indicated)

COVID-19


As discussed in note 1 to our condensed consolidated financial statements, the
novel coronavirus ("COVID-19") is a pandemic of respiratory disease spreading
from person-to-person that poses a serious public health risk, which has
significantly disrupted supply chains and businesses around the world. While
visibility into future economic conditions remains limited, based on increased
insight into near-term indicators, we reintroduced full-year 2020 guidance in
July 2020, after having withdrawn it in April 2020. In October 2020, after
reporting third quarter results, we raised our full-year 2020 guidance.
Prior to mid-March 2020, our performance was largely in line with expectations.
In early-March, we initiated contingency planning ahead of the impact of
COVID-19 on our end-markets. This planning has focused on five key work-streams
that are the basis for our crisis response plan:
1.Ensuring the safety and well-being of our employees and customers: Above all
else, we are committed to ensuring the health, safety and well-being of our
employees and customers. We have implemented a variety of COVID-19 safety
measures, including ensuring that branches have sufficient and adequate personal
protection equipment. We have also implemented appropriate social distancing
practices, and increased disinfecting of equipment and facilities.
2.Leveraging our competitive advantages to support the needs of customers: We
have made modifications to enhance safety measures in our operating processes
and protocols that support the needs of our customers. Additionally, our digital
capabilities allow customers to perform fully contactless transactions.
3.Disciplined capital expenditures: We have a substantial degree of flexibility
in managing our capital expenditures and fleet capacity. While the current
environment remains fluid, we expect that our 2020 capital expenditures will be
down significantly year-over-year.
4.Controlling core operating expenses: A significant portion of our cash
operating costs are variable in nature. Since March, we have significantly
reduced overtime and temporary labor primarily in response to the impact of
COVID-19. Furthermore, we continue to leverage our current capacity to reduce
the need for third-party delivery and repair services, and minimize other
discretionary expenses across general and administrative areas.
5.Proactively managing the balance sheet with a focus on liquidity: We are
focused on ensuring that we maintain ample liquidity to meet our business needs
as the impact of COVID-19 evolves. As a result, our current $500 share
repurchase program was paused in mid-March. At September 30, 2020, our total
liquidity was $3.430 billion, comprised of cash and cash equivalents, and
availability under the ABL and accounts receivable securitization facilities. As
discussed below, in October 2020, we redeemed the $750 outstanding principal
amount of our 4 5/8 percent Senior Notes due 2025, using borrowings available
under our ABL facility. After the redemption of the 4 5/8 percent Senior Notes
due 2025, we have no note maturities until 2026.
The impact of COVID-19 on our business is discussed throughout this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." As discussed below, the response plan above helped mitigate the
impact of COVID-19 on our results.
Executive Overview
We are the largest equipment rental company in the world, with an integrated
network of 1,181 rental locations in the United States, Canada and Europe. In
July 2018, we completed the acquisition of BakerCorp International Holdings,
Inc. ("BakerCorp"), which allowed for our entry into select European markets.
Although the equipment rental industry is highly fragmented and diverse, we
believe that we are well positioned to take advantage of this environment
because, as a larger company, we have more extensive resources and certain
competitive advantages. These include a fleet of rental equipment with a total
original equipment cost ("OEC") of $14.2 billion, and a North American branch
network that operates in 49 U.S. states and every Canadian province, and serves
99 of the 100 largest metropolitan areas in the U.S. The BakerCorp acquisition
discussed above added 11 European locations in France, Germany, the United
Kingdom and the Netherlands to our branch network. Our size also gives us
greater purchasing power, the ability to provide customers with a broader range
of equipment and services, the ability to provide customers with equipment that
is more consistently well-maintained and therefore more productive and reliable,
and the ability to enhance the earning potential of our assets by transferring
equipment among branches to satisfy customer needs.
We offer approximately 4,000 classes of equipment for rent to a diverse customer
base that includes construction and industrial companies, manufacturers,
utilities, municipalities, homeowners and government entities. Our revenues are
derived from the following sources: equipment rentals, sales of rental
equipment, sales of new equipment, contractor supplies sales and
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service and other revenues. Equipment rentals represented 85 percent of total
revenues for the nine months ended September 30, 2020.
For the past several years, we have executed a strategy focused on improving the
profitability of our core equipment rental business through revenue growth,
margin expansion and operational efficiencies. In particular, we have focused on
customer segmentation, customer service differentiation, rate management, fleet
management and operational efficiency.
We are currently managing the impact of COVID-19, as discussed above. Our
general strategy focuses on profitability and return on invested capital, and,
in particular, calls for:
•A consistently superior standard of service to customers, often provided
through a single lead contact who can coordinate the cross-selling of the
various services we offer throughout our network. We utilize a proprietary
software application, Total Control®, which provides our key customers with a
single in-house software application that enables them to monitor and manage all
their equipment needs. Total Control® is a unique customer offering that enables
us to develop strong, long-term relationships with our larger customers. Our
digital capabilities, including our Total Control® platform, allow our sales
teams to provide contactless end-to-end customer service;
•The further optimization of our customer mix and fleet mix, with a dual
objective: to enhance our performance in serving our current customer base, and
to focus on the accounts and customer types that are best suited to our strategy
for profitable growth. We believe these efforts will lead to even better service
of our target accounts, primarily large construction and industrial customers,
as well as select local contractors. Our fleet team's analyses are aligned with
these objectives to identify trends in equipment categories and define action
plans that can generate improved returns;
•A continued focus on "Lean" management techniques, including kaizen processes
focused on continuous improvement. We continue to implement Lean kaizen
processes across our branch network, with the objectives of: reducing the cycle
time associated with renting our equipment to customers; improving invoice
accuracy and service quality; reducing the elapsed time for equipment pickup and
delivery; and improving the effectiveness and efficiency of our repair and
maintenance operations;
•A continued focus on Project XL, which is a set of eight specific work streams
focused on driving profitable growth through revenue opportunities and
generating incremental profitability through cost savings across our business;
•The continued expansion of our trench, power and fluid solutions footprint, as
well as our tools and onsite services offerings, and the cross-selling of these
services throughout our network, as exhibited by our recent acquisition of
BakerCorp discussed above. We believe that the expansion of our trench, power
and fluid solutions business, as well as our tools and onsite services
offerings, will further position United Rentals as a single source provider of
total jobsite solutions through our extensive product and service resources and
technology offerings; and
•The pursuit of strategic acquisitions to continue to expand our core equipment
rental business, as exhibited by our recently completed acquisitions of NES
Rentals Holdings II, Inc. ("NES"), Neff Corporation ("Neff") and Vander Holding
Corporation and its subsidiaries ("BlueLine"). Strategic acquisitions allow us
to invest our capital to expand our business, further driving our ability to
accomplish our strategic goals.
Financial Overview
Prior to taking actions pertaining to our financial flexibility and liquidity,
we considered the impact of COVID-19 on liquidity, and assessed our available
sources and anticipated uses of cash, including, with respect to sources, cash
generated from operations and from the sale of rental equipment. In 2020, we
took the following actions to improve our financial flexibility and liquidity,
and to position us to invest the necessary capital in our business:
•Issued $750 principal amount of 4 percent Senior Notes due 2030;
•Issued $1.1 billion principal amount of 3 7/8 percent Senior Notes due 2031;
•Redeemed all $800 principal amount of our 5 1/2 percent Senior Notes due 2025;
•Redeemed all $1.1 billion principal amount of our 6 1/2 percent Senior Notes
due 2026; and
•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 $1.377 billion, or 12.0 percent,
since December 31, 2019. In October 2020, we additionally redeemed all $750
principal amount of our 4 5/8 percent Senior Notes due 2025, using borrowings
available under our ABL facility.
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As of September 30, 2020, we had available liquidity of $3.430 billion,
comprised of cash and cash equivalents, and availability under the ABL and
accounts receivable securitization facilities. As noted above, in October 2020,
we redeemed all $750 principal amount of our 4 5/8 percent Senior Notes due
2025, using borrowings available under our ABL facility.
Net income. Net income and diluted earnings per share for the three and nine
months ended September 30, 2020 and 2019 are presented below.
                                   Three Months Ended               Nine Months Ended
                                     September 30,                    September 30,
                                    2020             2019           2020            2019
Net income                   $      208            $  391      $     593          $   836
Diluted earnings per share   $     2.87            $ 5.08      $    8.12          $ 10.66


