $ 6,940 (10.3)% 14.8%

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(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.

As discussed in note 4 to the consolidated financial statements, we completed the acquisitions of BakerCorp and BlueLine in July 2018 and October 2018, respectively.

Additionally, we completed the acquisition of NES and Neff in April 2017

and October 2017, respectively.

The pro forma information includes the standalone, pre-acquisition results of NES, Neff, BakerCorp and BlueLine.

(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:

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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.

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.

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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.

2018 total revenues of $ 8.0 billion increased 21.2 percent compared with 2017.

Equipment rentals increased 21.4 percent, primarily due to a 20.3 percent increase in average OEC, which included the impact of the NES, Neff, BakerCorp and BlueLine acquisitions.

On a pro forma basis including the standalone, pre-acquisition results of NES, Neff, BakerCorp and BlueLine, equipment rentals increased 10.5 percent, primarily due to a 6.6 percent increase in average OEC and a fleet productivity increase of 5.0 percent, partially offset by the impact of inflation.

The fleet productivity increase reflected improving demand in many of our core markets.

Sales of rental equipment increased 20.7 percent primarily due to increased volume, driven by a significantly larger fleet size, in a strong used equipment market.

As noted above, average OEC increased 20.3 percent, which included the impact of the NES, Neff, BakerCorp and BlueLine acquisitions.

Critical Accounting Policies

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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.

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.

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Write-offs of such receivables require management approval based on specified dollar thresholds.

During the years ended December 31, 2019 , 2018 and 2017 , we recognized total additions, excluding acquisitions, to our allowances for doubtful accounts of $ 42 , $ 45 and $ 40 , respectively, primarily 1) as a reduction to equipment rental revenue (primarily for 2019 doubtful accounts associated with lease revenues) or 2) as bad debt expense within selling, general and administrative expenses in our consolidated statements of income.

See note 3 to our consolidated financial statements for further detail.

Useful Lives and Salvage Values of Rental Equipment and Property and Equipment .

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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 assumed.

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

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.

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We believe this approach, which utilizes multiple valuation techniques, yields the most appropriate evidence of fair value.

We review goodwill for impairment utilizing a two-step process.

The first step of the impairment test requires a comparison of the fair value of each of our reporting units' net assets to the respective carrying value of net assets.

If the carrying value of a reporting unit's net assets is less than its fair value, no indication of impairment exists and a second step is not performed.

If the carrying amount of a reporting unit's net assets is higher than its fair value, there is an indication that an impairment may exist and a second step must be performed.

In the second step, the impairment is calculated 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.

If the carrying amount of the reporting unit's goodwill is greater than the implied fair value of its goodwill, an impairment loss must be recognized for the excess and charged to operations.

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.

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.

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.

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The second form is based on multiples paid in recent acquisitions of companies.

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 as a basis for determining whether it is necessary to perform the two-step goodwill impairment test.

As discussed in note 2 to our consolidated financial statements, in 2020, we will adopt accounting guidance that eliminates the second step from the goodwill impairment test (this guidance is not expected to have a significant impact on our financial statements).

In connection with our goodwill impairment test that was conducted as of October 1, 2018, we bypassed the qualitative assessment for each reporting unit and proceeded directly to the first step of the goodwill impairment test.

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 in note 4 to the consolidated financial statements, in July 2018, we completed the acquisition of BakerCorp, which added 11 European locations to our branch network.

The European locations are in our Fluid Solutions Europe reporting unit.

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.

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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.

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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.

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.

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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 information.

The second step is measurement:

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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 have been provided on such earnings.

We continue to evaluate our plans for reinvestment or repatriation of unremitted foreign earnings and have not changed our previous indefinite reinvestment determination following the enactment of the Tax Act discussed above.

We have not repatriated funds to the U.S.

to satisfy domestic liquidity needs, nor do we anticipate the need to do so.

The Tax Act required a one-time transition tax for deemed repatriation of accumulated undistributed earnings of certain foreign investments.

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.

We regularly review our cash positions and our determination of permanent reinvestment of foreign earnings.

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 .

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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.

(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.

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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 other general rentals' regions during this period primarily due to declines in the oil and gas business in the region.

The Western Canada region's equipment rentals gross margin was less than the

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.

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We similarly monitor the margin variances for the regions in the trench, power and fluid solutions segment.

The trench, power and fluid solutions segment includes the locations acquired in the July 2018 BakerCorp acquisition discussed in note 4 to the consolidated financial statements.

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.

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Revenues by segment were as follows:

power and fluid solutions

rentals Trench,

power and fluid solutions Total

Year Ended December 31, 2020

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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.

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The pro forma increase in average OEC includes the impact of cold starts and acquisitions other than BakerCorp.

2018 equipment rentals of $6.9 billion increased 21.4 percent, primarily due to a 20.3 percent increase in average OEC, which includes the impact of the NES, Neff, BakerCorp and BlueLine acquisitions.

