What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-01-26 compared with 2021-01-27 · 190 added, 325 removed, 456 unchanged (53% 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 2 to our consolidated financial statements, in 2021, we adopted SEC guidance that is intended to modernize, simplify, and enhance certain disclosures throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In accordance with this guidance, we have omitted discussions comparing 2020 and 2019 results, as such disclosures were included in our Annual Report on Form 10-K for the year ended December 31, 2020.

As discussed below, in March 2020, we first experienced rental volume declines associated with COVID-19, and the COVID-19 impact was more pronounced in 2020 than 2021.

Our Annual Report on Form 10-K for the year ended December 31, 2020 and our Quarterly Reports on Form 10-Q filed in 2021 include detailed disclosures addressing the COVID-19 response plan that is summarized below.

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.

Uncertainty remains regarding the ongoing impact of existing and emerging variant strains of COVID-19 on the operations and financial position of United Rentals, and on the global economy.

Uncertainty also remains regarding the length of time it will take for the COVID-19 pandemic to ultimately subside, which will be impacted by the effectiveness of vaccines against COVID-19 (including against emerging variant strains), and by measures that may in the future be implemented to protect public health.

Business-Industry Overview and Economic Outlook" for a discussion of market performance in 2021 and 2020.

We began to experience a decline in revenues in March 2020, which is when the World Health Organization characterized COVID-19 as a pandemic and when our rental volume first declined in response to shelter-in-place orders and other market restrictions.

The volume declines were more pronounced in 2020 than 2021, and we have seen recent evidence of recovery across our construction and industrial markets, as well as encouraging gains in end-market indicators, as reflected in our 2022 forecast.

In early March 2020, 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.

Our COVID-19 response plan is focused on five work-streams:

1) ensuring the safety and well-being of our employees and customers, 2) leveraging our competitive advantages to support the needs of customers, 3) aggressively managing capital expenditures, 4) controlling core operating expenses and 5) proactively managing the balance sheet with a focus on liquidity.

We believe that this response plan helped mitigate the impact of COVID-19 on our results.

As noted above, our Annual Report on Form 10-K for the year ended December 31, 2020 and our Quarterly Reports on Form 10-Q filed in 2021 include additional detailed COVID-19 disclosures.

The impact of COVID-19 on our business is discussed throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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.

We are the largest equipment rental company in the world, with an integrated network of 1,345 rental locations.

We primarily operate in the United States and Canada, and have a limited presence in Europe, Australia and New Zealand (see Item 2—Properties for further detail).

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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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.

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

We are currently managing the impact of COVID-19, as discussed above.

We are continuing to manage the impact of COVID-19, which is discussed above.

Our general strategy focuses on profitability and return on invested capital, and, in particular, calls for:

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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;

• The continued expansion of our specialty 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 specialty business, as exhibited by our acquisition of General Finance discussed in note 4 to the consolidated financial statements, 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 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.

In 2022, based on our analyses of industry forecasts and macroeconomic indicators, we expect a continuation of the market recovery experienced in 2021, following a market decline in 2020, which included the pronounced impact of COVID-19.

Specifically, we expect that North American industry equipment rental revenue will increase approximately 10 percent in 2022.

Business- Industry Overview and Economic Outlook" for a discussion of market performance in 2021 and 2020.

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 2021:

• 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;

• Equipment rentals increased 14.9 percent year-over-year, including the impact of the May 2021 acquisition of General Finance discussed in note 4 to the consolidated financial statements;

• Average OEC increased 4.0 percent year-over-year, including the impact of the General Finance acquisition;

• Fleet productivity increased 10.4 percent, primarily due to improved fleet absorption in 2021.

2020 reflected more pronounced rental volume declines associated with COVID-19, and in 2021, we saw evidence of a continuing recovery of activity across our end-markets;

• 72 percent of equipment rental revenue was derived from key accounts, as compared to 74 percent in 2020.

Key accounts are each managed by a single point of contact to enhance customer service.