Net income and diluted earnings per share for the three and nine months ended
September 30, 2020 and 2019 include the after-tax impacts of the items below.
The tax rates applied to the items below reflect the statutory rates in the
applicable entities.
                                                                     Three Months Ended September 30,                                                                      Nine Months Ended September 30,
                                                           2020                                            2019                                             2020                                                 2019
Tax rate applied to items below                         25.2  %                                      25.1     %                                          25.2  %                                            25.3      %
                                                                       Impact on                                       Impact on                                        Impact on                                                Impact on
                                              Contribution              diluted               Contribution              diluted               Contribution               diluted                                                  diluted
                                             to net income              earnings             to net income              earnings              to net income              earnings                 Contribution                   earnings
                                              (after-tax)              per share              (after-tax)              per share               (after-tax)              per share           to net income (after-tax)            per share
Merger related costs (1)                 $                 -          $       -          $              -             $       -          $                  -          $       -          $                   (1)             $     

(0.01)


Merger related intangible asset
amortization (2)                                         (40)             (0.55)                      (47)                (0.63)                         (125)             (1.71)                           (148)                 

(1.90)


Impact on depreciation related to
acquired fleet and property and
equipment (3)                                             (5)             (0.06)                       (5)                (0.07)                           (9)             (0.12)                            (26)                

(0.33)


Impact of the fair value mark-up of
acquired fleet (4)                                        (8)             (0.12)                      (11)                (0.14)                          (25)             (0.35)                            (43)                

(0.55)



Restructuring charge (5)                                  (4)             (0.06)                       (2)                (0.02)                           (8)             (0.11)                            (12)                

(0.15)


Asset impairment charge (6)                               (7)             (0.10)                       (2)                (0.02)                          (27)             (0.37)                             (5)                

(0.06)


Loss on repurchase/redemption of debt
securities and amendment of ABL facility
(7)                                                     (119)             (1.64)                        -                     -                          (119)             (1.63)                            (24)                    (0.30)



(1)This reflects transaction costs associated with the BakerCorp and BlueLine
acquisitions that were completed in 2018. Merger related costs only include
costs associated with major acquisitions that significantly impact our
operations. For additional information, see "Results of Operations-Other
costs/(income)-merger related costs" below.
(2)This reflects the amortization of the intangible assets acquired in the RSC,
National Pump, NES, Neff, BakerCorp and BlueLine acquisitions.
(3)This reflects the impact of extending the useful lives of equipment acquired
in the RSC, NES, Neff, BakerCorp and BlueLine acquisitions, net of the impact of
additional depreciation associated with the fair value mark-up of such
equipment.
(4)This reflects additional costs recorded in cost of rental equipment sales
associated with the fair value mark-up of rental equipment acquired in the RSC,
NES, Neff and BlueLine acquisitions that was subsequently sold.
(5)This primarily reflects severance and branch closure charges associated with
our restructuring programs. For additional information, see note 4 to our
condensed consolidated financial statements.
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(6)This reflects write-offs of leasehold improvements and other fixed assets.
The three and nine months ended September 30, 2020 include asset impairment
charges of $10 and $36, respectively, which were not related to COVID-19,
primarily associated with the discontinuation of certain equipment programs.
(7)This primarily reflects the difference between the net carrying amount and
the total purchase price of the redeemed notes. For additional information, see
"Results of Operations-Other costs/(income)-Interest expense, net" below.
EBITDA GAAP Reconciliations. EBITDA represents the sum of net income, provision
for income taxes, interest expense, net, depreciation of rental equipment and
non-rental depreciation and amortization. Adjusted EBITDA represents EBITDA plus
the sum of the merger related costs, restructuring charge, stock compensation
expense, net and the impact of the fair value mark-up of the acquired fleet.
These items are excluded from adjusted EBITDA internally when evaluating our
operating performance and for strategic planning and forecasting purposes, and
allow investors to make a more meaningful comparison between our core business
operating results over different periods of time, as well as with those of other
similar companies. The 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 GAAP
and the accompanying reconciliations, provide useful information about operating
performance and period-over-period growth, and provide additional information
that is useful for evaluating the operating performance of our core business
without regard to potential distortions. Additionally, management believes that
EBITDA and adjusted EBITDA help investors gain an understanding of the factors
and trends affecting our ongoing cash earnings, from which capital investments
are made and debt is serviced. However, EBITDA and adjusted EBITDA are not
measures of financial performance or liquidity under GAAP and, accordingly,
should not be considered as alternatives to net income or cash flow from
operating activities as indicators of operating performance or liquidity.
The table below provides a reconciliation between net income and EBITDA and
adjusted EBITDA:
                                                                 Three Months Ended                  Nine Months Ended
                                                                    September 30,                      September 30,
                                                                2020              2019             2020              2019
Net income                                                  $     208          $   391          $    593          $   836
Provision for income taxes                                         67              119               159              245
Interest expense, net                                             278              147               544              478

Depreciation of rental equipment                                  395              417             1,216            1,211
Non-rental depreciation and amortization                           97              102               292              311
EBITDA                                                      $   1,045          $ 1,176          $  2,804          $ 3,081
Merger related costs (1)                                            -                -                 -                1
Restructuring charge (2)                                            6                2                11               16
Stock compensation expense, net (3)                                18               14                46               45
Impact of the fair value mark-up of acquired fleet (4)             12               15                34               58