On a pro forma basis including the standalone, pre-acquisition results of BakerCorp and BlueLine, equipment rentals increased 10.5 percent, primarily due to a 6.6 percent increase in average OEC and a fleet productivity increase of 5.0 percent, partially offset by the impact of inflation.

The fleet productivity increase reflected improving demand in many of our core markets.

Equipment rentals represented 86 percent of total revenues in 2018.

On a segment basis, equipment rentals represented 85 percent and 93 percent of total revenues for general rentals and trench, power and fluid solutions, respectively.

General rentals equipment rentals increased 17.4 percent as compared to 2017, primarily reflecting a 17.9 percent increase in average OEC, which includes the impact of the NES, Neff and BlueLine acquisitions.

On a pro forma basis including the standalone, pre-acquisition results of NES, Neff and BlueLine, equipment rental revenue increased 7.3 percent year-over-year, primarily due to a 5.5 percent increase in average OEC.

Trench, power and fluid solutions equipment rentals increased 40.7 percent as compared to 2017, primarily reflecting a 43.0 percent increase in

average OEC, which included the impact of the BakerCorp acquisition.

On a pro forma basis including the standalone, pre-acquisition results of BakerCorp, equipment rental revenue increased 25.4 percent year-over-year, primarily due to a 16.7 percent increase in average OEC and improved time utilization.

The increased utilization reflects improved performance in our Fluid Solutions and Power and HVAC regions.

The improvement in the Fluid Solutions region reflects growth in revenue from upstream oil and gas customers, which have experienced significant volatility in recent years.

Additionally, due in part to the upstream oil and gas volatility, we have sought to diversify our revenue mix to achieve a reduced portion of business tied to oil and gas.

We have diversified outside of oil and gas, and have grown our revenue from most of our non oil and gas customers (for example, industrial, construction and mining customers).

The Power and HVAC region experienced growth in revenue from oil and gas, and non-residential construction, customers.

Sales of rental equipment .

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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.

2018 sales of rental equipment of $664 increased 20.7 percent from 2017 primarily reflecting increased volume, driven by a significantly larger fleet size, in a strong used equipment market.

Average OEC for the year ended December 31, 2018 increased 20.3 percent year-over-year.

Sales of new equipment .

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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.

2018 sales of new equipment of $208 increased 16.9 percent from 2017 primarily reflecting increased volume driven partially by some larger sales.

Sales of contractor supplies .

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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.

2018 service and other revenues of $144 increased 22.0 percent from 2017 primarily reflecting an increased emphasis on this line of business.

Fourth Quarter 2020 Items .

As discussed in note 12 to our consolidated financial statements, 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 loss of $29 in interest expense, net.

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

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.

Fourth Quarter 2018 Items .

The fourth quarter of 2018 includes $22 of merger related costs and $16 of restructuring charges primarily associated with the BakerCorp and BlueLine acquisitions discussed in note 4 to our consolidated financial statements.

In the fourth quarter of 2018, we entered into a $1 billion senior secured term loan facility and issued $1.1 billion principal amount of 6 1 / 2 percent Senior Notes due 2026.

As discussed in note 4 to the consolidated financial statements, the proceeds from the 6 1 / 2 percent Senior Notes and borrowings under the term loan facility were used to finance the acquisition of BlueLine in October 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:

power and fluid solutions

rentals Trench,

power and fluid solutions Total

Equipment Rentals Gross Profit $ 1,954 $ 765 $ 2,719

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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.

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.

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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).

General rentals’ equipment rentals gross profit in 2018 increased $343, primarily due to increased equipment rentals, including the impact of the NES, Neff and BlueLine acquisitions.

Equipment rentals increased 17.4 percent as compared to 2017, primarily reflecting a 17.9 percent increase in average OEC.

Equipment rentals gross margin was flat with 2017.

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.

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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 12.8 percent year-over-year, primarily due to a 14.1 percent increase in average OEC.

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.

The decrease in the equipment rentals gross margin was primarily due to the impact of acquisitions.

For the year ended December 31, 2018, equipment rentals gross profit increased by $180 and equipment rentals gross margin decreased 140 basis points from 2017.

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 40.7 percent and average OEC increased 43.0 percent.

The decrease in the equipment rentals gross margin includes the impact of the BakerCorp acquisition and mix changes (in particular, fuel revenue, which generates lower margins, increased).

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.

Gross Margin .

Gross margins by revenue classification were as follows:

Year Ended December 31,

Total gross margin

Equipment rentals

Sales of rental equipment

Sales of new equipment

Contractor supplies sales

Service and other revenues

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.

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.

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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).

2018 gross margin of 41.8 percent increased 10 basis points.

Equipment rentals gross margin was flat with 2017.

Gross margin from sales of rental equipment increased 190 basis points, primarily reflecting improved pricing and changes in the mix of equipment sold.

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:

Year Ended December 31,

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

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)%

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Provision (benefit) for income taxes 249 340 380 (26.8)% (10.5)%

Effective tax rate

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.