The slight decrease from 2020 includes the impact of the General Finance acquisition, which added revenue from Australia and New Zealand that is not from key accounts.

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.

Prior to taking actions pertaining to our financial flexibility and liquidity, we consider the impact of COVID-19 on liquidity, and assess 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 2021, 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 3 3 / 4 percent Senior Notes due 2032;

• 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 billion principal amount of our 5 7 / 8 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.

• Amended and extended our accounts receivable securitization facility, which expires on June 24, 2022 and may be further extended on a 364-day basis by mutual agreement with the purchasers under the facility, including an increase in the size of the facility from $800 to $900.

Total debt as of December 31, 2021 was flat year-over-year.

In 2021, borrowings under the ABL facility were used to fund most of the cost of the General Finance acquisition discussed above.

2021 debt activity also included the use of cash generated from operations, net of the funds used for capital expenditures, to reduce borrowings under the ABL facility (excluding the impact of the General Finance acquisition) and the net impact of the debt issuance and redemption discussed above.

As of December 31, 2021, we had available liquidity of $2.851 billion, comprised of cash and cash equivalents, and availability under the ABL and accounts receivable securitization facilities.

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Net income and diluted earnings per share for each of the three years in the period ended December 31, 2021 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.

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

Year Ended December 31,

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Asset impairment charge (6) (10) (0.14) (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.

Loss on repurchase/redemption of debt securities (7) (22) (0.31) (137) (1.88) (45) (0.58)

(1) This primarily reflects transaction costs associated with the General Finance acquisition discussed above.

Merger related costs only include costs associated with major acquisitions completed since 2012 that significantly impact our operations (the "major acquisitions," each of which had annual revenues of over $200 prior to acquisition).

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.

(2) This reflects the amortization of the intangible assets acquired in the major acquisitions.

(3) This reflects the impact of extending the useful lives of equipment acquired in certain major 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 certain major acquisitions that was subsequently sold.

(5) As discussed in note 6 to our consolidated financial statements, this primarily reflects severance costs and branch closure charges associated with our restructuring programs.

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As discussed in note 6 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.

(7) 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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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.

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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Stock compensation expense, net (3) (119) (70) (61)

Loss on extinguishment of debt securities and amendment of ABL facility (5) (183) (61) —

Loss on repurchase/redemption of debt securities (5) (30) (183) (61)

Changes in assets and liabilities (328) 241 170

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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.

(1) This primarily reflects transaction costs associated with the General Finance acquisition discussed above.

Merger related costs only include costs associated with major acquisitions that significantly impact our operations.

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

(5) This primarily reflects the difference between the net carrying amount and the total purchase price of the redeemed notes.

(5) 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, 2021, net income increased $496, or 55.7 percent, and net income margin increased 390 basis points to 14.3 percent.

For the year ended December 31, 2021, adjusted EBITDA increased $482, or 12.3 percent, and adjusted EBITDA margin decreased 70 basis points to 45.4 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.

The year-over-year increase in net income margin primarily reflected a reduction in interest expense, improved gross margins from equipment rentals and sales of rental equipment and decreased non-rental depreciation and amortization as a percentage of revenue, partially offset by higher selling, general and administrative ("SG&A") and income tax expenses.

Net interest expense decreased $245, or 37 percent, year-over-year.

Excluding the impact of debt redemption losses, net interest expense decreased 19 percent year-over-year, primarily due to decreases in both average debt and the average cost of debt.

Equipment rentals gross margin increased year-over-year primarily due to a reduction in depreciation expense as a percentage of revenue, partially offset by higher bonus expense primarily due to improved profitability, and increases in certain operating expenses, including delivery costs, as a percentage of revenue.

Gross margin from sales of rental equipment increased primarily due to improved pricing in a strong used equipment market.

Non-rental depreciation and amortization decreased 4 percent year-over-year, which equated to a significant improvement as a percentage of revenue.

SG&A expense increased year-over-year primarily due to higher bonus and stock compensation expenses, which reflect improved profitability.

