UNITED RENTALS, INC. 
indicated)
COVID-19
As discussed in note 1 to our condensed 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 ofUnited Rentals , and on the global economy, is uncertain. Uncertainty remains regarding emerging variant strains of COVID-19, and regarding the length of time it will take for the COVID-19 pandemic to subside, including the time it will take for vaccines to be broadly distributed and accepted inthe United States and the rest of the world, and the effectiveness of such vaccines in slowing or stopping the spread of COVID-19 and mitigating the economic effects of the pandemic. Prior tomid-March 2020 , our performance was largely in line with expectations. We began to experience a decline in revenues inMarch 2020 , when rental volume 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. In earlyMarch 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: 1.Ensuring the safety and well-being of our employees and customers: Above all else, we are committed to ensuring the health, safety and well-being of our employees and customers. We have implemented a variety of COVID-19 safety measures, including ensuring that branches have sufficient and adequate personal protection equipment. We have also implemented appropriate social distancing practices, and increased disinfecting of equipment and facilities. 2.Leveraging our competitive advantages to support the needs of customers: We have made modifications to enhance safety measures in our operating processes and protocols that support the needs of our customers. Additionally, our digital capabilities allow customers to perform fully contactless transactions. 3.Disciplined capital expenditures: We have a substantial degree of flexibility in managing our capital expenditures and fleet capacity. Net rental capital expenditures (purchases of rental equipment less the proceeds from sales of rental equipment) for 2020 decreased$1.198 billion , or 92 percent, from 2019. We expect that net rental capital expenditures for 2021 will be consistent with historic (pre-COVID-19) levels. 4.Controlling core operating expenses: A significant portion of our cash operating costs are variable in nature. Beginning inMarch 2020 , we 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. As discussed throughout this "Management's Discussion and Analysis of Financial Condition and Results of Operations," the impact of COVID-19 was more pronounced in 2020, and certain costs have returned to more normal levels, as have revenues. We continue to manage our operating costs as noted above. 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 inmid-March 2020 . We are currently unable to estimate when, or if, the program will be restarted, and repurchases under the program could resume at any time. AtJune 30, 2021 , our total liquidity was$2.826 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." The response plan above has 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 1,332 rental locations. We primarily operate inthe United States andCanada , and have a limited presence inEurope ,Australia and New Zealand . InJuly 2018 , we completed the acquisition ofBakerCorp , which allowed for our entry into select European markets. As discussed in note 3 to the condensed consolidated financial statements, inMay 2021 , we completed the acquisition of General Finance, which allowed for our entry into select markets inAustralia and New Zealand . 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$15.1 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 theU.S. TheBakerCorp acquisition added 32 -------------------------------------------------------------------------------- Table of Contents 11 European locations inFrance ,Germany , theUnited Kingdom andthe Netherlands to our branch network, and the General Finance acquisition added 28 locations inAustralia and 18 locations inNew Zealand . 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 4,200 classes of equipment for rent to a diverse customer base that includes construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government entities. Our revenues are derived from the following sources: equipment rentals, sales of rental equipment, sales of new equipment, contractor supplies sales and service and other revenues. Equipment rentals represented 83 percent of total revenues for the six months endedJune 30, 2021 . 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 continuing to manage the impact of COVID-19, as discussed above. Our general strategy focuses on profitability and return on invested capital, and, in particular, calls for: •A consistently superior standard of service to customers, often provided through a single lead contact who can coordinate the cross-selling of the various services we offer throughout our network. We utilize a proprietary software application, Total Control®, which provides our key customers with a single in-house software application that enables them to monitor and manage all their equipment needs. Total Control® is a unique customer offering that enables us to develop strong, long-term relationships with our larger customers. Our digital capabilities, including our Total Control® platform, allow our sales teams to provide contactless end-to-end customer service; •The further optimization of our customer mix and fleet mix, with a dual objective: to enhance our performance in serving our current customer base, and to focus on the accounts and customer types that are best suited to our strategy for profitable growth. We believe these efforts will lead to even better service of our target accounts, primarily large construction and industrial customers, as well as select local contractors. Our fleet team's analyses are aligned with these objectives to identify trends in equipment categories and define action plans that can generate improved returns; •A continued focus on "Lean" management techniques, including kaizen processes focused on continuous improvement. We continue to implement Lean kaizen processes across our branch network, with the objectives of: reducing the cycle time associated with renting our equipment to customers; improving invoice accuracy and service quality; reducing the elapsed time for equipment pickup and delivery; and improving the effectiveness and efficiency of our repair and maintenance operations; •The continued expansion of our 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 3 to the condensed consolidated financial statements, as well as our tools and onsite services offerings, will further positionUnited Rentals as a single source provider of total jobsite solutions through our extensive product and service resources and technology offerings; and •The pursuit of strategic acquisitions to continue to expand our core equipment rental business. Strategic acquisitions allow us to invest our capital to expand our business, further driving our ability to accomplish our strategic goals. Financial Overview 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. SinceDecember 31, 2020 , total debt has increased$478 , or 4.9 percent, primarily reflecting the use of borrowings under the ABL facility to fund most of the cost of the General Finance acquisition discussed above, partially offset by the use of cash generated from operations to reduce borrowings under the ABL facility. As ofJune 30, 2021 , we had available liquidity of$2.826 billion , comprised of cash and cash equivalents, and availability under the ABL and accounts receivable securitization facilities. Net income. Net income and diluted earnings per share for the three and six months endedJune 30, 2021 and 2020 are presented below. 33
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Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Net income $ 293 $ 212 $ 496 $ 385
Diluted earnings per share $ 4.02 $ 2.93 $ 6.82 $ 5.25
Net income and diluted earnings per share for the three and six months ended
June 30, 2021 and 2020 include the after-tax impacts of the items below. The tax
rates applied to the items below reflect the statutory rates in the applicable
entities.