Adjusted EBITDA                                             $   1,081          $ 1,207          $  2,895          $ 3,201
Net income margin                                                 9.5  %          15.7  %            9.5  %          12.1  %
Adjusted EBITDA margin                                           49.4  %          48.5  %           46.3  %          46.4  %


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


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                                                                                       Nine Months Ended
                                                                                         September 30,
                                                                                    2020                2019
Net cash provided by operating activities                                       $    2,288          $   2,582
Adjustments for items included in net cash provided by operating activities but
excluded from the calculation of EBITDA:
Amortization of deferred financing costs and original issue discounts                  (11)               (11)
Gain on sales of rental equipment                                                      230                224
Gain on sales of non-rental equipment                                                    5                  3
Insurance proceeds from damaged equipment                                               34                 18
Merger related costs (1)                                                                 -                 (1)
Restructuring charge (2)                                                               (11)               (16)
Stock compensation expense, net (3)                                                    (46)               (45)

Loss on repurchase/redemption of debt securities and amendment of ABL facility (5)

                                                                                   (159)               (32)

Changes in assets and liabilities                                                     (203)              (217)
Cash paid for interest                                                                 438                480
Cash paid for income taxes, net                                                        239                 96
EBITDA                                                                          $    2,804          $   3,081
Add back:
Merger related costs (1)                                                                 -                  1
Restructuring charge (2)                                                                11                 16
Stock compensation expense, net (3)                                                     46                 45
Impact of the fair value mark-up of acquired fleet (4)                                  34                 58

Adjusted EBITDA                                                                 $    2,895          $   3,201


 ___________________
(1)This reflects transaction costs associated with the BakerCorp and BlueLine
acquisitions that were completed in 2018. Merger related costs only include
costs associated with major acquisitions that significantly impact our
operations. For additional information, see "Results of Operations-Other
costs/(income)-merger related costs" below.
(2)This primarily reflects severance and branch closure charges associated with
our restructuring programs. For additional information, see note 4 to our
condensed consolidated financial statements.
(3)Represents non-cash, share-based payments associated with the granting of
equity instruments.
(4)This reflects additional costs recorded in cost of rental equipment sales
associated with the fair value mark-up of rental equipment acquired in the RSC,
NES, Neff and BlueLine acquisitions that was subsequently sold.
(5)This primarily reflects the difference between the net carrying amount and
the total purchase price of the redeemed notes. For additional information, see
"Results of Operations-Other costs/(income)-Interest expense, net" below.
For the three months ended September 30, 2020, net income decreased $183, or
46.8 percent, and net income margin decreased 620 basis points to 9.5 percent.
For the three months ended September 30, 2020, adjusted EBITDA decreased $126,
or 10.4 percent, and adjusted EBITDA margin increased 90 basis points to 49.4
percent.
The year-over-year decrease in net income margin primarily reflected 1)
increased interest expense and 2) decreased gross margin from equipment rentals,
partially offset by 3) decreased income tax expense. Net interest expense
increased $131 year-over-year primarily due to a loss of $159 associated with
the full redemption of our 5 1/2 percent Senior Notes due 2025 and 6 1/2 percent
Senior Notes due 2026, partially offset by decreases in average debt and the
average cost of debt. Gross margin from equipment rentals decreased 90 basis
points year-over-year, with 180 basis points of the margin decline due to
depreciation expense, which decreased 5.3 percent, but increased as a percentage
of revenue. The 90 basis point increase in equipment rentals gross margin
excluding the depreciation impact was primarily due to the combined impact of
actions we have taken to manage operating costs, such as leveraging our current
capacity to reduce the need for third-party delivery and repair services, and a
majority of approximately $20 of non-recurring benefits recognized in the three
months ended September 30, 2020, notably benefits from certain insurance
recoveries. Year-over-year, the effective income tax rate was largely flat, but
income tax expense decreased as a percentage of revenue.

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The year-over-year increase in the adjusted EBITDA margin included a 90 basis
point increase in gross margin from equipment rentals (excluding depreciation),
which reflects the combined impact of actions we have taken to manage operating
costs, such as leveraging our current capacity to reduce the need for
third-party delivery and repair services, and the majority of the non-recurring
benefits discussed above. Adjusted EBITDA margin also benefited from a decrease
in selling, general and administrative ("SG&A") expense, which included
significant reductions in professional fees and travel and entertainment
expenses, as a percentage of revenue. Excluding the $20 of non-recurring
benefits discussed above, adjusted EBITDA margin was flat year-over-year.
For the nine months ended September 30, 2020, net income decreased $243, or 29.1
percent, and net income margin decreased 260 basis points to 9.5 percent. For
the nine months ended September 30, 2020, adjusted EBITDA decreased $306, or 9.6
percent, and adjusted EBITDA margin decreased 10 basis points to 46.3 percent.
The year-over-year decrease in net income margin primarily reflected 1)
decreased gross margin from equipment rentals and 2) increased interest expense,
partially offset by lower year-over-year 3) income tax expense and 4) SG&A
expense as a percentage of revenue. Gross margin from equipment rentals
decreased 250 basis points year-over-year, with all of the margin decline due to
an increase in depreciation expense as a percentage of revenue. The increase in
depreciation expense included a $31 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. See "Results of Operations-Gross Margin" below for
further discussion of equipment rentals gross margin. Interest expense, net
increased $66 year-over-year. Interest expense, net for the nine months ended
September 30, 2020 and September 30, 2019 included debt redemption losses of
$159 and $32, respectively. Excluding the impact of these losses, interest
expense, net for nine months ended September 30, 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 an increase in salaries, net of reduced bonuses, as a
percentage of revenue, which also reflects the impact of COVID-19.
The decrease in the adjusted EBITDA margin primarily reflects 1) lower margins
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) and service
and other revenues and 2) a reduction in the proportion of revenues from higher
margin (excluding depreciation) equipment rentals, partially offset by 3) the
impact of decreased SG&A expenses and 4) approximately $20 of non-recurring
benefits, notably including insurance recovery benefits, recognized during the
nine months ended September 30, 2020. Excluding the non-recurring benefits,
adjusted EBITDA margin decreased 40 basis points year-over-year. 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 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, net of reduced bonuses, as a percentage of revenue, which
also reflects the impact of COVID-19.
Revenues were as below. Fleet productivity is a comprehensive metric that
provides greater insight into the decisions made by our managers in support of
equipment rental growth and returns. Specifically, we seek to optimize the
interplay of rental rates, time utilization and mix to drive rental revenue.
Fleet productivity aggregates, in one metric, the impact of changes in rates,
utilization and mix on owned equipment rental revenue. We believe that this
metric is useful in assessing the effectiveness of our decisions on rates, time
utilization and mix, particularly as they support the creation of shareholder
value. The table below includes the components of the year-over-year change in
rental revenue using the fleet productivity methodology.
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                                                          Three Months Ended September 30,                         Nine Months Ended September 30,
                                                     2020              2019              Change               2020              2019             Change
Equipment rentals*                               $   1,861          $ 2,147                (13.3) %       $   5,286          $ 5,902               (10.4) %
Sales of rental equipment                              199              198                  0.5  %             583              587                (0.7) %
Sales of new equipment                                  54               67                (19.4) %             169              189               (10.6) %
Contractor supplies sales                               25               27                 (7.4) %              73               78                (6.4) %
Service and other revenues                              48               49                 (2.0) %             140              139                 0.7  %
Total revenues                                   $   2,187          $ 2,488                (12.1) %       $   6,251          $ 6,895                (9.3) %
*Equipment rentals variance components:
Year-over-year change in average OEC                                                        (4.6) %                                                 (1.1) %
Assumed year-over-year inflation impact (1)                                                 (1.5) %                                                 (1.5) %
Fleet productivity (2)                                                                      (8.0) %                                                 (8.0) %
Contribution from ancillary and re-rent revenue
(3)                                                                                          0.8  %                                                  0.2  %
Total change in equipment rentals                                                          (13.3) %                                                (10.4) %