Year-over-year, income tax expense increased $211, or 85 percent, and the effective income tax rate increased by 300 basis points, primarily reflecting the release in 2020 of a valuation allowance on foreign tax credits.

The decrease in the adjusted EBITDA margin primarily reflects lower margins from equipment rentals (excluding depreciation) and increased SG&A expense, partially offset by higher margins from sales of rental equipment.

Gross margin from equipment rentals (excluding depreciation) decreased 110 basis points primarily due to a higher bonus accrual, which reflects improved profitability, and increases in certain operating expenses, including delivery costs, as a percentage of revenue.

SG&A expense increased primarily due to increased bonus expense, which reflects improved profitability.

Gross margin from sales of rental equipment increased primarily due to improved pricing in a strong used equipment market.

Revenues for each of the three years in the period ended December 31, 2021 were as follows:

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Total change in equipment rentals 14.9% (10.3)%

*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%

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Mix includes the impact of changes in customer, fleet, geographic and segment mix.

The positive fleet productivity for 2021 and the negative fleet productivity for 2020 include the impact of COVID-19, which resulted in rental volume declines in response to shelter-in-place orders and other market restrictions, as discussed further above.

The COVID-19 volume declines were more pronounced in 2020 than 2021, and in 2021, we saw evidence of a continuing recovery of activity across our end-markets.

(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:

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Collectively, these "ancillary fees" represented approximately 14 percent of equipment rental revenue in 2021.

Delivery and pick-up revenue, which represented approximately seven percent of equipment rental revenue in 2020, is the most significant ancillary revenue component.

Delivery and pick-up revenue, which represented approximately eight percent of equipment rental revenue in 2021, is the most significant ancillary revenue component.

Sales of rental equipment represent our revenues from the sale of used rental equipment.

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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.

2021 total revenues of $9.7 billion increased 13.9 percent compared with 2020.

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, 2021).

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.

Equipment rentals increased 14.9 percent, primarily due to a 10.4 percent increase in fleet productivity, which included the more pronounced impact of COVID-19, which resulted in rental volume declines in response to shelter-in-place orders and other market restrictions, in 2020.

COVID-19 began to impact our operations in March 2020.

In 2021, we have seen evidence of a continuing recovery of activity across our end-markets.

Sales of rental equipment increased 12.8 percent, primarily due to improved pricing in a strong used equipment market and the impact of the General Finance acquisition.

Critical Accounting Policies

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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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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 50 percent of cost.

The weighted average salvage value of our rental equipment is 11 percent of cost (immaterial salvage values are assigned to our property and equipment).

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;

The useful life of an asset is determined based on our estimate of the period over which the asset can generate revenues;

such periods are periodically reviewed for reasonableness.

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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

Goodwill is calculated as the excess of the cost of the acquired business over the net of the fair value of the assets acquired and the liabilities 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.

Determining the fair value of the assets and liabilities acquired can be 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;

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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.

When conducting the goodwill impairment test, we are required to compare the fair value of our reporting units (which are our regions) with the carrying amount.

As discussed in note 5 to our consolidated financial statements, as of December 31, 2021, our divisions were our operating segments.

We conducted the goodwill impairment test as of October 1, 2021 at the reporting unit level, which is one level below the operating segment level.

We conducted the goodwill impairment test as of October 1, 2020 at the same reporting unit level, although at that time, the reporting unit was also the operating segment (see note 5 for further discussion of our segment structure).

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.

We estimate the fair value of our reporting units 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.

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.

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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.

In connection with our goodwill impairment test that was conducted as of October 1, 2021, we bypassed the optional qualitative assessment for each reporting unit and quantitatively compared the fair values of our reporting units with their carrying amounts.

Our goodwill impairment testing as of this date indicated that all of our reporting units, excluding our Mobile Storage and Mobile Storage International reporting units, had estimated fair values which exceeded their respective carrying amounts by at least 59 percent.

As discussed in note 4 to the consolidated financial statements, in May 2021, we completed the acquisition of General Finance.