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
Tax rate applied to items below 25.4 % 25.2 % 25.3 % 25.2 %
Impact on Impact on Impact on Impact on
Contribution diluted Contribution diluted Contribution diluted Contribution diluted
to net income earnings to net income earnings to net income earnings to net income earnings
(after-tax) per share (after-tax) per share (after-tax) per share (after-tax) per share
Merger related costs (1) $ (2) $ (0.03) $ - $ - $ (2) $ (0.03) $ - $ -
Merger related intangible asset
amortization (2) (34) (0.48) (41) (0.59) (70) (0.97) (85) (1.15)
Impact on depreciation related
to acquired fleet and property
and equipment (3) (1) (0.01) (2) (0.02) (2) (0.03) (4) (0.06)
Impact of the fair value
mark-up of acquired fleet (4) (6) (0.08) (8) (0.10) (15) (0.20) (17) (0.23)
Restructuring charge (5) - - (3) (0.04) (1) (0.01) (4) (0.06)
Asset impairment charge (6) (3) (0.04) (1) - (3) (0.04) (20) (0.27)
(1)This 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 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)This primarily reflects severance and branch closure charges associated with
our restructuring programs. For additional information, see note 5 to our
condensed consolidated financial statements.
(6)This reflects write-offs of leasehold improvements and other fixed assets.
The 2020 asset impairment charges were not related to COVID-19, and were
primarily associated with the discontinuation of certain equipment programs.
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
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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 Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Net income $ 293 $ 212 $ 496 $ 385
Provision for income taxes 84 39 156 92
Interest expense, net 100 130 199 266
Depreciation of rental equipment 385 395 760 821
Non-rental depreciation and amortization 90 95 181 195
EBITDA $ 952 $ 871 $ 1,792 $ 1,759
Merger related costs (1) 3 - 3 -
Restructuring charge (2) - 3 1 5
Stock compensation expense, net (3) 35 15 56 28
Impact of the fair value mark-up of acquired fleet (4) 9 10 20 22
Adjusted EBITDA $ 999 $ 899 $ 1,872 $ 1,814
Net income margin 12.8 % 10.9 % 11.4 % 9.5 %
Adjusted EBITDA margin 43.7 % 46.4 % 43.1 % 44.6 %
The table below provides a reconciliation between net cash provided by operating activities and EBITDA and adjusted EBITDA:
Six Months Ended
June 30,
2021 2020
Net cash provided by operating activities $
1,934
(6) (7)
Gain on sales of rental equipment 187 154
Gain on sales of non-rental equipment 4 3
Insurance proceeds from damaged equipment 14 13
Merger related costs (1) (3) -
Restructuring charge (2) (1) (5)
Stock compensation expense, net (3) (56) (28)
Changes in assets and liabilities (584) (112)
Cash paid for interest 195 259
Cash paid for income taxes, net 108 21
EBITDA $ 1,792 $ 1,759
Add back:
Merger related costs (1) 3 -
Restructuring charge (2) 1 5
Stock compensation expense, net (3) 56 28
Impact of the fair value mark-up of acquired fleet (4) 20 22
Adjusted EBITDA $ 1,872 $ 1,814
___________________
35-------------------------------------------------------------------------------- Table of Contents (1)This 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. 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 5 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 certain major acquisitions that was subsequently sold. For the three months endedJune 30, 2021 , net income increased$81 , or 38.2 percent, and net income margin increased 190 basis points to 12.8 percent. For the three months endedJune 30, 2021 , adjusted EBITDA increased$100 , or 11.1 percent, and adjusted EBITDA margin decreased 270 basis points to 43.7 percent. The year-over-year increase in net income margin primarily reflected a reduction in interest expense, improved equipment rentals gross margin and decreased non-rental depreciation and amortization, partially offset by higher selling, general and administrative ("SG&A") and income tax expenses. Net interest expense decreased$30 , or 23 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, partially offset by a higher bonus accrual and increases in certain operating expenses, including delivery costs, as a percentage of revenue. Non-rental depreciation and amortization decreased 5 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 and$8 of one-time costs related to recent acquisition activity recognized in the three months endedJune 30, 2021 . Net income margin was also impacted by an additional$5 of one-time costs associated with recent acquisitions recognized outside of SG&A expense in the three months endedJune 30, 2021 . Year-over-year, income tax expense increased$45 , or 115 percent, and the effective income tax rate increased by 680 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. Gross margin from equipment rentals (excluding depreciation) decreased 240 basis points primarily due to a higher bonus accrual and increased delivery expense. SG&A expense increased primarily due to increased bonus expense and$8 of one-time costs related to recent acquisition activity recognized in the three months endedJune 30, 2021 . Adjusted EBITDA margin was also impacted by an additional$5 of one-time costs associated with recent acquisitions recognized outside of SG&A