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 new 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 decrease in SG&A expense as a percentage of revenue for the year ended December 31, 2018 primarily reflects a reduction in salaries and bonuses as a percentage of revenue.

The merger related costs reflect transaction costs associated with the NES and Neff acquisitions that were completed in 2017, and the BakerCorp and BlueLine acquisitions discussed in note 4 to the consolidated financial statements.

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, and National Pump, which had annual revenues of over $200 prior to the acquisition.

NES had annual revenues of approximately $369 and Neff had annual revenues of approximately $413.

As discussed in note 4 to the consolidated financial statements, BakerCorp had annual revenues of approximately $295 and BlueLine had annual revenues of approximately $786.

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.

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Our other intangible assets consist of customer relationships, non-compete agreements and trade names and associated trademarks.

The year-over-year increases in non-rental depreciation and amortization for the years ended December 31, 2019 and 2018 primarily reflect the impact of the Neff, BakerCorp and BlueLine acquisitions discussed above.

Interest expense, net for the years ended December 31, 2019 and 2017 included aggregate losses of $61 and $54 , respectively, associated with debt redemptions and the amendments of our ABL facility.

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.

Excluding the impact of the 2017 losses, interest expense, net for the year ended December 31, 2018 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 NES, Neff, 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.

As discussed further in note 14 , the income tax benefit for the year ended December 31, 2017 includes the substantial impact of the enactment of the Tax Act discussed above.

The Tax Act reduced the U.S.

federal statutory tax rate from 35 percent to 21 percent and the years ended December 31, 2019 and 2018 reflect the decreased tax rate.

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

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 .

As discussed in note 13 to the consolidated financial statement, in 2019, we adopted an updated lease accounting standard that resulted in the recognition of operating lease right-of-use assets and lease liabilities.

We adopted this standard using a transition method that does not require application to periods prior to adoption.

Accrued expenses and other liabilities increased by $70 , or 10.3 percent, from December 31, 2018 to December 31, 2019 , due partially to the accounting for operating leases under the updated accounting standard (accrued expenses and other liabilities as of December 31, 2019 includes $178 of current operating lease liabilities).

Excluding the impact of the operating lease liabilities, accrued expenses and other liabilities decreased primarily due to an increase in anticipated income tax refunds.

Accounts payable decreased by $82 , or 15.3 percent, from December 31, 2018 to December 31, 2019 primarily due to the timing of (i) invoice payments and (ii) payroll taxes.

See note 14 to the consolidated financial statements for a discussion addressing our deferred tax liability.

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.

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Since 2012, we have repurchased a total of $3.7 billion of Holdings' common stock under five completed share repurchase programs.

Additionally, in January 2020, our Board authorized a new $500 share repurchase program, which will commence in the first quarter of 2020.

We intend to complete the new program over twelve months.

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.

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Maximum month-end principal amount of debt outstanding

___________________

(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

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.

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Our credit ratings as of January 25, 2021 were as follows:

Corporate Rating

Standard & Poor’s

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.

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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 $ 1.30 billion and $ 1.44 billion in 2019 and 2018 , respectively.

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 .

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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.

During 2018, we (i) generated cash from operating activities of $2.85 billion, (ii) generated cash from the sale of rental and non-rental equipment of $687 and (iii) received cash from debt proceeds, net of payments, of $2.24 billion.

We used cash during this period principally to (i) purchase rental and non-rental equipment of $2.29 billion, (ii) purchase other companies for $2.97 billion and (iii) purchase shares of our common stock for $817.

Free Cash Flow GAAP Reconciliation

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Year Ended December 31,

2020 2019 2018

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

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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.

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 (purchases of rental equipment less the proceeds from sales of rental equipment) decreased $ 141 , or 10 percent, year-over-year.

Free cash flow for the year ended December 31, 2018 was $1.271 billion, an increase of $364 as compared to $907 for the year ended December 31, 2017.

Free cash flow increased primarily due to increased cash provided by operating activities and increased proceeds from sales of rental equipment, partially offset by increased purchases of rental and non-rental equipment.

Net rental capital expenditures increased $223, or 18 percent, year-over-year.

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

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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

_________________

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(3) These primarily represent service agreements with third parties to provide wireless and network services.

As of December 31, 2019 , we had outstanding purchase orders, which were negotiated in the ordinary course of business, with our equipment and inventory suppliers.

These purchase commitments can generally be cancelled by us with 30 days notice and without cancellation penalties.

The equipment and inventory receipts from the suppliers for these purchases and related payments to the suppliers are expected to be completed throughout 2020 .

As discussed further in note 14 to the consolidated financial statements, the Tax Act, which was enacted in December 2017, included a transition tax on unremitted foreign earnings and profits, and we completed the accounting for the transition tax in 2018.

(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

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.

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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

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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What changed 10-K

Item 7. Management’s Discussion and Analysis