All of the assets in the Mobile Storage and Mobile Storage International reporting units were acquired in the General Finance acquisition.

The estimated fair values of our Mobile Storage and Mobile Storage International reporting units exceeded their carrying amounts by 10 percent and 17 percent, respectively.

As all of the assets in the Mobile Storage and Mobile Storage International reporting units were recorded at fair value as of the May 2021 acquisition date, we

expected the percentages by which the fair values for these reporting units exceeded the carrying values 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, 2020, we bypassed the optional 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.

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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.

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.

We review the recoverability of our rental equipment, property and equipment and lease assets 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).

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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.

As discussed in note 6 to our consolidated financial statements, during the years ended December 31, 2021, 2020 and 2019, we recorded asset impairment charges of $14, $36 and $5, respectively.

The 2020 charges principally related to the discontinuation of certain equipment programs, and were not related to COVID-19.

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.

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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.

Based on our most recently completed quarterly reviews, there were no indications of impairment associated with our rental equipment, property and equipment or lease assets.

Income Taxes .

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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

The second step is measurement:

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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.

In the fourth quarter of 2020, we identified cash in our foreign operations in excess of near-term working capital needs, and determined that such cash 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 changed.

In the fourth quarter of 2021, we identified additional cash in our foreign operations in excess of near-term working capital needs, and remitted $203 of cash from foreign operations (such amount represents the cumulative amount of identified cash in our foreign operations in excess of near-term working capital needs).

The taxes recorded associated with the remitted cash were immaterial in both 2020 and 2021.

We continue to expect that the remaining balance of our undistributed foreign earnings will be indefinitely reinvested.

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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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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.

As discussed in note 5 to our consolidated financial statements, our reportable segments are general rentals and specialty.

The general rentals segment includes the rental of construction, aerial, industrial and homeowner equipment and related services and activities.

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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

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.

The specialty segment includes the rental of specialty construction products such as i) trench safety equipment, such as trench shields, aluminum hydraulic shoring systems, slide rails, crossing plates, construction lasers and line testing equipment for underground work, ii) power and HVAC equipment, such as portable diesel generators, electrical distribution equipment, and temperature control equipment, iii) fluid solutions equipment primarily used for fluid containment, transfer and treatment, and iv) mobile storage equipment and modular office space.

The specialty segment’s customers include construction companies involved in infrastructure projects, municipalities and industrial companies.

This segment primarily operates in the United States and Canada, and has a limited presence in Europe, Australia and New Zealand.

As discussed in note 5 to our consolidated financial statements, we aggregate our four geographic divisions—Central, Northeast, Southeast and West—into our general rentals reporting segment.

Historically, there have occasionally been variances in the levels of equipment rentals gross margins achieved by these divisions, though such variances have generally been small (close to or less than 10 percent, measured versus the equipment rentals gross margins of the aggregated general rentals' divisions).

For the five year period ended December 31, 2021, there was no general rentals' division with an equipment rentals gross margin that differed materially from the equipment rentals gross margin of the aggregated general rentals' divisions.

The rental industry is cyclical, and there historically have occasionally been divisions with equipment rentals gross margins that varied by greater than 10 percent from the equipment rentals gross margins of the aggregated general rentals' divisions, though the specific divisions with margin variances of over 10 percent have fluctuated, and such variances have generally not exceeded 10 percent by a significant amount.

We monitor the margin variances and confirm margin similarity between divisions on a quarterly basis.

We believe that the divisions that are aggregated into our segments have similar economic characteristics, as each division 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 divisions also reflects the management structure that we use for making operating decisions and assessing performance.

Although we believe aggregating these divisions 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 divisions 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.

These reporting 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.

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Revenues by segment were as follows:

rentals Trench,

power and fluid solutions Total

rentals Specialty Total

Year Ended December 31, 2021

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Equipment rentals.

2020 equipment rentals of $7.1 billion decreased 10.3 percent.