expense in the three months endedJune 30, 2021 . For the six months endedJune 30, 2021 , net income increased$111 , or 28.8 percent, and net income margin increased 190 basis points to 11.4 percent. For the six months endedJune 30, 2021 , adjusted EBITDA increased$58 , or 3.2 percent, and adjusted EBITDA margin decreased 150 basis points to 43.1 percent. The year-over-year increase in net income margin included the impact of a$26 asset impairment charge, which was not related to COVID-19 and principally related to the discontinuation of certain equipment programs, recognized in the six months endedJune 30, 2020 . Excluding the impact of asset impairment charges, net income margin increased 140 basis points year-over-year, primarily reflecting a reduction in interest expense, improved equipment rentals gross margin and decreased non-rental depreciation and amortization, partially offset by higher SG&A and income tax expenses. Net interest expense decreased$67 , or 25 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, partially offset by a higher bonus accrual and increases in certain operating expenses, including delivery costs, as a percentage of revenue. Non-rental depreciation and amortization decreased 7 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 and$8 of one-time costs related to recent acquisition activity recognized in the six months endedJune 30, 2021 . Net income margin was also impacted by an additional$5 of one-time costs associated with recent acquisitions recognized outside of SG&A expense in the six months endedJune 30, 2021 . Year-over-year, income tax expense increased$64 , or 70 percent, and the effective income tax rate increased by 460 basis points, primarily reflecting the release in 2020 of a valuation allowance on foreign tax credits. The decrease in the adjusted EBITDA margin primarily reflects lower margins from equipment rentals (excluding depreciation). Gross margin from equipment rentals (excluding depreciation) decreased 160 basis points primarily due to a higher bonus accrual and increases in certain operating expenses, including delivery costs, as a percentage of revenue. Revenues are noted below. Fleet productivity is a comprehensive metric that provides greater insight into the decisions made by our managers in support of equipment rental growth and returns. Specifically, we seek to optimize the interplay of rental rates, time utilization and mix to drive rental revenue. Fleet productivity aggregates, in one metric, the impact of changes in rates, utilization and mix on owned equipment rental revenue. We believe that this metric is useful in assessing the effectiveness of our decisions on rates, time utilization and mix, particularly as they support the creation of shareholder value. 36 -------------------------------------------------------------------------------- Table of Contents The table below includes the components of the year-over-year change in rental revenue using the fleet productivity methodology. Three Months Ended June 30, Six Months Ended June 30, 2021 2020 Change 2021 2020 Change Equipment rentals*$ 1,951 $ 1,642 18.8 %$ 3,618 $ 3,425 5.6 % Sales of rental equipment 194 176 10.2 % 461 384 20.1 % Sales of new equipment 57 53 7.5 % 106 115 (7.8) % Contractor supplies sales 27 23 17.4 % 51 48 6.3 % Service and other revenues 58 45 28.9 % 108 92 17.4 % Total revenues$ 2,287 $ 1,939 17.9 %$ 4,344 $ 4,064 6.9 % *Equipment rentals variance components: Year-over-year change in average OEC 0.2 % (2.8) % Assumed year-over-year inflation impact (1) (1.5) % (1.5) % Fleet productivity (2) 17.8 % 8.2 % Contribution from ancillary and re-rent revenue (3) 2.3 % 1.7 % Total change in equipment rentals 18.8 % 5.6 % ___________________ (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 and other miscellaneous costs and services. 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 endedJune 30, 2021 , total revenues of$2.287 billion increased 17.9 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 three months endedJune 30, 2021 ). Equipment rentals increased$309 , or 18.8 percent, including$24 of revenue from the General Finance acquisition, primarily due to a 17.8 percent increase in fleet productivity, which included the pronounced impact of COVID-19 in the three months endedJune 30, 2020 . COVID-19 began to impact our operations inMarch 2020 , when rental volume declined in response to shelter-in-place orders and other market restrictions, and the impact was more significant in 2020. Sales of rental equipment increased 10.2 percent year-over-year primarily due to improved pricing and the impact of the General Finance acquisition. For the six months endedJune 30, 2021 , total revenues of$4.344 billion increased 6.9 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 six months endedJune 30, 2021 ). Equipment rentals increased$193 , or 5.6 percent, including$24 of revenue from the General Finance acquisition, primarily due to an 8.2 percent increase in fleet productivity, which included the more pronounced impact of COVID-19 during the six months endedJune 30, 2020 , partially offset by a 2.8 percent decrease in average OEC. Sales of rental equipment increased 20.1 percent year-over-year primarily due to increased volume and improved pricing in a strong used equipment market.