 ___________________
(1)Reflects the estimated impact of inflation on the revenue productivity of
fleet based on OEC, which is recorded at cost.
(2)Reflects the combined impact of changes in rental rates, time utilization,
and mix that contribute to the variance in owned equipment rental revenue. See
note 2 to the condensed consolidated financial statements for a discussion of
the different types of equipment rentals revenue. Rental rate changes are
calculated based on the year-over-year variance in average contract rates,
weighted by the prior period revenue mix. Time utilization is calculated by
dividing the amount of time an asset is on rent by the amount of time the asset
has been owned during the year. Mix includes the impact of changes in customer,
fleet, geographic and segment mix.
(3)Reflects the combined impact of changes in the other types of equipment
rentals revenue (see note 2 for further detail), excluding owned equipment
rental revenue.
Equipment rentals include our revenues from renting equipment, as well as
revenue related to the fees we charge customers: for equipment delivery and
pick-up; to protect the customer against liability for damage to our equipment
while on rent; for fuel; and for environmental costs. Sales of rental equipment
represent our revenues from the sale of used rental equipment. Sales of new
equipment represent our revenues from the sale of new equipment. Contractor
supplies sales represent our sales of supplies utilized by contractors, which
include construction consumables, tools, small equipment and safety supplies.
Services and other revenues primarily represent our revenues earned from
providing repair and maintenance services on our customers' fleet (including
parts sales). See note 2 to the condensed consolidated financial statements for
a discussion of our revenue recognition accounting.
For the three months ended September 30, 2020, total revenues of $2.187 billion
decreased 12.1 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 three months ended September 30, 2020). Equipment
rentals decreased 13.3 percent. COVID-19 began to impact our operations in
March, and, since then, equipment rentals have decreased year-over-year,
primarily due to the impact of COVID-19. Fleet productivity decreased 8.0
percent, primarily due to the impact of COVID-19, which resulted in decreased
rental volume in response to shelter-in-place orders and other market
restrictions. Fleet productivity improved sequentially for the quarter by 560
basis points, primarily reflecting better fleet absorption in the three months
ended September 30, 2020. Average OEC decreased 4.6 percent year-over-year.
Sales of rental equipment did not change materially year-over-year.
For the nine months ended September 30, 2020, total revenues of $6.251 billion
decreased 9.3 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 nine months ended September 30, 2020). Equipment
rentals decreased 10.4 percent. COVID-19 began to impact our operations in
March. Through February, 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 8.0 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.

Results of Operations
As discussed in note 3 to our condensed consolidated financial statements, our
reportable segments are general rentals and trench, power and fluid solutions.
The general rentals segment includes the rental of construction, aerial,
industrial and
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homeowner equipment and related services and activities. The general rentals
segment's customers include construction and industrial companies,
manufacturers, utilities, municipalities, homeowners and government entities.
This segment operates throughout the United States and Canada. The trench, power
and fluid solutions segment is comprised of i) the Trench Safety region, which
rents trench safety equipment such as trench shields, aluminum hydraulic shoring
systems, slide rails, crossing plates, construction lasers and line testing
equipment for underground work, ii) the Power and HVAC region, which rents power
and HVAC equipment such as portable diesel generators, electrical distribution
equipment, and temperature control equipment including heating and cooling
equipment, and iii) the Fluid Solutions and iv) Fluid Solutions Europe regions,
both of which rent equipment primarily used for fluid containment, transfer and
treatment. The trench, power and fluid solutions segment's customers include
construction companies involved in infrastructure projects, municipalities and
industrial companies. This segment operates throughout the United States and in
Canada and Europe.
As discussed in note 3 to our condensed consolidated financial statements, we
aggregate our 11 geographic regions-Carolinas, Gulf South, Industrial (which
serves the geographic Gulf region and has a strong industrial presence),
Mid-Atlantic, Mid Central, Midwest, Northeast, Pacific West, South, Southeast
and Western Canada-into our general rentals reporting segment. Historically,
there have been variances in the levels of equipment rentals gross margins
achieved by these regions. For the five year period ended September 30, 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 September 30, 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 31.3 percent for the five year period
ended September 30, 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 discussed
above. As such, there is not a long history of the acquired locations' rental
margins included in the trench, power and fluid solutions segment. When
monitoring for margin convergence, we include projected future results. We
monitor the trench, power and fluid solutions segment margin variances and
confirm the expectation of future convergence on a quarterly basis. The
historic, pre-acquisition margins for the acquired BakerCorp locations are lower
than the margins achieved at the other locations in the segment. We expect that
the margins at the acquired locations will increase as we realize synergies
following the acquisition, as a result of which, we expect future margin
convergence.
We believe that the regions that are aggregated into our segments have similar
economic characteristics, as each region is capital intensive, offers similar
products to similar customers, uses similar methods to distribute its products,
and is subject to similar competitive risks. The aggregation of our regions also
reflects the management structure that we use for making operating decisions and
assessing performance. Although we believe aggregating these regions into our
reporting segments for segment reporting purposes is appropriate, to the extent
that there are significant margin variances that do not converge, we may be
required to disaggregate the regions into separate reporting segments. Any such
disaggregation would have no impact on our consolidated results of operations.
These segments align our external segment reporting with how management
evaluates business performance and allocates resources. We evaluate segment
performance primarily based on segment equipment rentals gross profit. Our
revenues, operating results, and financial condition fluctuate from quarter to
quarter reflecting the seasonal rental patterns of our customers, with rental
activity tending to be lower in the winter.
Revenues by segment were as follows:
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                                                                             Trench,
                                                     General             power and fluid
                                                     rentals                solutions                Total
Three Months Ended September 30, 2020
Equipment rentals                                  $   1,391          $              470          $   1,861
Sales of rental equipment                                182                          17                199
Sales of new equipment                                    47                           7                 54
Contractor supplies sales                                 17                           8                 25
Service and other revenues                                42                           6                 48
Total revenue                                      $   1,679          $              508          $   2,187
Three Months Ended September 30, 2019
Equipment rentals                                  $   1,642          $              505          $   2,147
Sales of rental equipment                                183                          15                198
Sales of new equipment                                    60                           7                 67
Contractor supplies sales                                 17                          10                 27
Service and other revenues                                42                           7                 49
Total revenue                                      $   1,944          $              544          $   2,488
Nine Months Ended September 30, 2020
Equipment rentals                                  $   4,040          $            1,246          $   5,286
Sales of rental equipment                                530                          53                583
Sales of new equipment                                   145                          24                169
Contractor supplies sales                                 48                          25                 73
Service and other revenues                               122                          18                140
Total revenue                                      $   4,885          $            1,366          $   6,251
Nine Months Ended September 30, 2019
Equipment rentals                                  $   4,592          $            1,310          $   5,902
Sales of rental equipment                                541                          46                587
Sales of new equipment                                   167                          22                189
Contractor supplies sales                                 53                          25                 78
Service and other revenues                               119                          20                139
Total revenue                                      $   5,472          $            1,423          $   6,895



Equipment rentals. For the three months ended September 30, 2020, equipment
rentals of $1.861 billion decreased $286, or 13.3 percent, as compared to the
same period in 2019. COVID-19 began to impact our operations in March, and,
since then, equipment rentals have decreased year-over-year, primarily due to
the impact of COVID-19. As explained further above (see "Financial
Overview-Revenues"), fleet productivity is a comprehensive measure of the
combined impact of key decisions made daily by our managers regarding rental
rates, time utilization and mix on the year-over-year change in owned equipment
rental revenue. Fleet productivity decreased 8.0 percent, primarily due to the
impact of COVID-19, which resulted in decreased rental volume in response to
shelter-in-place orders and other market restrictions. Fleet productivity
improved sequentially for the quarter by 560 basis points, primarily reflecting
better fleet absorption in the three months ended September 30, 2020. Average
OEC decreased 4.6 percent year-over-year. Equipment rentals represented 85
percent of total revenues for the three months ended September 30, 2020.

For the nine months ended September 30, 2020, equipment rentals of $5.286
billion decreased $616, or 10.4 percent, as compared to the same period in 2019.
COVID-19 began to impact our operations in March. Through February, 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 8.0 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 85
percent of total revenues for the nine months ended September 30, 2020.

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For the three months ended September 30, 2020, general rentals equipment rentals
decreased $251, or 15.3 percent, as compared to the same period in 2019,
primarily due to COVID-19. As noted above, COVID-19 began to impact our
operations in March, and, since then, equipment rentals have decreased
year-over-year in response to shelter-in-place orders and other market
restrictions. As discussed above, disciplined management of capital expenditures
and fleet capacity is a component of our COVID-19 response plan, and average OEC
decreased year-over-year. For the three months ended September 30, 2020,
equipment rentals represented 83 percent of total revenues for the general
rentals segment.

For the nine months ended September 30, 2020, general rentals equipment rentals
decreased $552, or 12.0 percent, as compared to the same period in 2019,
primarily due to COVID-19. As noted above, COVID-19 began to impact our
operations in March, when rental volume declined in response to shelter-in-place
orders and other market restrictions. For the nine months ended September 30,
2020, equipment rentals represented 83 percent of total revenues for the general
rentals segment.

For the three months ended September 30, 2020, trench, power and fluid solutions
equipment rentals decreased $35, or 6.9 percent, as compared to the same period
in 2019, primarily due to COVID-19. As noted above, COVID-19 began to impact our
operations in March, and, since then, equipment rentals have decreased
year-over-year in response to shelter-in-place orders and other market
restrictions. For the three months ended September 30, 2020, equipment rentals
represented 93 percent of total revenues for the trench, power and fluid
solutions segment.

For the nine months ended September 30, 2020, trench, power and fluid solutions
equipment rentals decreased $64, or 4.9 percent, as compared to the same period
in 2019, primarily due to COVID-19, partially offset by a 4.8 percent increase
in average OEC. As noted above, COVID-19 began to impact our operations in
March, when rental volume declined in response to shelter-in-place orders and
other market restrictions. For the nine months ended September 30, 2020,
equipment rentals represented 91 percent of total revenues for the trench, power
and fluid solutions segment.
Sales of rental equipment. For the nine months ended September 30, 2020, sales
of rental equipment represented approximately 9 percent of our total revenues.
Our general rentals segment accounted for most of these sales. For the three and
nine months ended September 30, 2020, sales of rental equipment did not change
materially year-over-year.
Sales of new equipment. For the nine months ended September 30, 2020, sales of
new equipment represented approximately 3 percent of our total revenues. Our
general rentals segment accounted for most of these sales. For the three and
nine months ended September 30, 2020, sales of new equipment decreased 19.4
percent and 10.6 percent, respectively, from the same periods in 2019 primarily
due to the impact of COVID-19.
Contractor supplies sales. Contractor supplies sales represent our revenues
associated with selling a variety of supplies, including construction
consumables, tools, small equipment and safety supplies. For the nine months
ended September 30, 2020, contractor supplies sales represented approximately 1
percent of our total revenues. Our general rentals segment accounted for most of
these sales. Contractor supplies sales for the three and nine months ended
September 30, 2020 decreased 7.4 percent and 6.4 percent, respectively, from the
same periods in 2019 primarily due to the impact of COVID-19.
Service and other revenues. Service and other revenues primarily represent our
revenues earned from providing repair and maintenance services on our customers'
fleet (including parts sales). For the nine months ended September 30, 2020,
service and other revenues represented approximately 2 percent of our total
revenues. Our general rentals segment accounted for most of these sales. For the
three and nine months ended September 30, 2020, service and other revenues did
not change materially from the same periods in 2019.
Segment Equipment Rentals Gross Profit
Segment equipment rentals gross profit and gross margin were as follows:
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                                                    General         Trench, power and fluid
                                                    rentals                solutions                  Total
Three Months Ended September 30, 2020
Equipment Rentals Gross Profit                    $    543          $            234               $     777
Equipment Rentals Gross Margin                        39.0  %                   49.8       %            41.8  %
Three Months Ended September 30, 2019
Equipment Rentals Gross Profit                    $    671          $            246               $     917
Equipment Rentals Gross Margin                        40.9  %                   48.7       %            42.7  %
Nine Months Ended September 30, 2020
Equipment Rentals Gross Profit                    $  1,410          $            577               $   1,987
Equipment Rentals Gross Margin                        34.9  %                   46.3       %            37.6  %
Nine Months Ended September 30, 2019
Equipment Rentals Gross Profit                    $  1,765          $            602               $   2,367
Equipment Rentals Gross Margin                        38.4  %                   46.0       %            40.1  %


General rentals. For the three months ended September 30, 2020, equipment
rentals gross profit decreased by $128, and equipment rentals gross margin
decreased 190 basis points, from 2019, with 220 basis points of the margin
decline due to depreciation expense, which decreased 6.5 percent 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, and, since then, equipment
rentals have remained down year-over-year in response to shelter-in-place orders
and other market restrictions. The 30 basis point increase in equipment rentals
gross margin excluding the depreciation impact was primarily due to the combined
impact of actions we have taken to manage operating costs, such as leveraging
our current capacity to reduce the need for third-party delivery and repair
services, and the one-time benefits discussed above (see "Financial Overview").
For the nine months ended September 30, 2020, equipment rentals gross profit
decreased by $355, and equipment rentals gross margin decreased 350 basis
points, from 2019, with 310 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 $27 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, and, since then, equipment rentals have remained down
year-over-year in response to shelter-in-place orders and other market
restrictions. The remaining 40 basis point decline in equipment rentals gross
margin was primarily due to the impact of COVID-19, partially offset by the
combined impact of 1) 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, and 2)
the one-time benefits discussed above (see "Financial Overview").
Trench, power and fluid solutions. For the three months ended September 30,
2020, equipment rentals gross profit decreased by $12 and equipment rentals
gross margin increased by 110 basis points from 2019. The increase in the
equipment rentals gross margin was primarily due to decreases in certain
operating costs, including 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 repair services.
Depreciation expense was largely flat year-over-year, but increased as a
percentage of revenue, primarily due to COVID-19.
For the nine months ended September 30, 2020, equipment rentals gross profit
decreased by $25, and equipment rentals gross margin increased by 30 basis
points from 2019. The increased gross margin primarily reflected decreases in
certain operating costs, including delivery, repairs and labor, 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.
Gross Margin. Gross margins by revenue classification were as follows:
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                                                Three Months Ended September 30,                                     Nine Months Ended September 30,
                                         2020                 2019                Change                2020                      2019                    Change
Total gross margin                          40.5  %             41.5  %          (100) bps              37.0%                     39.2%                  (220) bps
Equipment rentals                           41.8  %             42.7  %          (90) bps               37.6%                     40.1%                  (250) bps
Sales of rental equipment                   38.2  %             38.4  %          (20) bps               39.5%                     38.2%                   130 bps
Sales of new equipment                      13.0  %             13.4  %          (40) bps               13.0%                     13.8%                  (80) bps
Contractor supplies sales                   28.0  %             33.3  %          (530) bps              28.8%                     30.8%                  (200) bps
Service and other revenues                  39.6  %             44.9  %          (530) bps              38.6%                     46.0%                

(740) bps




For the three months ended September 30, 2020, total gross margin decreased 100
basis points from the same period in 2019. Equipment rentals gross margin
decreased 90 basis points year-over-year, with 180 basis points of the margin
decline due to depreciation expense, which decreased 5.3 percent from 2019, but
increased as a percentage of revenue, primarily due to COVID-19. The 90 basis
point increase in equipment rentals gross margin excluding the depreciation
impact was primarily due to the combined impact of actions we have taken to
manage operating costs, such as leveraging our current capacity to reduce the
need for third-party delivery and repair services, and the one-time benefits
discussed above (see "Financial Overview"). 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 three months ended September 30, 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.
For the nine months ended September 30, 2020, total gross margin decreased 220
basis points from the same period in 2019. Equipment rentals gross margin
decreased 250 basis points year-over-year, with all of the margin decline due to
depreciation expense. Depreciation expense included a $31 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, and, since then, equipment rentals have
remained down year-over-year in response to shelter-in-place orders and other
market restrictions. Excluding the depreciation impact, equipment rentals gross
margin was flat year-over-year, primarily reflecting the impact of COVID-19,
offset by the combined impact of actions we have taken to manage operating
costs, such as leveraging our current capacity to reduce the need for
third-party delivery and repair services, and the one-time benefits discussed
above (see "Financial Overview"). Gross margin from sales of rental equipment
increased 130 basis points from the same period in 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 nine months ended
September 30, 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.
Other costs/(income)
The table below includes the other costs/(income) in our condensed consolidated
statements of income, as well as key associated metrics, for the three and nine
months ended September 30, 2020 and 2019:
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                                                 Three Months Ended September 30,                                      Nine Months Ended September 30,
                                        2020                         2019            Change                  2020                        2019            Change
Selling, general and
administrative ("SG&A") expense         $232                         $273            (15.0)%                 $721                        $824

(12.5)%


SG&A expense as a percentage of
revenue                                10.6%                        11.0%           (40) bps                 11.5%                       12.0%          (50) bps
Merger related costs                     -                            -                -%                      -                           1            (100.0)%
Restructuring charge                     6                            2              200.0%                   11                          16             (31.3)%
Non-rental depreciation and
amortization                             97                          102             (4.9)%                   292                         311            (6.1)%
Interest expense, net                   278                          147              89.1%                   544                         478             13.8%
Other income, net                       (2)                          (1)             100.0%                   (6)                         (6)              -%
Provision for income taxes               67                          119             (43.7)%                  159                         245            (35.1)%
Effective tax rate                     24.4%                        23.3%            110 bps                 21.1%                       22.7%          (160) bps


SG&A expense primarily includes sales force compensation, information technology
costs, third party professional fees, management salaries, bad debt expense and
clerical and administrative overhead. SG&A expense as a percentage of revenue
for the three and nine months ended September 30, 2020 decreased from the same
periods in 2019 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, net of reduced bonuses,
as a percentage of revenue, which also reflects the impact of COVID-19.
The merger related costs reflect transaction costs associated with BakerCorp and
BlueLine acquisitions that were completed in 2018. We have made a number of
acquisitions in the past and may continue to make acquisitions in the future.
Merger related costs only include costs associated with major acquisitions that
significantly impact our operations. The historic acquisitions that have
included merger related costs are RSC, which had annual revenues of
approximately $1.5 billion prior to the acquisition, National Pump, which had
annual revenues of over $200 prior to the acquisition, NES, which had annual
revenues of approximately $369 prior to the acquisition, Neff, which had annual
revenues of approximately $413 prior to the acquisition, BakerCorp, which had
annual revenues of approximately $295 prior to the acquisition, and BlueLine,
which had annual revenues of approximately $786 prior to the acquisition.
The restructuring charges primarily reflect severance and branch closure charges
associated with our restructuring programs. In the fourth quarter of 2019, we
initiated a restructuring program associated with the consolidation of certain
common functions, the relocation of our shared-service facilities and certain
other cost reduction measures. For additional information, see note 4 to the
condensed consolidated financial statements.
Non-rental depreciation and amortization includes i) the amortization of other
intangible assets and ii) depreciation expense associated with equipment that is
not offered for rent (such as computers and office equipment) and amortization
expense associated with leasehold improvements. Our other intangible assets
consist of customer relationships, non-compete agreements and trade names and
associated trademarks.
Interest expense, net for the three and nine months ended September 30, 2020
increased 89.1 percent and 13.8 percent year-over-year, respectively. Interest
expense, net for the three months ended September 30, 2020 included a debt
redemption loss of $159. Interest expense, net for the nine months ended
September 30, 2020 and September 30, 2019 included debt redemption losses of
$159 and $32, respectively. The debt redemption losses primarily reflect the
difference between the net carrying amount and the total purchase price of the
redeemed notes. Excluding the impact of these losses, interest expense, net for
the three and nine months ended September 30, 2020 decreased by 19.0 percent and
13.7 percent year-over-year, respectively, primarily due to decreases in average
debt and the average cost of debt.
The differences between the 2020 and 2019 effective tax rates and the federal
statutory rate of 21 percent primarily reflect the geographical mix of income
between foreign and domestic operations, the impact of state and local taxes,
certain deductible and nondeductible charges, and releases of valuation
allowances 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 three and nine months ended September 30, 2020, and
is not expected to impact our effective tax rate in 2020, although it will
impact the timing of cash payments for taxes. As of September 30, 2020, we have
deferred employer payroll taxes of $36
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under the CARES Act, with approximately half of the deferral due in each of 2021
and 2022. We may defer additional future employer payroll taxes under the CARES
Act.
Balance sheet. Accounts receivable, net decreased by $206, or 13.5 percent, from
December 31, 2019 to September 30, 2020, primarily due to reduced revenue, which
reflected the impact of both COVID-19 and seasonality. Accounts payable
increased by $87, or 19.2 percent, from December 31, 2019 to September 30, 2020,
primarily due to a seasonal increase in capital expenditures.
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Liquidity and Capital Resources
We manage our liquidity using internal cash management practices, which are
subject to (i) the policies and cooperation of the financial institutions we
utilize to maintain and provide cash management services, (ii) the terms and
other requirements of the agreements to which we are a party and (iii) the
statutes, regulations and practices of each of the local jurisdictions in which
we operate. See "Financial Overview" above for a summary of recent capital
structure actions taken to improve our financial flexibility and liquidity.
Since 2012, we have repurchased a total of $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. Through March 18, 2020, when the program
was paused due to the COVID-19 pandemic, we repurchased $257 of common stock
under the program. We are currently unable to estimate when, or if, the program
will be restarted, and we expect to provide an update at a future date.
Our principal existing sources of cash are cash generated from operations and
from the sale of rental equipment, and borrowings available under our ABL
facility and accounts receivable securitization facility. As of September 30,
2020, we had cash and cash equivalents of $174. Cash equivalents at
September 30, 2020 consist of direct obligations of financial institutions rated
A or better. We believe that our existing sources of cash will be sufficient to
support our existing operations over the next 12 months. The table below
presents financial information associated with our principal sources of cash as
of and for the nine months ended September 30, 2020:

ABL facility:


      Borrowing capacity, net of letters of credit                   $ 

3,091


      Outstanding debt, net of debt issuance costs (1)                   598
       Interest rate at September 30, 2020                               1.4  %
      Average month-end principal amount of debt outstanding (1)         730
      Weighted-average interest rate on average debt outstanding         2.1  %

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


      Accounts receivable securitization facility (2):
      Borrowing capacity                                                 165
      Outstanding debt, net of debt issuance costs                       634
       Interest rate at September 30, 2020                               1.5  %
      Average month-end principal amount of debt outstanding             671
      Weighted-average interest rate on average debt outstanding         1.9  %
      Maximum month-end principal amount of debt outstanding             811

___________________


(1)The outstanding amount of debt under the ABL facility and the average
outstanding amount are less than the maximum outstanding amount primarily due to
the use of proceeds (i) from the issuance of 4 percent Senior Notes discussed in
note 6 to the condensed 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.
(2)As discussed in note 6 to the condensed consolidated financial statements, in
April 2020, we amended the accounts receivable securitization facility to
adjust, on a temporary basis, the financial tests relating to: (i) the default
ratio, (ii) the delinquency ratio, (iii) the dilution ratio and (iv) days sales
outstanding. The adjustments to these tests were intended to make compliance
with such tests more likely for the calendar months ending April 30, 2020 and
May 31, 2020, and we were in compliance with such tests for these months. In
June 2020, the accounts receivable securitization facility was further amended
to (a) extend the maturity date, which may be further extended on a 364-day
basis by mutual agreement with the purchasers under the facility, to June 25,
2021, (b) reduce the size of the facility from $975 to $800 and (c) adjust, for
the calendar months ending on or after June 30, 2020, the financial tests
(including the method of calculation) relating to (i) the default ratio, (ii)
the delinquency ratio, (iii) the dilution ratio and (iv) days sales outstanding.
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We expect that our principal needs for cash relating to our operations over the
next 12 months will be to fund (i) operating activities and working capital,
(ii) the purchase of rental equipment and inventory items offered for sale,
(iii) payments due under operating leases, (iv) debt service, (v) share
repurchases and (vi) acquisitions. We plan to fund such cash requirements from
our existing sources of cash. In addition, we may seek additional financing
through the securitization of some of our real estate, the use of additional
operating leases or other financing sources as market conditions permit.
To access the capital markets, we rely on credit rating agencies to assign
ratings to our securities as an indicator of credit quality. Lower credit
ratings generally result in higher borrowing costs and reduced access to debt
capital markets. Credit ratings also affect the costs of derivative
transactions, including interest rate and foreign currency derivative
transactions. As a result, negative changes in our credit ratings could
adversely impact our costs of funding. Our credit ratings as of October 26, 2020
were as follows:
                      Corporate Rating        Outlook
Moody's                     Ba2               Stable
Standard & Poor's            BB               Stable


A security rating is not a recommendation to buy, sell or hold securities. There
is no assurance that any rating will remain in effect for a given period of time
or that any rating will not be revised or withdrawn by a rating agency in the
future.
Loan Covenants and Compliance. As of September 30, 2020, we were in compliance
with the covenants and other provisions of the ABL, accounts receivable
securitization and term loan facilities and the senior notes. Any failure to be
in compliance with any material provision or covenant of these agreements could
have a material adverse effect on our liquidity and operations.
The only financial covenant that currently exists under the ABL facility is the
fixed charge coverage ratio. Subject to certain limited exceptions specified in
the ABL facility, the fixed charge coverage ratio covenant under the ABL
facility will only apply in the future if specified availability under the ABL
facility falls below 10 percent of the maximum revolver amount under the ABL
facility. When certain conditions are met, cash and cash equivalents and
borrowing base collateral in excess of the ABL facility size may be included
when calculating specified availability under the ABL facility. As of
September 30, 2020, specified availability under the ABL facility exceeded the
required threshold and, as a result, this financial covenant was inapplicable.
Under our accounts receivable securitization facility, we are required, among
other things, to maintain certain financial tests relating to: (i) the default
ratio, (ii) the delinquency ratio, (iii) the dilution ratio and (iv) days sales
outstanding (as noted above, in April 2020 and in June 2020, we amended the
accounts receivable securitization facility to adjust these financial tests).
The accounts receivable securitization facility also requires us to comply with
the fixed charge coverage ratio under the ABL facility, to the extent the ratio
is applicable under the ABL facility.
URNA's payment capacity is restricted under the covenants in the ABL and term
loan facilities and the indentures governing its outstanding indebtedness.
Although this restricted capacity limits our ability to move operating cash
flows to Holdings, because of certain intercompany arrangements, we do not
expect any material adverse impact on Holdings' ability to meet its cash
obligations.
Sources and Uses of Cash. During the nine months ended September 30, 2020, we
(i) generated cash from operating activities of $2.288 billion and
(ii) generated cash from the sale of rental and non-rental equipment of $614. We
used cash during this period principally to (i) purchase rental and non-rental
equipment of $930, (ii) make debt payments, net of proceeds, of $1.578 billion
and (ii) purchase shares of our common stock for $281. During the nine months
ended September 30, 2019, we (i) generated cash from operating activities of
$2.582 billion and (ii) generated cash from the sale of rental and non-rental
equipment of $613. We used cash during this period principally to (i) purchase
rental and non-rental equipment of $2.131 billion, (ii) purchase other companies
for $247, (iii) make debt payments, net of proceeds, of $144 and (iv) purchase
shares of our common stock for $664.
Free Cash Flow GAAP Reconciliation. We define "free cash flow" as net cash
provided by operating activities less purchases of, and plus proceeds from,
equipment. The equipment purchases and proceeds are included in cash flows from
investing activities. Management believes that free cash flow provides useful
additional information concerning cash flow available to meet future debt
service obligations and working capital requirements. However, free cash flow is
not a measure of financial performance or liquidity under GAAP. Accordingly,
free cash flow should not be considered an alternative to net income or cash
flow from operating activities as an indicator of operating performance or
liquidity. The table below provides a reconciliation between net cash provided
by operating activities and free cash flow.
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                                                  Nine Months Ended
                                                    September 30,
                                                  2020          2019

Net cash provided by operating activities $ 2,288 $ 2,582 Purchases of rental equipment

                       (785)      (1,974)
Purchases of non-rental equipment                   (145)        (157)
Proceeds from sales of rental equipment              583          587
Proceeds from sales of non-rental equipment           31           26
Insurance proceeds from damaged equipment             34           18

Free cash flow                                $    2,006      $ 1,082


Free cash flow for the nine months ended September 30, 2020 was $2.006 billion,
an increase of $924 as compared to $1.082 billion for the nine months ended
September 30, 2019. Free cash flow increased primarily due to decreased net
rental capital expenditures (defined as purchases of rental equipment less the
proceeds from sales of rental equipment), partially offset by reduced net cash
provided by operating activities. Net rental capital expenditures decreased
$1.185 billion, or 85 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 September 30, 2020:

                                     2020       2021       2022       2023       2024      Thereafter      Total
Debt and finance leases (1)       $    17    $   707    $    43    $    33    $ 1,371    $     7,965    $ 10,136
Interest due on debt (2)               97        381        376        375        357          1,202       2,788
Operating leases (1)                   53        201        168        134        100            145         801
Service agreements (3)                  4         15         33          -          -              -          52
Purchase obligations (4)              212          5          -          -          -              -         217
Transition tax on unremitted
foreign earnings and profits (5)        -          -          -          -          -              5           5
Total (6)                         $   383    $ 1,309    $   620    $   542    $ 1,828    $     9,317    $ 13,999


_________________
(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 6 to the condensed consolidated financial statements for further
debt information, and note 7 for further finance lease and operating lease
information. As discussed in note 6, in October 2020, we redeemed all $750
principal amount of our 4 5/8 percent Senior Notes due 2025, using borrowings
available under our ABL facility. The 4 5/8 percent Senior Notes due 2025 are
reflected in the table above using the 2024 maturity date of the ABL facility.
(2)  Estimated interest payments have been calculated based on the principal
amount of debt and the applicable interest rates as of September 30, 2020. As
discussed above, in October 2020, we redeemed all $750 principal amount of our
4 5/8 percent Senior Notes due 2025, using borrowings available under our ABL
facility. Interest on the 4 5/8 percent Senior Notes due 2025 is reflected in
the table above using the interest rate on the ABL facility and the 2024
maturity date of the ABL facility.
(3)  These primarily represent service agreements with third parties to provide
wireless and network services.
(4)  As of September 30, 2020, we had outstanding purchase orders, which were
negotiated in the ordinary course of business, with our equipment and inventory
suppliers. These purchase commitments can generally be cancelled by us with 30
days' notice and without cancellation penalties. The equipment and inventory
receipts from the suppliers for these purchases and related payments to the
suppliers are primarily expected to be completed in 2020. As of December 31,
2019, we had $1.552 billion of outstanding purchase orders, which we could
generally cancel with 30 days' notice and without cancellation penalties. In
2020, due primarily to COVID-19, we canceled a significant portion of our
purchase orders. We will make future purchase order determinations based on our
continuing assessment of the impact of COVID-19.
(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 $12 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
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retentions, which we sometimes refer to as "self-insurance." Our self-insurance
reserves totaled $121 at September 30, 2020. Self-insurance liabilities are
based on estimates and actuarial assumptions and can fluctuate in both amount
and in timing of cash settlement because historical trends are not necessarily
predictive of the future, and, accordingly, are not included in the table above.
Relationship between Holdings and URNA. Holdings is principally a holding
company and primarily conducts its operations through its wholly owned
subsidiary, URNA, and subsidiaries of URNA. Holdings licenses its tradename and
other intangibles and provides certain services to URNA in connection with its
operations. These services principally include: (i) senior management services;
(ii) finance and tax-related services and support; (iii) information technology
systems and support; (iv) acquisition-related services; (v) legal services; and
(vi) human resource support. In addition, Holdings leases certain equipment and
real property that are made available for use by URNA and its subsidiaries.
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