2021 equipment rentals of $8.2 billion increased 14.9 percent as compared to 2020, primarily due to a 10.4 percent increase in fleet productivity, which included the more pronounced impact of COVID-19, which resulted in rental volume declines in response to shelter-in-place orders and other market restrictions, in 2020.

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.

In 2021, we have seen evidence of a continuing recovery of activity across our end-markets.

Equipment rentals represented 84 percent of total revenues in 2021.

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.

On a segment basis, equipment rentals represented 83 percent and 90 percent of total revenues for general rentals and specialty, respectively.

General rentals equipment rentals increased 11.0 percent as compared to 2020, primarily due to increased fleet productivity, which included the more pronounced impact of COVID-19 during 2020.

In 2021, we have seen evidence of a continuing recovery of activity across our end-markets.

Specialty rentals increased 27.9 percent as compared to 2020, including the impact of the General Finance acquisition.

On a pro forma basis including the standalone, pre-acquisition revenues of General Finance, equipment rentals increased 18 percent.

The increase in equipment rentals reflects increased fleet productivity, which included the more pronounced impact of COVID-19 during 2020, as well as a slight increase in average OEC.

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.

2021 sales of rental equipment increased 12.8 percent from 2020 primarily due to improved pricing in a strong used equipment market and the impact of the General Finance acquisition.

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.

2021 sales of new equipment of $203 decreased 17.8 percent from 2020 primarily due to supply chain challenges.

For a discussion of the risks associated with supply chain disruptions, see Item 1A- Risk Factors (“Operational Risks- Disruptions in our supply chain could result in adverse effects on our results of operations and financial performance ").

Sales of contractor supplies .

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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.

2021 sales of contractor supplies did not change materially from 2020.

Service and other revenues .

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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.

2021 service and other revenues increased 22.5 percent from 2020 primarily due to the more pronounced impact of COVID-19 in 2020.

Fourth Quarter 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.

There were no unusual or infrequently occurring items recognized in the fourth quarter of 2021 that had a material impact on our 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.

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, 2021 were as follows:

rentals Trench,

power and fluid solutions Total

rentals Specialty Total

Equipment Rentals Gross Profit $ 2,269 $ 998 $ 3,267

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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.

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

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, 2021, general rentals’ equipment rentals gross profit increased by $315, and equipment rentals gross margin increased by 170 basis points, from 2020, which included a $26 asset impairment charge that primarily reflected the discontinuation of certain equipment programs and was not related to COVID-19.

Excluding the impact of asset impairment charges, equipment rentals gross margin increased 130 basis points year-over-year, primarily due to a reduction in depreciation expense as a percentage of revenue, partially offset by a higher bonus accrual, which reflects improved profitability, and increases in certain operating expenses, including delivery costs, as a percentage of revenue.

For the year ended December 31, 2021, equipment rentals gross profit increased by $233, and equipment rentals gross margin increased by 90 basis points from 2020.

Gross margin increased primarily due to decreases in depreciation and labor expenses as a percentage of revenue, partially offset by a higher proportion of revenue from certain lower margin ancillary fees in 2021 and increases in certain operating expenses, including delivery costs, as a percentage of revenue.

Gross Margin .

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Service and other revenues 39.3% 37.4% 44.6% 190 bps (720) 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.

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.

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).

2021 gross margin of 39.7 percent increased 240 basis points from 2020.

Equipment rentals gross margin increased 170 basis points from 2020, which included a $30 asset impairment charge that primarily reflected the discontinuation of certain equipment programs and was not related to COVID-19.

Excluding the impact of asset impairment charges, equipment rentals

gross margin increased 150 basis points year-over-year, primarily due to a reduction in depreciation expense as a percentage of revenue, partially offset by higher bonus expense, which reflects improved profitability, and increases in certain operating expenses, including delivery costs, as a percentage of revenue.

Gross margin from sales of rental equipment increased 580 basis points from 2020 primarily due to improved pricing in a strong used equipment market.