Results of Operations
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As discussed in note 4 to our condensed consolidated financial statements, our
reportable segments are general rentals and specialty (formerly "trench, power
and fluid solutions"). The general rentals segment includes the rental of
construction, aerial, industrial and homeowner equipment and related services
and activities. The general rentals segment's customers include construction and
industrial companies, manufacturers, utilities, municipalities, homeowners and
government entities. This segment operates throughout the United States and
Canada . The specialty 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, iii) the Fluid Solutions and iv) Fluid Solutions Europe regions, both
of which rent equipment primarily used for fluid containment, transfer and
treatment, and v) the Mobile Storage region, which rents mobile storage and
modular office space. The Mobile Storage region is comprised of locations
acquired in the May 2021 acquisition of General Finance, which is discussed in
note 3 to the condensed consolidated financial statements. 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 4 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 June 30, 2021 , 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 June 30, 2021 , the general rentals' region with the
lowest equipment rentals gross margin was Western Canada . The Western Canada
region's equipment rentals gross margin of 31.0 percent for the five year period
ended June 30, 2021 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 specialty
segment. The specialty segment includes the locations acquired in the July 2018
BakerCorp acquisition and in the May 2021 General Finance acquisition. As such,
there is not a long history of the acquired locations' rental margins included
in the specialty segment. When monitoring for margin convergence, we include
projected future results. We monitor the specialty segment margin variances and
confirm the expectation of future convergence on a quarterly basis. The
historic, pre-acquisition margins for the acquired BakerCorp and General Finance
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 acquisitions, 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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General
rentals Specialty Total
Three Months Ended June 30, 2021
Equipment rentals $ 1,466 $ 485 $ 1,951
Sales of rental equipment 166 28 194
Sales of new equipment 38 19 57
Contractor supplies sales 18 9 27
Service and other revenues 50 8 58
Total revenue $ 1,738 $ 549 $ 2,287
Three Months Ended June 30, 2020
Equipment rentals $ 1,255 $ 387 $ 1,642
Sales of rental equipment 158 18 176
Sales of new equipment 45 8 53
Contractor supplies sales 15 8 23
Service and other revenues 39 6 45
Total revenue $ 1,512 $ 427 $ 1,939
Six Months Ended June 30, 2021
Equipment rentals $ 2,739 $ 879 $ 3,618
Sales of rental equipment 413 48 461
Sales of new equipment 80 26 106
Contractor supplies sales 34 17 51
Service and other revenues 94 14 108
Total revenue $ 3,360 $ 984 $ 4,344
Six Months Ended June 30, 2020
Equipment rentals $ 2,649 $ 776 $ 3,425
Sales of rental equipment 348 36 384
Sales of new equipment 98 17 115
Contractor supplies sales 31 17 48
Service and other revenues 80 12 92
Total revenue $ 3,206 $ 858 $ 4,064
Equipment rentals. For the three months ended June 30, 2021 , equipment rentals
of $1.951 billion increased $309 , or 18.8 percent, including $24 of revenue from
the General Finance acquisition, as compared to the same period in 2020,
primarily due to a 17.8 percent increase in fleet productivity, which included
the pronounced impact of COVID-19 in the three months ended June 30, 2020 .
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,
and the impact was more significant in 2020. Equipment rentals represented 85
percent of total revenues for the three months ended June 30, 2021 .
For the six months ended June 30, 2021 , equipment rentals of $3.618 billion
increased $193 , or 5.6 percent, including $24 of revenue from the General
Finance acquisition, as compared to the same period in 2020, primarily due to an
8.2 percent increase in fleet productivity, which included the more pronounced
impact of COVID-19 during the six months ended June 30, 2020 , partially offset
by a 2.8 percent decrease in average OEC. Equipment rentals represented 83
percent of total revenues for the six months ended June 30, 2021 .
For the three months ended June 30, 2021 , general rentals equipment rentals
increased $211 , or 16.8 percent, as compared to the same period in 2020,
primarily due to increased fleet productivity, which included the pronounced
impact of COVID-19 in the three months ended June 30, 2020 . As noted above, the
impact of COVID-19 was more significant in 2020. For the three months ended
June 30, 2021 , equipment rentals represented 84 percent of total revenues for
the general rentals segment.
For the six months ended June 30, 2021 , general rentals equipment rentals
increased $90 , or 3.4 percent, as compared to the same period in 2020, primarily
due to increased fleet productivity, which included the more pronounced impact
of COVID-19 during the six months ended June 30, 2020 , partially offset by
decreased average OEC. For the six months ended June 30, 2021 , equipment rentals
represented 82 percent of total revenues for the general rentals segment.
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For the three months ended June 30, 2021 , specialty equipment rentals increased
$98 , or 25.3 percent, as compared to the same period in 2020, including $24 of
revenue from the General Finance acquisition. The increase in equipment rentals
also reflected increased fleet productivity, which included the pronounced
impact of COVID-19 in the three months ended June 30, 2020 . As noted above, the
impact of COVID-19 was more significant in 2020. For the three months ended
June 30, 2021 , equipment rentals represented 88 percent of total revenues for
the specialty segment.
For the six months ended June 30, 2021 , specialty equipment rentals increased
$103 , or 13.3 percent, as compared to the same period in 2020, including $24 of
revenue from the General Finance acquisition. The increase in equipment rentals
also reflected increased fleet productivity, which included the more pronounced
impact of COVID-19 during the six months ended June 30, 2020 . For the six months
ended June 30, 2021 , equipment rentals represented 89 percent of total revenues
for the specialty segment.
Sales of rental equipment. For the six months ended June 30, 2021 , sales of
rental equipment represented approximately 11 percent of our total revenues. Our
general rentals segment accounted for most of these sales. For the three months
ended June 30, 2021 , sales of rental equipment increased 10.2 percent
year-over-year primarily due to improved pricing and the impact of the General
Finance acquisition. For the six months ended June 30, 2021 , sales of rental
equipment increased 20.1 percent year-over-year primarily due to increased
volume and improved pricing in a strong used equipment market.
Sales of new equipment. For the six months ended June 30, 2021 , sales of new
equipment represented approximately 2 percent of our total revenues. Our general
rentals segment accounted for most of these sales. For the three and six months
ended June 30, 2021 , sales of new equipment did not change materially
year-over-year.
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 six months
ended June 30, 2021 , 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 six months ended
June 30, 2021 did not change materially year-over-year.
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 six months ended June 30, 2021 , 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
six months ended June 30, 2021 , service and other revenues increased 28.9
percent and 17.4 percent year-over-year, respectively, primarily due to the more
pronounced impact of COVID-19 in 2020.
Segment Equipment Rentals Gross Profit
Segment equipment rentals gross profit and gross margin were as follows:
General
rentals Specialty Total
Three Months Ended June 30, 2021
Equipment Rentals Gross Profit $ 526 $ 225 $ 751
Equipment Rentals Gross Margin 35.9 % 46.4 % 38.5 %
Three Months Ended June 30, 2020
Equipment Rentals Gross Profit $ 419 $ 181 $ 600
Equipment Rentals Gross Margin 33.4 % 46.8 % 36.5 %
Six Months Ended June 30, 2021
Equipment Rentals Gross Profit $ 937 $ 391 $ 1,328
Equipment Rentals Gross Margin 34.2 % 44.5 % 36.7 %
Six Months Ended June 30, 2020
Equipment Rentals Gross Profit $ 867 $ 343 $ 1,210
Equipment Rentals Gross Margin 32.7 % 44.2 % 35.3 %
General rentals. For the three months ended June 30, 2021 , equipment rentals
gross profit increased by $107 , and equipment rentals gross margin increased 250
basis points, from 2020, primarily due to a reduction in depreciation expense,
partially offset by a higher bonus accrual and increases in certain operating
expenses, including delivery costs, as a percentage of revenue.
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For the six months ended June 30, 2021 , equipment rentals gross profit increased
by $70 , and equipment rentals gross margin increased 150 basis points, from
2020, which included a $24 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 80 basis points year-over-year, primarily due to a reduction in
depreciation expense, partially offset by a higher bonus accrual and increases
in certain operating expenses, including delivery costs, as a percentage of
revenue.
Specialty. For the three months ended June 30, 2021 , equipment rentals gross
profit increased by $44 , and equipment rentals gross margin decreased by 40
basis points from 2020. The slight decrease in gross margin primarily reflected
the dilutive margin impact of the General Finance acquisition.
For the six months ended June 30, 2021 , equipment rentals gross profit increased
by $48 , and equipment rentals gross margin increased by 30 basis points from
2020. The slight increase in gross margin primarily reflected decreases in
depreciation and labor expenses as a percentage of revenue, partially offset by
the dilutive margin impact of the General Finance acquisition and a higher
proportion of revenue from certain lower margin ancillary fees in 2021.
Gross Margin. Gross margins by revenue classification were as follows:
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 Change 2021 2020 Change
Total gross margin 38.3 % 36.2 % 210 bps 36.6% 35.1% 150 bps
Equipment rentals 38.5 % 36.5 % 200 bps 36.7% 35.3% 140 bps
Sales of rental equipment 43.3 % 40.3 % 300 bps 40.6% 40.1% 50 bps
Sales of new equipment 15.8 % 13.2 % 260 bps 15.1% 13.0% 210 bps
Contractor supplies sales 29.6 % 30.4 % (80) bps 29.4% 29.2% 20 bps
Service and other revenues 39.7 % 35.6 % 410 bps 39.8% 38.0% 180
bps
For the three months endedJune 30, 2021 , total gross margin increased 210 basis points from the same period in 2020. Equipment rentals gross margin increased 200 basis points year-over-year, primarily due to a reduction in depreciation expense, partially offset by a higher bonus accrual and increases in certain operating expenses, including delivery costs, as a percentage of revenue. Gross margin from sales of rental equipment increased 300 basis points from the same period in 2020 primarily due to improved pricing. The gross margin fluctuations from sales of new equipment, contractor supplies sales and service and other revenues generally reflect normal variability and the more pronounced impact of COVID-19 in 2020, and such revenue types did not account for a significant portion of total gross profit (gross profit for these revenue types represented 5 percent of total gross profit for the three months endedJune 30, 2021 ). For the six months endedJune 30, 2021 , total gross margin increased 150 basis points from the same period in 2020. Equipment rentals gross margin increased 140 basis points from 2020, which included a$24 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 80 basis points year-over-year, primarily due to a reduction in depreciation expense, partially offset by a higher bonus accrual and increases in certain operating expenses, including delivery costs, as a percentage of revenue. The gross margin fluctuations from sales of new equipment, contractor supplies sales and service and other revenues generally reflect normal variability and the more pronounced impact of COVID-19 in 2020, and such revenue types did not account for a significant portion of total gross profit (gross profit for these revenue types represented 5 percent of total gross profit for the six months endedJune 30, 2021 ). 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 six months endedJune 30, 2021 and 2020: 41
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Three Months Ended June 30, Six Months Ended June 30,
2021 2020 Change 2021 2020 Change
Selling, general and
administrative ("SG&A") expense $301 $222 35.6% $551 $489 12.7%
SG&A expense as a percentage of revenue 13.2% 11.4% 180 bps 12.7% 12.0% 70 bps Merger related costs 3 - -% 3 - -% Restructuring charge - 3 (100.0)% 1 5 (80.0)% Non-rental depreciation and amortization 90 95 (5.3)% 181 195 (7.2)% Interest expense, net 100 130 (23.1)% 199 266 (25.2)% Other expense (income), net 4 - -% 2 (4) (150.0)% Provision for income taxes 84 39 115.4% 156 92 69.6% Effective tax rate 22.3% 15.5% 680 bps 23.9% 19.3% 460 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 six months endedJune 30, 2021 increased from the same periods in 2020 primarily due to higher bonus and stock compensation expenses and$8 of one-time costs related to recent acquisition activity recognized in the three and six months endedJune 30, 2021 . The merger related costs reflect transaction costs associated with General Finance acquisition that was completed inMay 2021 , as discussed in note 3 to the condensed 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, each of which had annual revenues of over$200 prior to acquisition, that significantly impact our operations. 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 5 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 six months endedJune 30, 2021 decreased 23.1 percent and 25.2 percent year-over-year, respectively, primarily due to decreases in average debt and the average cost of debt. The differences between the 2021 and 2020 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, stock compensation, other deductible and nondeductible charges, the release in 2020 of a valuation allowance on foreign tax credits and the release in 2021 of a valuation allowance on state tax credits. The year-over-year increases in the effective income tax rates for the three and six months endedJune 30, 2021 primarily reflect the 2020 foreign tax credit valuation allowance release. InMarch 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 rates for the three or six months endedJune 30, 2021 , and is not expected to impact our effective tax rate in 2021. As ofJune 30, 2021 , we have deferred employer payroll taxes of$54 under the CARES Act, with approximately half of the deferral due in each of 2021 and 2022. Balance sheet. As discussed in note 3 to the condensed consolidated financial statements, inMay 2021 , we completed the acquisition of General Finance, and our balance sheet atJune 30, 2021 includes the assets acquired and liabilities assumed reflected in note 3. Prepaid expenses and other assets decreased by$131 , or 34.9 percent, fromDecember 31, 2020 toJune 30, 2021 , primarily due to refundable deposits on expected purchases, primarily of rental equipment, pursuant to advanced purchase agreements, as discussed in note 6 to the condensed consolidated financial statements. Accounts payable increased by$431 , or 92.5 percent, fromDecember 31, 2020 toJune 30, 2021 , primarily due to increased capital expenditures, which reflected seasonality and improved economic conditions. Short-term debt and current maturities of long-term debt increased by 42 -------------------------------------------------------------------------------- Table of Contents$148 , or 21.0 percent, fromDecember 31, 2020 toJune 30, 2021 , primarily due to increased borrowings under our accounts receivable securitization facility, as reflected in note 9 to the condensed consolidated financial statements. 43 -------------------------------------------------------------------------------- Table of Contents 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 addressing 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. OnJanuary 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. ThroughMarch 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 repurchases under the program could resume at any time. 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 ofJune 30, 2021 , we had cash and cash equivalents of$336 . Cash equivalents atJune 30, 2021 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 six months endedJune 30, 2021 :
ABL facility:
Borrowing capacity, net of letters of credit $ 2,384
Outstanding debt, net of debt issuance costs (1) 1,294
Interest rate at June 30, 2021 1.4 %
Average month-end principal amount of debt outstanding (1) 892
Weighted-average interest rate on average debt outstanding 1.3 %Maximum month-end principal amount of debt outstanding (1) 1,672
Accounts receivable securitization facility:
Borrowing capacity 106
Outstanding debt, net of debt issuance costs 794
Interest rate at June 30, 2021 0.9 %
Average month-end principal amount of debt outstanding 628
Weighted-average interest rate on average debt outstanding 1.3 %
Maximum month-end principal amount of debt outstanding 794
___________________
(1)The outstanding and maximum amounts of debt under the ABL facility exceeded the average outstanding amount 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 3 to the condensed consolidated financial statements. 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 ofJuly 26, 2021 were as follows: Corporate Rating Outlook Moody's Ba1 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. 44 -------------------------------------------------------------------------------- Table of Contents Loan Covenants and Compliance. As ofJune 30, 2021 , 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 ofJune 30, 2021 , specified availability under the ABL facility exceeded the required threshold and, as a result, this financial covenant was inapplicable. Under our accounts receivable securitization facility, we are required, among other things, to maintain certain financial tests relating to: (i) the default ratio, (ii) the delinquency ratio, (iii) the dilution ratio and (iv) days sales outstanding. The accounts receivable securitization facility also requires us to comply with the fixed charge coverage ratio under the ABL facility, to the extent the ratio is applicable under the ABL facility. URNA's payment capacity is restricted under the covenants in the ABL and term loan facilities and the indentures governing its outstanding indebtedness. Although this restricted capacity limits our ability to move operating cash flows to Holdings, because of certain intercompany arrangements, we do not expect any material adverse impact on Holdings' ability to meet its cash obligations. Sources and Uses of Cash. During the six months endedJune 30, 2021 , we (i) generated cash from operating activities of$1.934 billion , (ii) generated cash from the sale of rental and non-rental equipment of$475 and (iii) received cash from debt proceeds, net of payments, of$430 . We used cash during this period principally to (i) purchase rental and non-rental equipment of$1.261 billion and (ii) purchase other companies for$1.435 billion . During the six months endedJune 30, 2020 , we (i) generated cash from operating activities of$1.461 billion and (ii) generated cash from the sale of rental and non-rental equipment of$404 . We used cash during this period principally to (i) purchase rental and non-rental equipment of$455 , (ii) make debt payments, net of proceeds, of$1.060 billion and (iii) purchase shares of our common stock for$276 . 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. Six Months Ended June 30, 2021 2020
Net cash provided by operating activities
(1,208) (353)
Purchases of non-rental equipment (53) (102)
Proceeds from sales of rental equipment 461 384
Proceeds from sales of non-rental equipment 14 20
Insurance proceeds from damaged equipment 14 13
Free cash flow $ 1,162 $ 1,423
Free cash flow for the six months ended June 30, 2021 was $1.162 billion , a
decrease of $261 as compared to $1.423 billion for the six months ended June 30,
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 $778 year-over-year.
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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Information Regarding Guarantors of URNA Indebtedness
URNA is 100 percent owned by Holdings and has certain outstanding indebtedness
that is guaranteed by both Holdings and, with the exception of its U.S. special
purpose vehicle which holds receivable assets relating to the Company's accounts
receivable securitization facility (the "SPV"), 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, 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. Holdings consolidates each
of URNA and the guarantor subsidiaries in its consolidated financial statements.
URNA and the guarantor subsidiaries are all 100 percent-owned and controlled by
Holdings. Holdings' guarantees of URNA's indebtedness are full and
unconditional, except that the guarantees may be automatically released and
relieved upon satisfaction of the requirements for legal defeasance or covenant
defeasance under the applicable indenture being met. The Holdings guarantees are
also subject to subordination provisions (to the same extent that the
obligations of the issuer under the relevant notes are subordinated to other
debt of the issuer) and to a standard limitation which provides that the maximum
amount guaranteed by Holdings will not exceed the maximum amount that can be
guaranteed without making the guarantee void under fraudulent conveyance laws.
The guarantees of Holdings and the guarantor subsidiaries are made on a joint
and several basis. The guarantees of the guarantor subsidiaries are not full and
unconditional because a guarantor subsidiary can be automatically released and
relieved of its obligations under certain circumstances, including sale of the
guarantor subsidiary, the sale of all or substantially all of the guarantor
subsidiary's assets, the requirements for legal defeasance or covenant
defeasance under the applicable indenture being met, designating the guarantor
subsidiary as an unrestricted subsidiary for purposes of the applicable
covenants or the notes being rated investment grade by both Standard & Poor's
Ratings Services and Moody's Investors Service, Inc. , or, in certain
circumstances, another rating agency selected by URNA. Like the Holdings
guarantees, the guarantees of the 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. The secured indebtedness of Holdings and the guarantor
subsidiaries (including guarantees of URNA's existing and future secured
indebtedness) will rank effectively senior to guarantees of any unsecured
indebtedness to the extent of the value of the assets securing such
indebtedness. Future guarantees of subordinated indebtedness will rank junior to
any existing and future senior indebtedness of the guarantors. The guarantees of
URNA's indebtedness are effectively junior to any indebtedness of our
subsidiaries that are not guarantors, including our foreign subsidiaries. As of
June 30, 2021 , indebtedness of our non-guarantors included (i) $794 of
outstanding borrowings by the SPV in connection with the Company's accounts
receivable securitization facility, (ii) $2 of outstanding borrowings under the
ABL facility by non-guarantor subsidiaries and (iii) $11 of finance leases of
our non-guarantor subsidiaries.
Covenants in the ABL facility, accounts receivable securitization and term loan
facilities, and the other agreements governing our debt, impose operating and
financial restrictions on URNA, Holdings and the guarantor subsidiaries,
including limitations on the ability to make share repurchases and dividend
payments. As of June 30, 2021 , the amount available for distribution under the
most restrictive of these covenants was $1.199 billion . The Company's total
available capacity for making share repurchases and dividend payments includes
the intercompany receivable balance of Holdings. As of June 30, 2021 , our total
available capacity for making share repurchases and dividend payments, which
includes URNA's capacity to make restricted payments and the intercompany
receivable balance of Holdings, was $4.572 billion .
Based on our understanding of Rule 3-10 of Regulation S-X ("Rule 3-10"), we
believe that Holdings' guarantees of URNA indebtedness comply with the
conditions set forth in Rule 3-10, which enable us to present summarized
financial information for Holdings, URNA and the consolidated guarantor
subsidiaries in accordance with Rule 13-01 of Regulation S-X. The summarized
financial information excludes information regarding the non-guarantor
subsidiaries. In accordance with Rule 3-10, separate financial statements of the
guarantor subsidiaries have not been presented.
The summarized financial information of Holdings, URNA and the guarantor
subsidiaries on a combined basis is as follows:
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June 30, 2021
Current assets $588
Long-term assets 17,828
Total assets 18,416
Current liabilities 1,567
Long-term liabilities 11,755
Total liabilities 13,322
Six Months Ended June 30, 2021
Total revenues $3,925
Gross profit 1,449
Net income 496
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