The gross margin fluctuations from sales of new equipment, contractor supplies sales and service and other revenues generally reflect normal variability, the more pronounced impact of COVID-19 in 2020 and the impact of the General Finance acquisition, 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, 2021).

Other costs/(income)

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Interest expense, net 424 669 648 (36.6)% 3.2%

Other income, net (8) (10) (6) (20.0)% 66.7%

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

Other expense (income), net 7 (8) (10) (187.5)% (20.0)%

Provision for income taxes 460 249 340 84.7% (26.8)%

Effective tax rate 24.9 % 21.9 % 22.5 % 300 bps (60) 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 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.

The increase in SG&A expense as a percentage of revenue for the year ended December 31, 2021 was primarily due to higher bonus and stock compensation expenses, which reflect improved profitability.

The merger related costs primarily reflect transaction costs associated with the General Finance acquisition that was completed in May 2021, as discussed in note 4 to the consolidated financial statements.

We have made a number of acquisitions in the past and may continue to make acquisitions in the future.

Merger related costs only include costs associated with major acquisitions that significantly impact our operations.

The historic acquisitions that have included merger related costs are RSC, which had annual revenues of approximately $1.5 billion prior to the acquisition, 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.

Merger related costs only include costs associated with major acquisitions, each of which had annual revenues of over $200 prior to acquisition, that significantly impact our operations.

The restructuring charges for the years ended December 31, 2021, 2020 and 2019 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 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, 2021 and 2020 included aggregate debt redemption losses of $30 and $183, respectively.

The debt redemption losses primarily reflect the difference between the net carrying amount and the total purchase price of the redeemed notes.

The debt redemption losses 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, 2021 decreased by 18.9 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.

Other expense (income), net primarily includes (i) currency gains and losses, (ii) finance charges, (iii) gains and losses on sales of non-rental equipment and (iv) other miscellaneous items.

A detailed reconciliation of the effective tax rates to the U.S.

federal statutory income tax rate is included in note 15 to our consolidated financial statements.

The effective income tax rate for the year ended December 31, 2021 increased year-over-year primarily due to the release in 2020 of a valuation allowance on foreign tax credits.

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.

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, 2021.

As of December 31, 2021, we have deferred employer payroll taxes of $27 under the CARES Act, all of which is due in 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.

Accounts receivable, net increased by $362, or 27.5 percent, from December 31, 2020 to December 31, 2021 primarily due to increased revenue.

Prepaid expenses and other assets decreased by $209, or 55.7 percent, from December 31, 2020 to December 31, 2021, primarily due to refundable deposits on expected purchases, primarily of rental equipment, pursuant to advanced purchase agreements, as discussed further in note 7 to our consolidated financial statements.

Rental equipment, net increased by $1.855 billion, or 21.3 percent, from December 31, 2020 to December 31, 2021 primarily due to the impact of the General Finance acquisition and increased capital expenditures.

As discussed above, capital expenditures were significantly reduced in 2020 due to COVID-19, while capital expenditures in 2021 have exceeded historic (pre-COVID-19) levels.

Accounts payable increased by $350, or 75.1 percent, from December 31, 2020 to December 31, 2021, primarily due to increased business activity.

Accrued expenses and other liabilities increased $161, or 22.4 percent, from December 31, 2020 to December 31, 2021, primarily due to a higher bonus accrual, which reflects increased profitability, and the impact of the General Finance acquisition.

See note 11 to our consolidated financial statements for further detail on accrued expenses and other liabilities.

Deferred taxes increased by $386, or 21.8 percent, from December 31, 2020 to December 31, 2021 primarily due to the impact of the General Finance acquisition and increased capital expenditures.

See note 15 to our consolidated financial statements for further detail on deferred taxes.

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.

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.

On January 28, 2020, our Board of Directors authorized a $500 share repurchase program, which commenced in the first quarter of 2020 and was intended to run for 12 months.

Through March 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.

On January 25, 2022, our Board authorized a $1 billion share repurchase program, which is expected to commence in the first quarter of 2022 and be completed in 2022.

This program replaces the prior $500 program.

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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(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.

(1) The maximum outstanding debt under the ABL facility exceeded the average outstanding debt primarily due to the use of borrowings under the ABL facility to fund most of the cost of the General Finance acquisition discussed in note 4 to the consolidated financial statements.

(2) As discussed in note 13 to the consolidated financial statements, the accounts receivable securitization facility expires on June 24, 2022 and may be further extended on a 364-day basis by mutual agreement with the purchasers under the facility.

We expect that our principal short-term (over the next 12 months) and long-term needs for cash relating to our operations 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.”

The table below presents information on payments coming due under the most significant categories of our needs for cash (excluding operating cash flows pertaining to normal business operations, such as human capital costs, which are not accurately estimable) as of December 31, 2021:

2022 2023 2024 2025 2026 Thereafter Total

Debt and finance leases (1) $ 906 $ 52 $ 1,070 $ 949 $ 2 $ 6,775 $ 9,754

Interest due on debt (2) 344 340 327 321 306 676 2,314

Operating leases (1) 226 196 162 124 84 101 893

Purchase obligations (3) 3,695 58 — — — — 3,753

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(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 13 to the consolidated financial statements for further debt information, and note 14 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, 2021.

(3) As of December 31, 2021, 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 2022 and 2023.

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 $2.030 billion and $103 in 2021 and 2020, respectively.

As discussed above, disciplined management of capital expenditures and fleet capacity is a component of our COVID-19 response plan, which contributed to net rental capital expenditures in 2020 that were significantly below historic levels.

To access the capital markets, we rely on credit rating agencies to assign ratings to our securities as an indicator of credit quality.

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Corporate Rating Outlook

Moody’s Ba2 Positive

Moody’s Ba1 Stable

Standard & Poor’s BB+ Stable

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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.

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 2021, we (i) generated cash from operating activities of $3.689 billion and (ii) generated cash from the sale of rental and non-rental equipment of $998.

We used cash during this period principally to (i) purchase rental and non-rental equipment and intangible assets of $3.198 billion, (ii) purchase other companies for $1.436 billion and (iii) make debt payments, net of proceeds, of $98.

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 7 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.

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.

We define “free cash flow” as net cash provided by operating activities less purchases of, and plus proceeds from, equipment and intangible assets.

The equipment and intangible asset 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.

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Purchases of rental equipment (2,998) (961) (2,132)

Purchases of non-rental equipment (197) (218) (185)

Purchases of non-rental equipment and intangible assets (200) (197) (218)

Proceeds from sales of rental equipment 968 858 831

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Free cash flow $ 1,514 $ 2,440 $ 1,566

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 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

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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

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.

Free cash flow for the year ended December 31, 2021 was $1.514 billion, a decrease of $926 as compared to $2.440 billion for the year ended December 31, 2020.

Free cash flow decreased primarily due to increased net rental capital expenditures (purchases of rental equipment less the proceeds from sales of rental equipment), partially offset by increased net cash provided by operating activities.

Net rental capital expenditures increased $1.927 billion, or 1,871 percent, year-over-year.

Relationship between Holdings and URNA .

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(ii) finance and tax-related services and support;

(iii) information technology systems and support;

(iii) information technology systems and

(iv) acquisition-related services;

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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.

special purpose vehicle which holds receivable assets relating to the Company’s accounts receivable securitization facility (the “SPV”), captive insurance subsidiaries and immaterial subsidiaries acquired in connection with the General Finance acquisition, 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”).

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, the SPV, captive insurance subsidiaries or immaterial subsidiaries acquired in connection with the General Finance acquisition (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.

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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.

Like the Holdings guarantees, the guarantees of the guarantor 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.

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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.

As of December 31, 2021, indebtedness of our non-guarantors included (i) $843 of outstanding borrowings by the SPV in connection with the Company’s accounts receivable securitization facility, (ii) $141 of outstanding borrowings under the ABL facility by non-guarantor subsidiaries and (iii) $9 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis