Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 ___________________________________
FORM 10-Q
___________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 1-14387
Commission File Number 1-13663
___________________________________ 
United Rentals, Inc.
United Rentals (North America), Inc.
(Exact Names of Registrants as Specified in Their Charters)
 ___________________________________
Delaware
Delaware
 
06-1522496
86-0933835
(States of Incorporation)
 
(I.R.S. Employer Identification Nos.)
 
 
100 First Stamford Place, Suite 700
Stamford, Connecticut
 
06902
(Address of Principal Executive Offices)
 
(Zip Code)
Registrants’ Telephone Number, Including Area Code: (203) 622-3131  
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     x   Yes     o   No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
 
x
Accelerated Filer
 
o
 
 
Non-Accelerated Filer
 
o
Smaller Reporting Company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     o   Yes     x    No
As of October 13, 2014 , there were 99,808,171 shares of United Rentals, Inc. common stock, $0.01 par value, outstanding. There is no market for the common stock of United Rentals (North America), Inc., all outstanding shares of which are owned by United Rentals, Inc.
This combined Form 10-Q is separately filed by (i) United Rentals, Inc. and (ii) United Rentals (North America), Inc. (which is a wholly owned subsidiary of United Rentals, Inc.). United Rentals (North America), Inc. meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this report with the reduced disclosure format permitted by such instruction.

Table of Contents


UNITED RENTALS, INC.
UNITED RENTALS (NORTH AMERICA), INC.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014
INDEX
 
 
 
Page
PART I
 
 
 
 
Item 1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2
 
 
 
Item 3
 
 
 
Item 4
 
 
 
PART II
 
 
 
 
Item 1
 
 
 
Item 1A
 
 
 
Item 2
 
 
 
Item 6
 
 
 
 

2
Table of Contents


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements can be identified by the use of forward-looking terminology such as “believe,” “expect,” “may,” “will,” “should,” “seek,” “on-track,” “plan,” “project,” “forecast,” “intend” or “anticipate,” or the negative thereof or comparable terminology, or by discussions of strategy or outlook. You are cautioned that our business and operations are subject to a variety of risks and uncertainties, many of which are beyond our control, and, consequently, our actual results may differ materially from those projected.

Factors that could cause actual results to differ materially from those projected include, but are not limited to, the following:

•
the possibility that RSC Holdings Inc. ("RSC"), National Pump 1 or other companies that we have acquired or may acquire, in our specialty business or otherwise, could have undiscovered liabilities or involve other unexpected costs, may strain our management capabilities or may be difficult to integrate;
•
a change in the pace of the recovery in our end markets; our business is cyclical and highly sensitive to North American construction and industrial activities as well as the energy sector, in general; although we have experienced an upturn in rental activity, there is no certainty this trend will continue; if the pace of the recovery slows or construction activity declines, our revenues and, because many of our costs are fixed, our profitability may be adversely affected;
•
our significant indebtedness (which totaled $ 8.1 billion at September 30, 2014 ) requires us to use a substantial portion of our cash flow for debt service and can constrain our flexibility in responding to unanticipated or adverse business conditions;
•
inability to refinance our indebtedness at terms that are favorable to us, or at all;
•
incurrence of additional debt, which could exacerbate the risks associated with our current level of indebtedness;
•
noncompliance with financial or other covenants in our debt agreements, which could result in our lenders terminating our credit facilities and requiring us to repay outstanding borrowings;
•
restrictive covenants and amount of borrowings permitted in our debt instruments, which can limit our financial and operational flexibility;
•
inability to benefit from government spending, including spending associated with infrastructure projects;
•
fluctuations in the price of our common stock and inability to complete stock repurchases in the time frame and/or on the terms anticipated;
•
rates we charge and time utilization we achieve being less than anticipated;
•
inability to manage credit risk adequately or to collect on contracts with a large number of customers;
•
inability to access the capital that our businesses or growth plans may require;
•
incurrence of impairment charges;
•
the fact that our holding company structure requires us to depend in part on distributions from subsidiaries and such distributions could be limited by contractual or legal restrictions;
•
increases in our loss reserves to address business operations or other claims and any claims that exceed our established levels of reserves;
•
incurrence of additional expenses (including indemnification obligations) and other costs in connection with litigation, regulatory and investigatory matters;
•
the outcome or other potential consequences of regulatory matters and commercial litigation;
•
shortfalls in our insurance coverage;
•
our charter provisions as well as provisions of certain debt agreements and our significant indebtedness may have the effect of making more difficult or otherwise discouraging, delaying or deterring a takeover or other change of control of us;
•
turnover in our management team and inability to attract and retain key personnel;
•
costs we incur being more than anticipated, and the inability to realize expected savings in the amounts or time frames planned;
•
dependence on key suppliers to obtain equipment and other supplies for our business on acceptable terms;
•
inability to sell our new or used fleet in the amounts, or at the prices, we expect;
•
competition from existing and new competitors;

_______________

1.
In April 2014, we acquired assets of the following four entities: National Pump & Compressor, Ltd., Canadian Pump and Compressor Ltd., GulfCo Industrial Equipment, LP and LD Services, LLC (collectively “National Pump”).

3
Table of Contents


•
risks related to security breaches, cybersecurity attacks and other significant disruptions in our information technology systems;
•
the costs of complying with environmental, safety and foreign law and regulations;
•
labor disputes, work stoppages or other labor difficulties, which may impact our productivity, and potential enactment of new legislation or other changes in law affecting our labor relations or operations generally; and
•
increases in our maintenance and replacement costs and/or decreases in the residual value of our equipment.

For a more complete description of these and other possible risks and uncertainties, please refer to our Annual Report on Form 10-K for the year ended December 31, 2013, as well as to our subsequent filings with the SEC. Our forward-looking statements contained herein speak only as of the date hereof, and we make no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations.


4
Table of Contents

PART I. FINANCIAL INFORMATION
 
Item 1.
Financial Statements

UNITED RENTALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
 
 
September 30, 2014
 
December 31, 2013
 
(unaudited)
 
ASSETS
 
 
 
Cash and cash equivalents
$
168

 
$
175

Accounts receivable, net of allowance for doubtful accounts of $38 at September 30, 2014 and $49 at December 31, 2013
941

 
804

Inventory
112

 
70

Prepaid expenses and other assets
64

 
53

Deferred taxes
93

 
260

Total current assets
1,378

 
1,362

Rental equipment, net
6,146

 
5,374

Property and equipment, net
423

 
421

Goodwill
3,270

 
2,953

Other intangible assets, net
1,165

 
1,018

Other long-term assets
101

 
103

Total assets
$
12,483

 
$
11,231

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Short-term debt and current maturities of long-term debt
$
618

 
$
604

Accounts payable
505

 
292

Accrued expenses and other liabilities
572

 
390

Total current liabilities
1,695

 
1,286

Long-term debt
7,477

 
6,569

Deferred taxes
1,412

 
1,459

Other long-term liabilities
83

 
69

Total liabilities
10,667

 
9,383

Temporary equity (note 8)
3

 
20

Common stock—$0.01 par value, 500,000,000 shares authorized, 108,198,641 and 99,864,348 shares issued and outstanding, respectively, at September 30, 2014 and 97,966,802 and 93,288,936 shares issued and outstanding, respectively, at December 31, 2013
1

 
1

Additional paid-in capital
2,127

 
2,054

Retained earnings (accumulated deficit)
309

 
(37
)
Treasury stock at cost—8,334,293 and 4,677,866 shares at September 30, 2014 and December 31, 2013, respectively
(589
)
 
(209
)
Accumulated other comprehensive (loss) income
(35
)
 
19

Total stockholders’ equity
1,813

 
1,828

Total liabilities and stockholders’ equity
$
12,483

 
$
11,231

See accompanying notes.

5
Table of Contents

UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In millions, except per share amounts)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014

2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Equipment rentals
$
1,315

 
$
1,138

 
$
3,499

 
$
3,063

Sales of rental equipment
140

 
102

 
388

 
356

Sales of new equipment
42

 
29

 
105

 
74

Contractor supplies sales
23

 
23

 
64

 
66

Service and other revenues
24

 
19

 
65

 
58

Total revenues
1,544

 
1,311

 
4,121

 
3,617

Cost of revenues:
 
 
 
 
 
 
 
Cost of equipment rentals, excluding depreciation
480

 
422

 
1,336

 
1,214

Depreciation of rental equipment
236

 
219

 
682

 
629

Cost of rental equipment sales
82

 
62

 
227

 
232

Cost of new equipment sales
33

 
23

 
84

 
59

Cost of contractor supplies sales
16

 
15

 
44

 
44

Cost of service and other revenues
9

 
6

 
23

 
19

Total cost of revenues
856

 
747

 
2,396

 
2,197

Gross profit
688

 
564

 
1,725

 
1,420

Selling, general and administrative expenses
194

 
167

 
549

 
479

Merger related costs
4

 
—

 
13

 
8

Restructuring charge
(2
)
 
1

 
(2
)
 
12

Non-rental depreciation and amortization
70

 
59

 
200

 
185

Operating income
422

 
337

 
965

 
736

Interest expense, net
124

 
121

 
436

 
357

Interest expense—subordinated convertible debentures
—

 
—

 
—

 
3

Other income, net
(5
)
 
(2
)
 
(10
)
 
(3
)
Income before provision for income taxes
303

 
218

 
539

 
379

Provision for income taxes
111

 
75

 
193

 
132

Net income
$
192

 
$
143

 
$
346

 
$
247

Basic earnings per share
$
1.95

 
$
1.53

 
$
3.57

 
$
2.65

Diluted earnings per share
$
1.84

 
$
1.35

 
$
3.29

 
$
2.33

See accompanying notes.

6
Table of Contents


UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(In millions)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
 Net income
$
192


$
143

 
$
346

 
$
247

 Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
 Foreign currency translation adjustments
(51
)

21

 
(54
)
 
(31
)
 Other comprehensive (loss) income
(51
)
 
21

 
(54
)
 
(31
)
 Comprehensive income (1)
$
141

 
$
164

 
$
292

 
$
216


(1) There were no material reclassifications from accumulated other comprehensive (loss) income reflected in other comprehensive (loss) income during 2014 or 2013 . There is no tax impact related to the foreign currency translation adjustments, as the earnings are considered permanently reinvested. There were no material taxes associated with other comprehensive (loss) income during 2014 or 2013 .


See accompanying notes.


7
Table of Contents

UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(In millions)
 
 
Common Stock
 
 
 
 
 
Treasury Stock
 
 
 
Number of
Shares (1)
 
Amount
 
Additional Paid-in
Capital
 
(Accumulated
Deficit) Retained Earnings
 
Number of
Shares
 
Amount
 
Accumulated Other Comprehensive
Income (Loss) (3)
Balance at December 31, 2013
93

 
$
1

 
$
2,054

 
$
(37
)
 
5

 
$
(209
)
 
$
19

Net income
 
 
 
 
 
 
346

 
 
 
 
 
 
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
 
 
(54
)
Stock compensation expense, net
 
 
 
 
48

 
 
 
 
 
 
 
 
Exercise of common stock options
 
 
 
 
2

 
 
 
 
 
 
 
 
4 percent Convertible Senior Notes (2)
10

 
 
 
42

 
 
 
 
 
 
 
 
Shares repurchased and retired
 
 
 
 
(19
)
 
 
 
 
 
 
 
 
Repurchase of common stock
(3
)
 
 
 
 
 
 
 
3

 
(380
)
 
 
Balance at September 30, 2014
100

 
$
1

 
$
2,127

 
$
309

 
$
8

 
$
(589
)
 
$
(35
)
 
(1) An aggregate of less than 1 million net shares were issued during the year ended December 31, 2013.
(2) Reflects amortization of the original issue discount on the 4 percent Convertible Senior Notes (an amount equal to the unamortized portion of the original issue discount is reflected as “temporary equity” in our consolidated balance sheet) and the conversion of a portion of the 4 percent Convertible Senior Notes during the nine months ended September 30, 2014 , net of cash received from the option counterparties to our convertible note hedges upon the conversion. See note 8 to our condensed consolidated financial statements for additional detail.
(3) The Accumulated Other Comprehensive Income (Loss) balance primarily reflects foreign currency translation adjustments.



See accompanying notes.

8
Table of Contents

UNITED RENTALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In millions)
 
Nine Months Ended
 
September 30,
 
2014
 
2013
Cash Flows From Operating Activities:
 
 
 
Net income
$
346

 
$
247

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
882

 
814

Amortization of deferred financing costs and original issue discounts
14

 
16

Gain on sales of rental equipment
(161
)
 
(124
)
Gain on sales of non-rental equipment
(7
)
 
(3
)
(Gain) loss on sale of software subsidiary
—

 
1

Stock compensation expense, net
48

 
34

Merger related costs
13

 
8

Restructuring charge
(2
)
 
12

Loss on extinguishment of debt securities
80

 
1

Loss on retirement of subordinated convertible debentures
—

 
2

Increase in deferred taxes
134

 
97

Changes in operating assets and liabilities, net of amounts acquired:
 
 
 
Increase in accounts receivable
(99
)
 
(17
)
Increase in inventory
(23
)
 
(22
)
Decrease (increase) in prepaid expenses and other assets
10

 
(7
)
Increase in accounts payable
197

 
82

Increase (decrease) in accrued expenses and other liabilities
34

 
(26
)
Net cash provided by operating activities
1,466

 
1,115

Cash Flows From Investing Activities:
 
 
 
Purchases of rental equipment
(1,484
)
 
(1,499
)
Purchases of non-rental equipment
(84
)
 
(71
)
Proceeds from sales of rental equipment
388

 
356

Proceeds from sales of non-rental equipment
26

 
15

Purchases of other companies, net of cash acquired
(752
)
 
(9
)
Net cash used in investing activities
(1,906
)
 
(1,208
)
Cash Flows From Financing Activities:
 
 
 
Proceeds from debt
5,911

 
2,931

Payments of debt, including subordinated convertible debentures
(5,082
)
 
(2,681
)
Proceeds from the exercise of common stock options
2

 
5

Common stock repurchased
(399
)
 
(99
)
Payments of financing costs
(22
)
 
—

Cash received (paid) in connection with the 4 percent Convertible Senior Notes and related hedge, net
31

 
(40
)
Net cash provided by financing activities
441

 
116

Effect of foreign exchange rates
(8
)
 
(4
)
Net (decrease) increase in cash and cash equivalents
(7
)
 
19

Cash and cash equivalents at beginning of period
175

 
106

Cash and cash equivalents at end of period
$
168

 
$
125

Supplemental disclosure of cash flow information:
 
 
 
Cash paid for income taxes, net
$
60

 
$
44

Cash paid for interest, including subordinated convertible debentures
315

 
322

See accompanying notes.

9

UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per share data, unless otherwise indicated)
1 . Organization, Description of Business and Basis of Presentation
United Rentals, Inc. (“Holdings,” “URI” or the “Company”) is principally a holding company and conducts its operations primarily through its wholly owned subsidiary, United Rentals (North America), Inc. (“URNA”), and subsidiaries of URNA. Holdings’ primary asset is its sole ownership of all issued and outstanding shares of common stock of URNA. URNA’s various credit agreements and debt instruments place restrictions on its ability to transfer funds to its shareholder.
We rent equipment to a diverse customer base that includes construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government entities in the United States and Canada. In addition to renting equipment, we sell new and used rental equipment, as well as related contractor supplies, parts and service.
We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with the accounting policies described in our annual report on Form 10-K for the year ended December 31, 2013 (the “ 2013 Form 10-K”) and the interim reporting requirements of Form 10-Q. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the 2013 Form 10-K.
In our opinion, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of financial condition, operating results and cash flows for the interim periods presented have been made. Interim results of operations are not necessarily indicative of the results of the full year. Certain reclassifications of prior year's amounts have been made to conform to the current year’s presentation.

New Accounting Pronouncements
Revenue from Contracts with Customers . In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance to clarify the principles for recognizing revenue. This guidance includes the required steps to achieve the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for fiscal years and interim periods beginning after December 15, 2016. Early adoption is not permitted. We expect to adopt this guidance when effective, and the impact on our financial statements is not currently estimable.
2 . Acquisitions
In April 2014, we completed the acquisition of assets of the following four entities: National Pump & Compressor, Ltd., Canadian Pump and Compressor Ltd., GulfCo Industrial Equipment, LP and LD Services, LLC (collectively “National Pump”). National Pump was the second largest specialty pump rental company in North America. National Pump was a leading supplier of pumps for energy and petrochemical customers, with upstream oil and gas customers representing about half of its revenue. National Pump had a total of 35 branches, including four branches in western Canada, and had annual revenues of approximately $ 210 . The acquisition is expected to expand our product offering, and supports our strategy of expanding our presence in industrial and specialty rental markets.
The acquisition date fair value of the consideration transferred consisted of the following:
 Cash consideration (1)
$
773

 Contingent consideration (2)
76

 Total purchase consideration (3)
$
849

(1) Consists of cash paid of $ 718 and a ‘hold back’ of $ 55 , which is subject to a final working capital true-up.
(2) Reflects the acquisition date fair value of the following additional cash consideration to be paid based on the achievement of the following financial targets:
1. A maximum payout of $ 75 if National Pump's trailing twelve months adjusted EBITDA (as defined below in “Management’s Discussion and Analysis of Financial Condition and Results of Operations- Financial Overview”) reaches $ 134 twelve months post-closing; and

10
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)


2. An additional maximum payout of $ 50 if National Pump's trailing twelve months adjusted EBITDA reaches $ 161 eighteen months post-closing.
(3) Total purchase consideration excludes $ 15 of stock which was issued in connection with the acquisition and will be treated as compensation for book purposes but primarily represents deductible goodwill for income tax purposes.
The following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date. The purchase price allocations for these assets and liabilities are based on preliminary valuations and are subject to change as we obtain additional information during the acquisition measurement period.
 Accounts receivable, net of allowance for doubtful accounts (1)
$
44

 Inventory
19

 Deferred taxes
11

 Rental equipment
178

 Property and equipment
10

 Intangibles (2)
289

 Other assets
1

 Total identifiable assets acquired
552

 Current liabilities
(25
)
 Total liabilities assumed
(25
)
 Net identifiable assets acquired
527

 Goodwill (3)
322

 Net assets acquired
$
849

(1) The fair value of accounts receivables acquired was $44 , and the gross contractual amount was $47 . We estimated that $3 will be uncollectible.
(2) The following table reflects the estimated fair values and useful lives of the acquired intangible assets identified based on our purchase accounting assessments:
 
Fair value
 Life (years)
 Customer relationships
$
274

10
 Non-compete agreements
15

6
 Total
$
289

 
(3) $310 of the goodwill was assigned to our trench safety, power and HVAC (“heating, ventilating and air conditioning”), and pump solutions segment and $12 of the goodwill was assigned to our general rentals segment. The level of goodwill that resulted from the merger is primarily reflective of National Pump's going-concern value, the value of National Pump's assembled workforce, new customer relationships expected to arise from the merger, and operational synergies that we expect to achieve that would not be available to other market participants. $344 of goodwill is expected to be deductible for income tax purposes.
The three and nine months ended September 30, 2014 include National Pump acquisition-related costs of $4 and $13 , respectively. The acquisition-related costs are reflected in our condensed consolidated statements of income as “Merger related costs” which also include costs associated with the 2012 acquisition of RSC Holdings Inc. (“RSC”). The merger related costs primarily relate to financial and legal advisory fees, and also include changes subsequent to the acquisition date to the fair value of the contingent cash consideration we expect to pay associated with the National Pump acquisition as discussed in note 7 to our condensed consolidated financial statements. We do not expect to incur significant additional charges in connection with the merger subsequent to September 30, 2014 . In addition to the acquisition-related costs reflected in our condensed consolidated statements of income, we capitalized $22 of debt issuance costs associated with the issuance of debt to fund the acquisition, which are reflected, net of amortization subsequent to the acquisition date, in other long-term assets in our condensed consolidated balance sheets.
The pro forma information below has been prepared using the purchase method of accounting, giving effect to the National Pump acquisition as if it had been completed on January 1, 2013 (“the pro forma acquisition date”). The pro forma information

11
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)


is not necessarily indicative of our results of operations had the acquisition been completed on the above date, nor is it necessarily indicative of our future results. The pro forma information does not reflect any cost savings from operating efficiencies or synergies that could result from the acquisition, and also does not reflect additional revenue opportunities following the acquisition. The pro forma information includes adjustments to record the acquired assets and liabilities of National Pump at their respective fair values based on available information and to give effect to the financing for the acquisition. The pro forma adjustments reflected in the table below are subject to change as additional analysis is performed. The purchase price allocations for the assets acquired and liabilities assumed are based on preliminary valuations and are subject to change as we obtain additional information during the acquisition measurement period. Increases or decreases in the estimated fair values of the net assets acquired may impact our statements of income in future periods. We expect that the values assigned to the assets acquired and liabilities assumed will be finalized during the one-year measurement period following the acquisition date. The table below presents unaudited pro forma consolidated income statement information as if National Pump had been included in our consolidated results for the entire periods reflected:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2013
 
2014

 
2013

United Rentals historic revenues
$
1,311

 
$
4,121

 
$
3,617

National Pump historic revenues
55

 
62

 
149

Pro forma revenues
1,366

 
4,183

 
3,766

United Rentals historic pretax income
218

 
539

 
379

National Pump historic pretax income
18

 
20

 
44

Combined pretax income
236

 
559

 
423

Pro forma adjustments to combined pretax income:
 
 
 
 
 
Impact of fair value mark-ups/useful life changes on depreciation (1)
(1
)
 
(1
)
 
(3
)
Intangible asset amortization (2)
(13
)
 
(12
)
 
(39
)
Interest expense (3)
(8
)
 
58

 
(86
)
Elimination of historic National Pump interest (4)
—

 
—

 
1

Elimination of merger costs (5)
—

 
8

 
—

Pro forma pretax income
$
214

 
$
612

 
$
296

(1) Depreciation of rental equipment and non-rental depreciation were adjusted for the fair value mark-ups of equipment acquired in the National Pump acquisition. The useful lives assigned to such equipment didn’t change significantly from the lives historically used by National Pump.
(2) The intangible assets acquired in the National Pump acquisition were amortized.
(3) In connection with the National Pump acquisition, URNA issued $ 525 principal amount of 6  1 / 8  percent Senior Notes (as an add on to our existing 6  1 / 8  percent Senior Notes) and $ 850 principal amount of 5  3 / 4  percent Senior Notes, and all our outstanding 9  1 / 4  percent Senior Notes were redeemed, as discussed in note 8 to the condensed consolidated financial statements. Interest expense was adjusted to reflect these changes in our debt portfolio. For the pro forma presentation, the $ 64 loss recognized upon redemption of the 9  1 / 4  percent Senior Notes discussed in note 8 to the condensed consolidated financial statements was moved from the nine months ended September 30, 2014 to the nine months ended September 30, 2013 .
(4) Interest on National Pump historic debt was eliminated.
(5) Merger related costs, primarily comprised of financial and legal advisory fees, associated with the National Pump acquisition were eliminated as they were assumed to have been recognized prior to the pro forma acquisition date.
For the three months ended September 30, 2014 , National Pump revenue and pretax income included in our condensed consolidated financial statements were $73 and $16 , respectively. For the nine months ended September 30, 2014 , National Pump revenue and pretax income included in our condensed consolidated financial statements were $140 and $30 , respectively. National Pump pretax income excludes merger related costs which are not allocated to our segments.

12
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)


3 . Segment Information
Our reportable segments are general rentals and trench safety, power and HVAC, and pump solutions. The general rentals segment includes the rental of construction, infrastructure, 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. The general rentals segment comprises 12 geographic regions—Eastern Canada, Gulf South, Industrial (which serves the geographic Gulf region and has a strong industrial presence), Mid-Atlantic, Mid-Central, Midwest, Mountain West, Northeast, Pacific West, South, Southeast and Western Canada—and operates throughout the United States and Canada. The trench safety, power and HVAC, and pump solutions segment includes the rental of specialty construction products and related services. The trench safety, power and HVAC, and pump solutions segment is comprised of 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, 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 the Pump Solutions region, which rents pumps primarily used by energy and petrochemical customers. The trench safety, power and HVAC, and pump 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. These segments align our external segment reporting with how management evaluates and allocates resources. We evaluate segment performance based on segment equipment rentals gross profit.
 
The following tables set forth financial information by segment.  

13
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)


 
General
rentals
 
Trench safety,
power and  HVAC, and pump solutions
 
Total
Three Months Ended September 30, 2014
 
 
 
 
 
Equipment rentals
$
1,127

 
$
188

 
$
1,315

Sales of rental equipment
133

 
7

 
140

Sales of new equipment
31

 
11

 
42

Contractor supplies sales
19

 
4

 
23

Service and other revenues
21

 
3

 
24

Total revenue
1,331

 
213

 
1,544

Depreciation and amortization expense
267

 
39

 
306

Equipment rentals gross profit
496

 
103

 
599

Three Months Ended September 30, 2013
 
 
 
 
 
Equipment rentals
$
1,038

 
$
100

 
$
1,138

Sales of rental equipment
98

 
4

 
102

Sales of new equipment
27

 
2

 
29

Contractor supplies sales
21

 
2

 
23

Service and other revenues
18

 
1

 
19

Total revenue
1,202

 
109

 
1,311

Depreciation and amortization expense
261

 
17

 
278

Equipment rentals gross profit
445

 
52

 
497

Nine Months Ended September 30, 2014
 
 
 
 
 
Equipment rentals
$
3,079

 
$
420

 
$
3,499

Sales of rental equipment
371

 
17

 
388

Sales of new equipment
80

 
25

 
105

Contractor supplies sales
55

 
9

 
64

Service and other revenues
55

 
10

 
65

Total revenue
3,640

 
481

 
4,121

Depreciation and amortization expense
789

 
93

 
882

Equipment rentals gross profit
1,266

 
215

 
1,481

Capital expenditures
1,391

 
177

 
1,568

Nine Months Ended September 30, 2013
 
 
 
 
 
Equipment rentals
$
2,824

 
$
239

 
$
3,063

Sales of rental equipment
343

 
13

 
356

Sales of new equipment
69

 
5

 
74

Contractor supplies sales
60

 
6

 
66

Service and other revenues
54

 
4

 
58

Total revenue
3,350

 
267

 
3,617

Depreciation and amortization expense
771

 
43

 
814

Equipment rentals gross profit
1,106

 
114

 
1,220

Capital expenditures
1,461

 
109

 
1,570


14
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)


 
September 30,
2014
 
December 31,
2013
Total reportable segment assets
 
 
 
General rentals
$
10,747

 
$
10,677

Trench safety, power and HVAC, and pump solutions (1)
1,736

 
554

Total assets
$
12,483

 
$
11,231

 
(1) The increase in the trench safety, power and HVAC, and pump solutions assets primarily reflects the impact of the National Pump acquisition discussed in note 2 to the condensed consolidated financial statements.

Equipment rentals gross profit is the primary measure management reviews to make operating decisions and assess segment performance. The following is a reconciliation of equipment rentals gross profit to income before provision for income taxes:  

Three Months Ended

Nine Months Ended
 
September 30,

September 30,
 
2014

2013

2014

2013
Total equipment rentals gross profit
$
599

 
$
497

 
$
1,481

 
$
1,220

Gross profit from other lines of business
89

 
67

 
244

 
200

Selling, general and administrative expenses
(194
)
 
(167
)
 
(549
)
 
(479
)
Merger related costs
(4
)
 
—

 
(13
)

(8
)
Restructuring charge
2

 
(1
)
 
2

 
(12
)
Non-rental depreciation and amortization
(70
)
 
(59
)
 
(200
)
 
(185
)
Interest expense, net
(124
)
 
(121
)
 
(436
)
 
(357
)
Interest expense- subordinated convertible debentures
—

 
—

 
—

 
(3
)
Other income, net
5

 
2

 
10

 
3

Income before provision for income taxes
$
303

 
$
218


$
539


$
379

4 . Restructuring Charges
Closed Restructuring Program
Between 2008 and 2011 and in recognition of the very challenging economic environment, we were intensely focused on reducing our operating costs. During this period, we reduced our employee headcount from approximately 10,900 at January 1, 2008 (the beginning of the restructuring period) to approximately 7,500 at December 31, 2011 (the end of the restructuring period). Additionally, we reduced our branch network from 697 locations at January 1, 2008 to 529 locations at December 31, 2011.
RSC Merger Related Restructuring Program
In the second quarter of 2012, we initiated a restructuring program related to severance costs and branch closure charges associated with the April 2012 acquisition of RSC. The branch closure charges principally relate to continuing lease obligations at vacant facilities closed subsequent to the RSC acquisition. As of September 30, 2014 , our employee headcount is approximately 12,500 and our branch network has 882 rental locations. We do not expect to incur significant additional charges in connection with the restructuring, which was complete as of June 30, 2013 (the end of the restructuring period).
The table below provides certain information concerning our restructuring charges for the nine months ended September 30, 2014 :
 

15
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)


 
 
Reserve Balance at
 
Charged to
Costs and
Expenses (1)
 
Payments
and Other
 
Reserve Balance at
Description 
 
December 31, 2013
 
 
 
September 30, 2014
Closed Restructuring Program
 
 
 
 
 
 
 
 
Branch closure charges
 
$
13

 
$
(1
)
 
$
(3
)
 
$
9

Severance costs
 
—

 
—

 
—

 
—

Total
 
$
13

 
$
(1
)
 
$
(3
)
 
$
9

RSC Merger Related Restructuring Program
 
 
 
 
 
 
 
 
Branch closure charges
 
$
20

 
$
(1
)
 
$
(6
)
 
$
13

Severance costs
 
2

 
—

 
(2
)
 
—

Total
 
$
22

 
$
(1
)
 
$
(8
)
 
$
13

Total
 
 
 
 
 
 
 
 
Branch closure charges
 
$
33

 
$
(2
)
 
$
(9
)
 
$
22

Severance costs
 
2

 
—

 
(2
)
 
—

Total
 
$
35

 
$
(2
)
 
$
(11
)
 
$
22

 
_________________
(1)
Reflected in our condensed consolidated statements of income as “Restructuring charge.” The income for the nine months ended September 30, 2014 primarily reflects buyouts or settlements of real estate leases for less than the recognized reserves. These charges are not allocated to our reportable segments.  
5 . Goodwill and Other Intangible Assets
The following table presents the changes in the carrying amount of goodwill for the nine months ended September 30, 2014 :  
 
General rentals
 
Trench safety,
power and HVAC, and pump solutions
 
Total
Balance at January 1, 2014 (1)
$
2,812

 
$
141

 
$
2,953

Goodwill related to acquisitions (2)
12

 
319

 
331

Foreign currency translation and other adjustments
(13
)
 
(1
)
 
(14
)
Balance at September 30, 2014 (1)
$
2,811

 
$
459

 
$
3,270

 
_________________
(1)
The total carrying amount of goodwill for all periods in the table above is reflected net of $ 1,557 of accumulated impairment charges, which were primarily recorded in our general rentals segment.
(2)
Includes goodwill adjustments for the effect on goodwill of changes to net assets acquired during the measurement period, which were not significant to our previously reported operating results or financial condition.
Other intangible assets were comprised of the following at September 30, 2014 and December 31, 2013:  
 
September 30, 2014
 
Weighted-Average Remaining
Amortization Period 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Amount
Non-compete agreements
42 months
 
$
70

 
$
27

 
$
43

Customer relationships
12 years
 
$
1,505

 
$
409

 
$
1,096

Trade names and associated trademarks
31 months
 
$
81

 
$
55

 
$
26


 

16
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)


 
December 31, 2013
 
Weighted-Average Remaining
Amortization Period 
 
Gross
Carrying
Amount
 
Accumulated
Amortization  
 
Net
Amount  
Non-compete agreements
40 months
 
$
54

 
$
18

 
$
36

Customer relationships
13 years
 
$
1,227

 
$
285

 
$
942

Trade names and associated trademarks
40 months
 
$
81

 
$
41

 
$
40


Our other intangibles assets, net at September 30, 2014 include the following assets associated with the acquisition of National Pump discussed above (see note 2 to our condensed consolidated financial statements). No residual value has been assigned to these intangible assets. The non-compete agreements are being amortized on a straight-line basis, and the customer relationships are being amortized using the sum of the years' digits method, which we believe best reflects the estimated pattern in which the economic benefits will be consumed.
 
September 30, 2014
 
Weighted-Average Remaining
Amortization Period 
 
 
Net Carrying
Amount
Non-compete agreements
5 years
 
 
$
14

Customer relationships
10 years
 
 
$
249

Amortization expense for other intangible assets was $ 53 and $ 44 for the three months ended September 30, 2014 and 2013, respectively, and $ 149 and $ 135 for the nine months ended September 30, 2014 and 2013, respectively.
As of September 30, 2014 , estimated amortization expense for other intangible assets for each of the next five years and thereafter is as follows:  
2014
$
52

2015
196

2016
175

2017
147

2018
126

Thereafter
469

Total
$
1,165


6 . Derivatives
We recognize all derivative instruments as either assets or liabilities at fair value, and recognize changes in the fair value of the derivative instruments based on the designation of the derivative. For derivative instruments that are designated and qualify as hedging instruments, we designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge or a cash flow hedge. As of September 30, 2014 , we do not have any outstanding derivative instruments designated as fair value hedges. The effective portion of the changes in fair value of derivatives that are designated as cash flow hedges is recorded as a component of accumulated other comprehensive income. Amounts included in accumulated other comprehensive income for cash flow hedges are reclassified into earnings in the same period that the hedged item is recognized in earnings. The ineffective portion of changes in the fair value of derivatives designated as cash flow hedges is recorded currently in earnings. For derivative instruments that do not qualify for hedge accounting, we recognize gains or losses due to changes in fair value in our condensed consolidated statements of income during the period in which the changes in fair value occur.
We are exposed to certain risks related to our ongoing business operations. During the nine months ended September 30, 2014 and 2013 , the primary risks we managed using derivative instruments were diesel price risk and foreign currency exchange rate risk. At September 30, 2014 , we had outstanding fixed price swap contracts on diesel purchases which were entered into to mitigate the price risk associated with forecasted purchases of diesel. During the nine months ended September 30, 2014 , we entered into forward contracts to purchase Canadian dollars to mitigate the foreign currency exchange rate risk associated with certain Canadian dollar denominated intercompany loans. At September 30, 2014 and December 31, 2013 , there were no outstanding forward contracts to purchase Canadian dollars. The outstanding forward contracts on diesel

17
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)


purchases were designated and qualify as cash flow hedges and the forward contracts to purchase Canadian dollars represented derivative instruments not designated as hedging instruments.
Fixed Price Diesel Swaps
The fixed price swap contracts on diesel purchases that were outstanding at September 30, 2014 were designated and qualify as cash flow hedges and the effective portion of the gain or loss on these contracts is reported as a component of accumulated other comprehensive income and is reclassified into earnings in the period during which the hedged transaction affects earnings (i.e., when the hedged gallons of diesel are used). The remaining gain or loss on the fixed price swap contracts in excess of the cumulative change in the present value of future cash flows of the hedged item, if any (i.e., the ineffective portion), is recognized in our condensed consolidated statements of income during the current period. As of September 30, 2014 , we had outstanding fixed price swap contracts covering 5.3 million gallons of diesel which will be purchased throughout 2014 and 2015 .
Foreign Currency Forward Contracts
The forward contracts to purchase Canadian dollars, which were all settled as of September 30, 2014 , represented derivative instruments not designated as hedging instruments and gains or losses due to changes in the fair value of the forward contracts were recognized in our condensed consolidated statements of income during the period in which the changes in fair value occurred. During the three and nine months ended September 30, 2014 , forward contracts were used to purchase $ 86 Canadian dollars, representing the total amount due at maturity for certain Canadian dollar denominated intercompany loans that were settled during the three and nine months ended September 30, 2014 . Upon maturity, the proceeds from the forward contracts were used to pay down the Canadian dollar denominated intercompany loans.
Financial Statement Presentation
As of September 30, 2014 and December 31, 2013 , immaterial amounts ( $1 or less) were reflected in prepaid expenses and other assets, accrued expenses and other liabilities, and accumulated other comprehensive income in our condensed consolidated balance sheets associated with the outstanding fixed price swap contracts that were designated and qualify as cash flow hedges.
The effect of our derivative instruments on our condensed consolidated statements of income for the three and nine months ended September 30, 2014 and 2013 was as follows:
 

18
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)


 
 
 
Three Months Ended September 30, 2014
 
Three Months Ended September 30, 2013
 
Location of income
(expense)
recognized on
derivative/hedged item
 
Amount of  income
(expense)
recognized
on derivative
 
Amount of  income
(expense)
recognized
on hedged item
 
Amount of  income
(expense)
recognized
on derivative
 
Amount of  income
(expense)
recognized
on hedged item
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Fixed price diesel swaps
Other income
(expense), net (1)
 
 $ *

 
 
 
 $ *

 
 
 
Cost of equipment
rentals, excluding
depreciation (2),
(3)
 
 *

 
$
(10
)
 
*

 
$
(11
)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts (4)
Other income
(expense), net
 
(3
)
 
3

 
2

 
(2
)
 
 
 
Nine Months Ended September 30, 2014
 
Nine Months Ended September 30, 2013
 
Location of income
(expense)
recognized on
derivative/hedged item
 
Amount of  income
(expense)
recognized
on derivative
 
Amount of  income
(expense)
recognized
on hedged item
 
Amount of  income
(expense)
recognized
on derivative
 
Amount of  income
(expense)
recognized
on hedged item
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Fixed price diesel swaps
Other income
(expense), net (1)
 
 $ *

 
 
 
 $ *

 
 
 
Cost of equipment
rentals, excluding
depreciation (2),
(3)
 
 *

 
$
(32
)
 
 *

 
$
(28
)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts (4)
Other income
(expense), net
 
(3
)
 
3

 
(2
)
 
2

*
Amounts are insignificant (less than $1 ).
(1)
Represents the ineffective portion of the fixed price diesel swaps.
(2)
Amounts recognized on derivative represent the effective portion of the fixed price diesel swaps.
(3)
Amounts recognized on hedged item reflect the use of 2.6 million and 2.7 million gallons of diesel covered by the fixed price swaps during the three months ended September 30, 2014 and 2013 , respectively, and the use of 8.2 million and 7.0 million gallons of diesel covered by the fixed price swaps during the nine months ended September 30, 2014 and 2013 , respectively. These amounts are reflected, net of cash received from the counterparties to the fixed price swaps, in operating cash flows in our condensed consolidated statement of cash flows.
(4)
Insignificant amounts were reflected in our condensed consolidated statement of cash flows associated with the forward contracts to purchase Canadian dollars, as the cash impact of the gains/losses recognized on the derivatives were offset by the gains/losses recognized on the hedged items.
7 . Fair Value Measurements
We account for certain assets and liabilities at fair value. We categorize each of our fair value measurements in one of the following three levels based on the lowest level input that is significant to the fair value measurement in its entirety:
Level 1- Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets.
Level 2- Observable inputs other than quoted prices in active markets for identical assets and liabilities include:
a)
quoted prices for similar assets in active markets;

19
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)


b)
quoted prices for identical or similar assets in inactive markets;
c)
inputs other than quoted prices that are observable for the asset;
d)
inputs that are derived principally from or corroborated by observable market data by correlation or other means.
If the asset has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset.
Level 3- Inputs to the valuation methodology are unobservable (i.e., supported by little or no market activity) and significant to the fair value measure.
Assets and Liabilities Measured at Fair Value
Our fixed price diesel swaps contracts are Level 2 derivatives measured at fair value on a recurring basis. As of September 30, 2014 and December 31, 2013 , immaterial amounts ( $1 or less) were reflected in prepaid expenses and other assets, and accrued expenses and other liabilities in our condensed consolidated balance sheets, reflecting the fair values of the fixed price diesel swaps contracts. As discussed in note 6 to the condensed consolidated financial statements, we entered into the fixed price swap contracts on diesel purchases to mitigate the price risk associated with forecasted purchases of diesel. Fair value is determined based on observable market data. As of September 30, 2014 , we have fixed price swap contracts that mature throughout 2014 and 2015 covering 5.3 million gallons of diesel which we will buy at the average contract price of $3.86 per gallon, while the average forward price for the hedged gallons was $3.65 per gallon as of September 30, 2014 .
The fair value of the contingent cash consideration we expect to pay associated with the National Pump acquisition discussed in note 2 to our condensed consolidated financial statements was $ 81 as of September 30, 2014 . The contingent consideration is recorded in accrued expenses and other liabilities in our condensed consolidated balance sheets, and is a Level 3 liability measured at fair value on a recurring basis. Fair value was determined using a probability weighted discounted cash flow methodology. Key inputs to the valuation included: (i) discrete scenarios of potential payouts under the two earn-out arrangements discussed in note 2 to our condensed consolidated financial statements; (ii) probability weightings assigned to each of the scenarios for each of the two earn-out payments; and (iii) a rate of return with which to discount the probability weighted payouts to present value. The discrete payout scenarios were based on the low case, base case and high case forecasts of financial performance prepared by management in connection with the acquisition. The probability weighted payments were then discounted to present value using a discount rate of 11.5 percent based on a calculated risk adjusted rate for National Pump, resulting in fair values of $ 63 and $ 18 for the first and second earn out-payments, respectively. Changes to the inputs used in the valuation could result in material changes to fair value. As discussed in note 2 to our condensed consolidated financial statements, the fair value of the contingent cash consideration was $76 as of the acquisition date. Changes to the fair value of the contingent cash consideration are reflected in our condensed consolidated statements of income as “Merger related costs” which included $3 and $5 of such changes for the three and nine months ended September 30, 2014 , respectively.
 
Fair Value of Financial Instruments
The carrying amounts reported in our condensed consolidated balance sheets for accounts receivable, accounts payable and accrued expenses and other liabilities approximate fair value due to the immediate to short-term maturity of these financial instruments. The fair values of our ABL facility, accounts receivable securitization facility and capital leases approximate their book values as of September 30, 2014 and December 31, 2013 . The estimated fair values of our financial instruments as of September 30, 2014 and December 31, 2013 have been calculated based upon available market information, and are presented below by level in the fair value hierarchy:  
 
September 30, 2014
 
December 31, 2013
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Level 1:
 
 
 
 
 
 
 
Senior and senior subordinated notes
$
6,064

 
$
6,348

 
$
5,381

 
$
5,848

Level 2:
 
 
 
 
 
 
 
4 percent Convertible Senior Notes (1)
31

 
32

 
136

 
149

___________________ 
(1)
The fair value of the 4 percent Convertible Senior Notes is based on the market value of comparable notes. Consistent with the carrying amount, the fair value excludes the equity component of the notes. To exclude the equity component and

20
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)


calculate the fair value, we used an effective interest rate of 7.1 percent. As discussed below (see Item 3- Quantitative and Qualitative Disclosures about Market Risk), the total cost to settle the notes based on the closing price of our common stock on September 30, 2014 would be $338 .
8 . Debt
Debt consists of the following:  
 
September 30, 2014
 
December 31, 2013
URNA and subsidiaries debt:
 
 
 
Accounts Receivable Securitization Facility (1)
$
550

 
$
430

$2.3 billion ABL Facility (2)
1,336

 
1,106

5  3 / 4  percent Senior Secured Notes
750

 
750

10  1 / 4  percent Senior Notes (3)
—

 
220

9  1 / 4  percent Senior Notes (4)
—

 
494

7  3 / 8  percent Senior Notes
750

 
750

8  3 / 8  percent Senior Subordinated Notes
750

 
750

8  1 / 4  percent Senior Notes
688

 
692

7 5 / 8  percent Senior Notes
1,325

 
1,325

6  1 / 8  percent Senior Notes (5)
951

 
400

5  3 / 4  percent Senior Notes (6)
850

 
—

Capital leases
114

 
120

Total URNA and subsidiaries debt
8,064

 
7,037

Holdings:
 
 
 
4 percent Convertible Senior Notes (7)
31

 
136

Total debt
8,095

 
7,173

Less short-term portion (8)
(618
)
 
(604
)
Total long-term debt
$
7,477

 
$
6,569

 ___________________

(1)
In September 2014, we amended our accounts receivable securitization facility primarily to extend the expiration date of the facility until September 17, 2015. At September 30, 2014 , $0 was available under our accounts receivable securitization facility. The interest rate applicable to the accounts receivable securitization facility was 0.8 percent at September 30, 2014 . During the nine months ended September 30, 2014 , the monthly average amount outstanding under the accounts receivable securitization facility was $449 , and the weighted-average interest rate thereon was 0.8 percent . The maximum month-end amount outstanding under the accounts receivable securitization facility during the nine months ended September 30, 2014 was $550 . Borrowings under the accounts receivable securitization facility are permitted only to the extent that the face amount of the receivables in the collateral pool, net of applicable reserves, exceeds the outstanding loans. As of September 30, 2014 , there were $ 634 of receivables, net of applicable reserves, in the collateral pool.
(2)
At September 30, 2014 , $908 was available under our ABL facility, net of $56 of letters of credit. The interest rate applicable to the ABL facility was 2.2 percent at September 30, 2014 . During the nine months ended September 30, 2014 , the monthly average amount outstanding under the ABL facility was $1.1 billion , and the weighted-average interest rate thereon was 2.3 percent . The maximum month-end amount outstanding under the ABL facility during the nine months ended September 30, 2014 was $1.3 billion .
(3)
In January 2014, we redeemed all of our 10  1 / 4  percent Senior Notes. We paid a call premium of $ 26 in connection with the redemption, and recognized a loss of approximately $ 6 in interest expense, net upon redemption. The loss represented the difference between the net carrying amount and the total purchase price of the notes.
(4)
As discussed in note 2 to our condensed consolidated financial statements, in April 2014, we completed the acquisition of assets of National Pump. Using proceeds from debt issued in connection with the National Pump acquisition, as discussed below, and cash on hand, we redeemed all the outstanding 9  1 / 4  percent Senior Notes in April 2014. We paid a call premium of approximately $ 52 in connection with the redemption and recognized a loss of approximately $ 64 in interest

21
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)


expense upon redemption. The loss represented the difference between the net carrying amount and the total purchase price of the notes.
(5)
In connection with the National Pump acquisition described above, in March 2014, URNA issued $ 525 principal amount of 6  1 / 8  percent Senior Notes as an add on to our existing 6  1 / 8  percent Senior Notes. The net proceeds from the issuance were $ 546 (after deducting offering expenses). The newly issued notes have identical terms, and are fungible, with the 6  1 / 8  percent Senior Notes outstanding at December 31, 2013 . The difference between the carrying value of the 6  1 / 8  percent Senior Notes and the $ 925 principal amount relates to the $ 26 unamortized portion of the original issue premium recognized in conjunction with the March 2014 issuance, which is being amortized through the maturity date in 2023. The effective interest rate on the 6  1 / 8  percent Senior Notes is 5.7 percent.
(6)
In connection with the National Pump acquisition described above, in March 2014, URNA issued $ 850 principal amount of 5  3 / 4  percent Senior Notes which are due November 15, 2024. The net proceeds from the issuance were $ 837 (after deducting offering expenses). The net proceeds were used to finance in part the cash purchase price of the National Pump acquisition which closed in April 2014. The 5 3 / 4 percent Senior Notes are unsecured and are guaranteed by Holdings and, subject to limited exceptions, URNA's domestic subsidiaries. The 5 3 / 4 percent Senior Notes may be redeemed on or after May 15, 2019 , at specified redemption prices that range from 102.875 percent in the 12-month period commencing on May 15, 2019 , to 100 percent in the 12-month period commencing on May 15, 2022 and thereafter, plus accrued and unpaid interest. The indenture governing the 5 3 / 4 percent Senior Notes contains certain restrictive covenants, including, among others, limitations on (1) liens; (2) additional indebtedness; (3) mergers, consolidations and acquisitions; (4) sales, transfers and other dispositions of assets; (5) loans and other investments; (6) dividends and other distributions, stock repurchases and redemptions and other restricted payments; (7) restrictions affecting subsidiaries; (8) transactions with affiliates; and (9) designations of unrestricted subsidiaries, as well as a requirement to timely file periodic reports with the SEC. Each of these covenants is subject to important exceptions and qualifications that would allow URI to engage in these activities under certain conditions. The indenture also requires that, in the event of a change of control (as defined in the indenture), URI must make an offer to purchase all of the then-outstanding 5 3 / 4 percent Senior Notes tendered at a purchase price in cash equal to 101 percent of the principal amount thereof, plus accrued and unpaid interest, if any, thereon.
(7)
The difference between the September 30, 2014 carrying value of the 4 percent Convertible Senior Notes and the $34 principal amount reflects the $3 unamortized portion of the original issue discount recognized upon issuance of the notes, which is being amortized through the maturity date of November 15, 2015. Because the 4 percent Convertible Senior Notes were redeemable at September 30, 2014 , an amount equal to the $3 unamortized portion of the original issue discount is separately classified in our condensed consolidated balance sheets and referred to as “temporary equity.” During the nine months ended September 30, 2014 , $ 122 of our 4 percent Convertible Notes were redeemed. We recognized a loss of approximately $ 10 in interest expense, net upon redemption. The loss represented the difference between the net carrying amount and the fair value of the debt component of the notes. Based on the price of our common stock during the third quarter of 2014, holders of the 4 percent Convertible Senior Notes have the right to redeem the notes during the fourth quarter of 2014 at a conversion price of $11.11 per share of common stock. Since October 1, 2014 (the beginning of the fourth quarter), none of the 4 percent Convertible Senior Notes were redeemed.
(8)
As of September 30, 2014 , our short-term debt primarily reflects $550 of borrowings under our accounts receivable securitization facility and $31 of 4 percent Convertible Senior Notes. The 4 percent Convertible Senior Notes mature in November 2015, but are reflected as short-term debt because they were redeemable at September 30, 2014 .
Convertible Note Hedge Transactions
In connection with the November 2009 issuance of $173 aggregate principal amount of 4 percent Convertible Senior Notes, Holdings entered into convertible note hedge transactions with option counterparties. The convertible note hedge transactions cost $26 , and decreased additional paid-in capital by $17 , net of taxes, in our accompanying condensed consolidated statements of stockholders’ equity. The convertible note hedge transactions cover, subject to anti-dilution adjustments, 3.0 million shares of our common stock. The convertible note hedge transactions are intended to reduce, subject to a limit, the potential dilution with respect to our common stock upon conversion of the 4 percent Convertible Senior Notes. The effect of the convertible note hedge transactions is to increase the effective conversion price to $15.56 per share, equal to an approximately 75 percent premium over the $8.89 closing price of our common stock at issuance. The effective conversion price is subject to change in certain circumstances, such as if the 4 percent Convertible Senior Notes are converted prior to May 15, 2015 . In the event the market value of our common stock exceeds the effective conversion price per share, the settlement amount received from such transactions will only partially offset the potential dilution. For example, if, at the time of exercise of the conversion right, the price of our common stock was $110.00 per share, assuming an effective conversion price of $15.56 per share, on a net basis, we would issue 2.6 million shares.

22
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)


Loan Covenants and Compliance
As of September 30, 2014 , we were in compliance with the covenants and other provisions of the ABL facility, the accounts receivable securitization facility 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.
In October 2011, we amended the ABL facility. The only material financial covenants which currently exist relate to the fixed charge coverage ratio and the senior secured leverage ratio under the ABL facility. Since the October 2011 amendment of the ABL facility and through September 30, 2014 , availability under the ABL facility has exceeded the required threshold and, as a result, these maintenance covenants have been inapplicable. Subject to certain limited exceptions specified in the amended ABL facility, the fixed charge coverage ratio and the senior secured leverage ratio under the amended ABL facility will only apply in the future if availability under the amended ABL facility falls below the greater of 10 percent of the maximum revolver amount under the amended ABL facility and $150 . 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.
9 . Legal and Regulatory Matters
In addition to the disclosures provided in note 14 to our consolidated financial statements for the year ended December 31, 2013 filed on Form 10-K on January 22, 2014, we are also subject to a number of claims and proceedings that generally arise in the ordinary conduct of our business. These matters include, but are not limited to, general liability claims (including personal injury, property and auto claims), indemnification and guarantee obligations, employee injuries and employment-related claims, self-insurance obligations and contract and real estate matters. Based on advice of counsel and available information, including current status or stage of proceeding, and taking into account accruals for matters where we have established them, we currently believe that any liabilities ultimately resulting from these ordinary course claims and proceedings will not, individually or in the aggregate, have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
10 . Earnings Per Share
Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of common shares plus the effect of dilutive potential common shares outstanding during the period. Diluted earnings per share for the nine months ended September 30, 2013 excludes the impact of approximately 0.4 million common stock equivalents since the effect of including these securities would be anti-dilutive. The following table sets forth the computation of basic and diluted earnings per share (shares in thousands):  
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Numerator:
 
 
 
 
 
 
 
Net income available to common stockholders
$
192

 
$
143

 
346

 
247

Denominator:
 
 
 
 
 
 
 
Denominator for basic earnings per share—weighted-average common shares
98,485

 
93,244

 
96,916

 
93,483

Effect of dilutive securities:
 
 
 
 
 
 
 
Employee stock options and warrants
376

 
463

 
407

 
527

Convertible subordinated notes—4 percent
4,748

 
11,407

 
7,606

 
11,744

Restricted stock units
467

 
434

 
465

 
516

Denominator for diluted earnings per share—adjusted weighted-average common shares
104,076

 
105,548

 
105,394

 
106,270

Basic earnings per share
$
1.95

 
$
1.53

 
$
3.57

 
$
2.65

Diluted earnings per share
$
1.84

 
$
1.35

 
$
3.29

 
$
2.33


23
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)


11 . Condensed Consolidating Financial Information of Guarantor Subsidiaries
URNA is 100 percent owned by Holdings (“Parent”) and has outstanding (i) certain indebtedness that is guaranteed by Parent, (ii) certain indebtedness that is guaranteed by both Parent and, with the exception of its U.S. special purpose vehicle which holds receivable assets relating to the Company’s accounts receivable securitization (the “SPV”), all of URNA’s U.S. subsidiaries (the “guarantor subsidiaries”) and (iii) certain indebtedness that is guaranteed only by the guarantor subsidiaries (specifically, the 10  1 / 4  percent Senior Notes and the 8  1 / 4  percent Senior Notes). Other than the guarantee by certain Canadian subsidiaries of URNA's indebtedness under the ABL facility, none of URNA’s indebtedness is guaranteed by URNA's foreign subsidiaries or the SPV (together, the “non-guarantor subsidiaries”). The receivable assets owned by the SPV have been sold by URNA to the SPV and are not available to satisfy the obligations of URNA or Parent’s other subsidiaries. The guarantor subsidiaries are all 100 percent -owned and the guarantees are made on a joint and several basis. The guarantees 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 subsidiary guarantor, the sale of all or substantially all of the subsidiary guarantor's assets, the requirements for legal defeasance or covenant defeasance under the applicable indenture being met or designating the subsidiary guarantor as an unrestricted subsidiary for purposes of the applicable covenants. The 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 each guarantor will not exceed the maximum amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws. Based on our understanding of Rule 3-10 of Regulation S-X ("Rule 3-10"), we believe that the guarantees of the guarantor subsidiaries comply with the conditions set forth in Rule 3-10 and therefore continue to utilize Rule 3-10 to present condensed consolidating financial information for Holdings, URNA, the guarantor subsidiaries and the non-guarantor subsidiaries. Separate consolidated financial statements of the guarantor subsidiaries have not been presented because management believes that such information would not be material to investors. However, condensed consolidating financial information is presented. Certain reclassifications of prior year's amounts have been made to conform to the current year’s presentation.
URNA covenants in the ABL facility, accounts receivable securitization facility and the other agreements governing our debt impose operating and financial restrictions on URNA, Parent and the guarantor subsidiaries, including limitations on the ability to pay dividends. As of September 30, 2014 , the amount available for distribution under the most restrictive of these covenants was $ 369 .
The condensed consolidating financial information of Parent and its subsidiaries is as follows:

24
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)


CONDENSED CONSOLIDATING BALANCE SHEET
September 30, 2014  
 
Parent
 
URNA
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
 
Foreign
 
SPV
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
39

 
$
—

 
$
129

 
$
—

 
$
—

 
$
168

Accounts receivable, net
—

 
36

 
—

 
142

 
763

 
—

 
941

Intercompany receivable (payable)
314

 
(244
)
 
(59
)
 
(141
)
 
—

 
130

 
—

Inventory
—

 
100

 
—

 
12

 
—

 
—

 
112

Prepaid expenses and other assets
—

 
46

 
1

 
17

 
—

 
—

 
64

Deferred taxes
—

 
91

 
—

 
2

 
—

 
—

 
93

Total current assets
314

 
68

 
(58
)
 
161

 
763

 
130

 
1,378

Rental equipment, net
—

 
5,515

 
—

 
631

 
—

 
—

 
6,146

Property and equipment, net
45

 
314

 
21

 
43

 
—

 
—

 
423

Investments in subsidiaries
1,510

 
1,174

 
1,021

 
—

 
—

 
(3,705
)
 
—

Goodwill
—

 
2,990

 
—

 
280

 
—

 
—

 
3,270

Other intangible assets, net
—

 
1,061

 
—

 
104

 
—

 
—

 
1,165

Other long-term assets
—

 
101

 
—

 
—

 
—

 
—

 
101

Total assets
$
1,869

 
$
11,223

 
$
984

 
$
1,219

 
$
763

 
$
(3,575
)
 
$
12,483

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term debt and current maturities of long-term debt
$
31

 
$
37

 
$
—

 
$
—

 
$
550

 
$
—

 
$
618

Accounts payable
—

 
447

 
—

 
58

 
—

 
—

 
505

Accrued expenses and other liabilities
—

 
503

 
19

 
50

 
—

 
—

 
572

Total current liabilities
31

 
987

 
19

 
108

 
550

 
—

 
1,695

Long-term debt
—

 
7,336

 
134

 
7

 
—

 
—

 
7,477

Deferred taxes
22

 
1,310

 
—

 
80

 
—

 
—

 
1,412

Other long-term liabilities
—

 
80

 
—

 
3

 
—

 
—

 
83

Total liabilities
53

 
9,713

 
153

 
198

 
550

 
—

 
10,667

Temporary equity (note 8)
3

 
—

 
—

 
—

 
—

 
—

 
3

Total stockholders’ equity (deficit)
1,813

 
1,510

 
831

 
1,021

 
213

 
(3,575
)
 
1,813

Total liabilities and stockholders’ equity (deficit)
$
1,869

 
$
11,223

 
$
984

 
$
1,219

 
$
763

 
$
(3,575
)
 
$
12,483






25
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)



CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2013
 
 
Parent
 
URNA
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
 
Foreign
 
SPV
 
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
17

 
$
—

 
$
158

 
$
—

 
$
—

 
$
175

Accounts receivable, net
—

 
36

 
—

 
140

 
628

 
—

 
804

Intercompany receivable (payable)
308

 
(257
)
 
(51
)
 
(132
)
 
—

 
132

 
—

Inventory
—

 
62

 
—

 
8

 
—

 
—

 
70

Prepaid expenses and other assets
—

 
42

 
1

 
10

 
—

 
—

 
53

Deferred taxes
—

 
258

 
—

 
2

 
—

 
—

 
260

Total current assets
308

 
158

 
(50
)
 
186

 
628

 
132

 
1,362

Rental equipment, net
—

 
4,768

 
—

 
606

 
—

 
—

 
5,374

Property and equipment, net
48

 
313

 
20

 
40

 
—

 
—

 
421

Investments in subsidiaries
1,648

 
1,132

 
997

 
—

 
—

 
(3,777
)
 
—

Goodwill
—

 
2,708

 
—

 
245

 
—

 
—

 
2,953

Other intangible assets, net
—

 
931

 
—

 
87

 
—

 
—

 
1,018

Other long-term assets
2

 
100

 
—

 
—

 
1

 
—

 
103

Total assets
$
2,006

 
$
10,110

 
$
967

 
$
1,164

 
$
629

 
$
(3,645
)
 
$
11,231

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
 
 
 
 
 
 
 
 
 
 
 
 
Short-term debt and current maturities of long-term debt
$
136

 
$
38

 
$
—

 
$
—

 
$
430

 
$
—

 
$
604

Accounts payable
—

 
254

 
—

 
38

 
—

 
—

 
292

Accrued expenses and other liabilities
1

 
327

 
25

 
36

 
1

 
—

 
390

Total current liabilities
137

 
619

 
25

 
74

 
431

 
—

 
1,286

Long-term debt
—

 
6,421

 
140

 
8

 
—

 
—

 
6,569

Deferred taxes
21

 
1,357

 
—

 
81

 
—

 
—

 
1,459

Other long-term liabilities
—

 
65

 
—

 
4

 
—

 
—

 
69

Total liabilities
158

 
8,462

 
165

 
167

 
431

 
—

 
9,383

Temporary equity (note 8)
20

 
—

 
—

 
—

 
—

 
—

 
20

Total stockholders’ equity (deficit)
1,828

 
1,648

 
802

 
997

 
198

 
(3,645
)
 
1,828

Total liabilities and stockholders’ equity (deficit)
$
2,006

 
$
10,110

 
$
967

 
$
1,164

 
$
629

 
$
(3,645
)
 
$
11,231


26
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)



CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
For the Three Months Ended September 30, 2014

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Parent
 
URNA
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
Foreign
 
SPV
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Equipment rentals
$
—

 
$
1,155

 
$
—

 
$
160

 
$
—

 
$
—

 
$
1,315

Sales of rental equipment
—

 
125

 
—

 
15

 
—

 
—

 
140

Sales of new equipment
—

 
35

 
—

 
7

 
—

 
—

 
42

Contractor supplies sales
—

 
20

 
—

 
3

 
—

 
—

 
23

Service and other revenues
—

 
20

 
—

 
4

 
—

 
—

 
24

Total revenues
—

 
1,355

 
—

 
189

 
—

 
—

 
1,544

Cost of revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of equipment rentals, excluding depreciation
—

 
418

 
—

 
62

 
—

 
—

 
480

Depreciation of rental equipment
—

 
210

 
—

 
26

 
—

 
—

 
236

Cost of rental equipment sales
—

 
73

 
—

 
9

 
—

 
—

 
82

Cost of new equipment sales
—

 
27

 
—

 
6

 
—

 
—

 
33

Cost of contractor supplies sales
—

 
14

 
—

 
2

 
—

 
—

 
16

Cost of service and other revenues
—

 
8

 
—

 
1

 
—

 
—

 
9

Total cost of revenues
—

 
750

 
—

 
106

 
—

 
—

 
856

Gross profit
—

 
605

 
—

 
83

 
—

 
—

 
688

Selling, general and administrative expenses
40

 
127

 
—

 
23

 
4

 
—

 
194

Merger related costs
—

 
4

 
—

 
—

 
—

 
—

 
4

Restructuring charge
—

 
(2
)
 
—

 
—

 
—

 
—

 
(2
)
Non-rental depreciation and amortization
4

 
58

 
1

 
7

 
—

 
—

 
70

Operating (loss) income
(44
)
 
418

 
(1
)
 
53

 
(4
)
 
—

 
422

Interest expense (income), net
3

 
122

 
—

 
—

 
1

 
(2
)
 
124

Other (income) expense, net
(39
)
 
54

 
(1
)
 
6

 
(25
)
 
—

 
(5
)
(Loss) income before provision for income taxes
(8
)
 
242

 
—

 
47

 
20

 
2

 
303

Provision for income taxes
—

 
91

 
—

 
12

 
8

 
—

 
111

(Loss) income before equity in net earnings (loss) of subsidiaries
(8
)
 
151

 
—

 
35

 
12

 
2

 
192

Equity in net earnings (loss) of subsidiaries
200

 
49

 
35

 
—

 
—

 
(284
)
 
—

Net income (loss)
192

 
200

 
35

 
35

 
12

 
(282
)
 
192

Other comprehensive (loss) income
(51
)
 
(51
)
 
(51
)
 
(40
)
 
—

 
142

 
(51
)
Comprehensive income (loss)
$
141

 
$
149

 
$
(16
)
 
$
(5
)
 
$
12

 
$
(140
)
 
$
141


27
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)



CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
For the Three Months Ended September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Parent
 
URNA
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
 
Foreign
 
SPV
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Equipment rentals
$
—

 
$
990

 
$
—

 
$
148

 
$
—

 
$
—

 
$
1,138

Sales of rental equipment
—

 
91

 
—

 
11

 
—

 
—

 
102

Sales of new equipment
—

 
24

 
—

 
5

 
—

 
—

 
29

Contractor supplies sales
—

 
19

 
—

 
4

 
—

 
—

 
23

Service and other revenues
—

 
15

 
—

 
4

 
—

 
—

 
19

Total revenues
—

 
1,139

 
—

 
172

 
—

 
—

 
1,311

Cost of revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of equipment rentals, excluding depreciation
—

 
366

 
—

 
56

 
—

 
—

 
422

Depreciation of rental equipment
—

 
193

 
—

 
26

 
—

 
—

 
219

Cost of rental equipment sales
—

 
56

 
—

 
6

 
—

 
—

 
62

Cost of new equipment sales
—

 
20

 
—

 
3

 
—

 
—

 
23

Cost of contractor supplies sales
—

 
12

 
—

 
3

 
—

 
—

 
15

Cost of service and other revenues
—

 
4

 
—

 
2

 
—

 
—

 
6

Total cost of revenues
—

 
651

 
—

 
96

 
—

 
—

 
747

Gross profit
—

 
488

 
—

 
76

 
—

 
—

 
564

Selling, general and administrative expenses
7

 
134

 
—

 
23

 
3

 
—

 
167

Restructuring charge
—

 
1

 
—

 
—

 
—

 
—

 
1

Non-rental depreciation and amortization
5

 
49

 
—

 
5

 
—

 
—

 
59

Operating (loss) income
(12
)
 
304

 
—

 
48

 
(3
)
 
—

 
337

Interest expense (income), net
3

 
115

 
1

 
1

 
2

 
(1
)
 
121

Other (income) expense, net
(35
)
 
50

 
—

 
5

 
(22
)
 
—

 
(2
)
Income (loss) before provision (benefit) for income taxes
20

 
139

 
(1
)
 
42

 
17

 
1

 
218

Provision (benefit) for income taxes
12

 
47

 
(1
)
 
11

 
6

 
—

 
75

Income before equity in net earnings (loss) of subsidiaries
8

 
92

 
—

 
31

 
11

 
1

 
143

Equity in net earnings (loss) of subsidiaries
135

 
43

 
31

 
—

 
—

 
(209
)
 
—

Net income (loss)
143

 
135

 
31

 
31

 
11

 
(208
)
 
143

Other comprehensive income (loss)
21

 
21

 
22

 
16

 
—

 
(59
)
 
21

Comprehensive income (loss)
$
164

 
$
156

 
$
53

 
$
47

 
$
11

 
$
(267
)
 
$
164

 



28
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)



CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
For the Nine Months Ended September 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Parent
 
URNA
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
Foreign
 
SPV
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Equipment rentals
$
—

 
$
3,069

 
$
—

 
$
430

 
$
—

 
$
—

 
$
3,499

Sales of rental equipment
—

 
347

 
—

 
41

 
—

 
—

 
388

Sales of new equipment
—

 
87

 
—

 
18

 
—

 
—

 
105

Contractor supplies sales
—

 
54

 
—

 
10

 
—

 
—

 
64

Service and other revenues
—

 
52

 
—

 
13

 
—

 
—

 
65

Total revenues
—

 
3,609

 
—

 
512

 
—

 
—

 
4,121

Cost of revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of equipment rentals, excluding depreciation
—

 
1,155

 
—

 
181

 
—

 
—

 
1,336

Depreciation of rental equipment
—

 
606

 
—

 
76

 
—

 
—

 
682

Cost of rental equipment sales
—

 
203

 
—

 
24

 
—

 
—

 
227

Cost of new equipment sales
—

 
70

 
—

 
14

 
—

 
—

 
84

Cost of contractor supplies sales
—

 
37

 
—

 
7

 
—

 
—

 
44

Cost of service and other revenues
—

 
18

 
—

 
5

 
—

 
—

 
23

Total cost of revenues
—

 
2,089

 
—

 
307

 
—

 
—

 
2,396

Gross profit
—

 
1,520

 
—

 
205

 
—

 
—

 
1,725

Selling, general and administrative expenses
59

 
421

 
2

 
66

 
1

 
—

 
549

Merger related costs
—

 
13

 
—

 
—

 
—

 
—

 
13

Restructuring charge
—

 
(2
)
 
—

 
—

 
—

 
—

 
(2
)
Non-rental depreciation and amortization
13

 
167

 
1

 
19

 
—

 
—

 
200

Operating (loss) income
(72
)
 
921

 
(3
)
 
120

 
(1
)
 
—

 
965

Interest expense (income), net
10

 
422

 
3

 
3

 
3

 
(5
)
 
436

Other (income) expense, net
(108
)
 
152

 
(2
)
 
13

 
(65
)
 
—

 
(10
)
Income (loss) before provision for income taxes
26

 
347

 
(4
)
 
104

 
61

 
5

 
539

Provision for income taxes
1

 
141

 
—

 
27

 
24

 
—

 
193

Income (loss) before equity in net earnings (loss) of subsidiaries
25

 
206

 
(4
)
 
77

 
37

 
5

 
346

Equity in net earnings (loss) of subsidiaries
321

 
115

 
77

 
—

 
—

 
(513
)
 
—

Net income (loss)
346

 
321

 
73

 
77

 
37

 
(508
)
 
346

Other comprehensive (loss) income
(54
)
 
(54
)
 
(53
)
 
(42
)
 
—

 
149

 
(54
)
Comprehensive income (loss)
$
292

 
$
267

 
$
20

 
$
35

 
$
37

 
$
(359
)
 
$
292




 

29
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)



CONDENSED CONSOLIDATING STATEMENT OF INCOME AND COMPREHENSIVE INCOME
For the Nine Months Ended September 30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Parent
 
URNA
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
 
Foreign
 
SPV
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Equipment rentals
$
—

 
$
2,641

 
$
—

 
$
422

 
$
—

 
$
—

 
$
3,063

Sales of rental equipment
—

 
319

 
—

 
37

 
—

 
—

 
356

Sales of new equipment
—

 
58

 
—

 
16

 
—

 
—

 
74

Contractor supplies sales
—

 
53

 
—

 
13

 
—

 
—

 
66

Service and other revenues
—

 
46

 
—

 
12

 
—

 
—

 
58

Total revenues
—

 
3,117

 
—

 
500

 
—

 
—

 
3,617

Cost of revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost of equipment rentals, excluding depreciation
—

 
1,035

 
—

 
179

 
—

 
—

 
1,214

Depreciation of rental equipment
—

 
555

 
—

 
74

 
—

 
—

 
629

Cost of rental equipment sales
—

 
210

 
—

 
22

 
—

 
—

 
232

Cost of new equipment sales
—

 
47

 
—

 
12

 
—

 
—

 
59

Cost of contractor supplies sales
—

 
35

 
—

 
9

 
—

 
—

 
44

Cost of service and other revenues
—

 
14

 
—

 
5

 
—

 
—

 
19

Total cost of revenues
—

 
1,896

 
—

 
301

 
—

 
—

 
2,197

Gross profit
—

 
1,221

 
—

 
199

 
—

 
—

 
1,420

Selling, general and administrative expenses
16

 
393

 
—

 
68

 
2

 
—

 
479

Merger related costs
—

 
8

 
—

 
—

 
—

 
—

 
8

Restructuring charge
—

 
12

 
—

 
—

 
—

 
—

 
12

Non-rental depreciation and amortization
13

 
157

 
—

 
15

 
—

 
—

 
185

Operating (loss) income
(29
)
 
651

 
—

 
116

 
(2
)
 
—

 
736

Interest expense (income), net
9

 
341

 
4

 
2

 
4

 
(3
)
 
357

Interest expense-subordinated convertible debentures
3

 
—

 
—

 
—

 
—

 
—

 
3

Other (income) expense, net
(100
)
 
143

 
—

 
14

 
(60
)
 
—

 
(3
)
Income (loss) before provision (benefit) for income taxes
59

 
167

 
(4
)
 
100

 
54

 
3

 
379

Provision (benefit) for income taxes
21

 
64

 
(1
)
 
27

 
21

 
—

 
132

Income (loss) before equity in net earnings (loss) of subsidiaries
38

 
103

 
(3
)
 
73

 
33

 
3

 
247

Equity in net earnings (loss) of subsidiaries
209

 
106

 
73

 
—

 
—

 
(388
)
 
—

Net income (loss)
247

 
209

 
70

 
73

 
33

 
(385
)
 
247

Other comprehensive (loss) income
(31
)
 
(31
)
 
(30
)
 
(24
)
 
—

 
85

 
(31
)
Comprehensive income (loss)
$
216

 
$
178

 
$
40

 
$
49

 
$
33

 
$
(300
)
 
$
216







30
UNITED RENTALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share data, unless otherwise indicated)


CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Nine Months Ended September 30, 2014
 
 
Parent
 
URNA
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
Foreign
 
SPV
 
Net cash provided by (used in) operating activities
$
11

 
$
1,369

 
$
3

 
$
180

 
$
(97
)
 
$
—

 
$
1,466

Net cash used in investing activities
(11
)
 
(1,696
)
 
—

 
(199
)
 
—

 
—

 
(1,906
)
Net cash provided by (used in) financing activities
—

 
349

 
(3
)
 
(2
)
 
97

 
—

 
441

Effect of foreign exchange rates
—

 
—

 
—

 
(8
)
 
—

 
—

 
(8
)
Net increase (decrease) in cash and cash equivalents
—

 
22

 
—

 
(29
)
 
—

 
—

 
(7
)
Cash and cash equivalents at beginning of period
—

 
17

 
—

 
158

 
—

 
—

 
175

Cash and cash equivalents at end of period
$
—

 
$
39

 
$
—

 
$
129

 
$
—

 
$
—

 
$
168

CONDENSED CONSOLIDATING CASH FLOW INFORMATION
For the Nine Months Ended September 30, 2013
 
 
Parent
 
URNA
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Total
 
 
 
 
Foreign
 
SPV
 
 
Net cash provided by (used in) operating activities
$
21

 
$
948

 
$
3

 
$
150

 
$
(7
)
 
$
—

 
$
1,115

Net cash used in investing activities
(21
)
 
(1,065
)
 
—

 
(122
)
 
—

 
—

 
(1,208
)
Net cash provided by (used in) financing activities
—

 
113

 
(3
)
 
(1
)
 
7

 
—

 
116

Effect of foreign exchange rates
—

 
—

 
—

 
(4
)
 
—

 
—

 
(4
)
Net (decrease) increase in cash and cash equivalents
—

 
(4
)
 
—

 
23

 
—

 
—

 
19

Cash and cash equivalents at beginning of period
—

 
20

 
—

 
86

 
—

 
—

 
106

Cash and cash equivalents at end of period
$
—

 
$
16

 
$
—

 
$
109

 
$
—

 
$
—

 
$
125



31

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in millions, except per share data, unless otherwise indicated)
Executive Overview
We are the largest equipment rental company in the world, with an integrated network of 882 rental locations in the United States and Canada. 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 $ 8.6 billion , and a national branch network that operates in 49 U.S. states and every Canadian province, and serves 99 of the largest 100 metropolitan areas in the United States. In addition, our size 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 3,300 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 85 percent of total revenues for the nine months ended September 30, 2014 .
For the past several years, we have executed a strategy focused on improving the profitability of our core 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 cost control. In 2014, we intensified our disciplined focus on profitability and return on invested capital. In particular, our strategy calls for:
•
An increasing proportion of revenue derived from key accounts, a group that includes national accounts and strategic accounts, among others;
•
A consistently superior standard of service to customers, often provided through a single point of contact;
•
A targeted presence in industrial and specialty rental markets. We expect to continue to expand our trench safety, power and HVAC, and pump solutions (also referred to as "specialty") footprint, as well as our tools offering, and to cross-sell these services throughout our network. We believe that the expansion of our specialty business will further position United Rentals as a single source provider of total jobsite solutions through our extensive product and service resources and technology offerings. As discussed in note 2 to the condensed consolidated financial statements, in April 2014 we acquired National Pump. The acquisition is expected to expand our product offering, and supports our strategy of expanding our presence in industrial and specialty rental markets;
•
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 teams will use similar analyses to identify trends in equipment categories and define action plans that can generate improved returns; and
•
The implementation of “Lean” management techniques, including kaizen processes focused on continuous improvement, through a program we call Operation United 2. Having completed eight branch pilots in late 2013, we are now launching this program 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.
During the nine months ended September 30, 2014 , year over year, our rental rates increased 4.6 percent and the volume of OEC on rent increased 9.2 percent, which we believe reflects improvements in our operating environment and the execution of our strategy.
Financial Overview
As discussed further in note 8 to the condensed consolidated financial statements, during the nine months ended September 30, 2014 , we took the following actions that have improved our financial flexibility and liquidity:
•
In January 2014, we redeemed all of our 10  1 / 4  percent Senior Notes.

32
Table of Contents

•
In March 2014, URNA issued $ 525 principal amount of 6  1 / 8  percent Senior Notes as an add on to our existing 6  1 / 8  percent Senior Notes.
•
In March 2014, URNA issued $ 850 principal amount of 5  3 / 4  percent Senior Notes.
•
In April 2014, we redeemed all of our 9  1 / 4  percent Senior Notes.
•
In September 2014, we amended our accounts receivable securitization facility primarily to extend the expiration date of the facility until September 2015.
These actions have improved our financial flexibility and liquidity and positioned us to invest the necessary capital in our business to take advantage of opportunities in the economic recovery. As of September 30, 2014 , we had available liquidity of $ 1.1 billion, including cash of $ 168 .
Net income. Net income and diluted earnings per share for the three and nine months ended September 30, 2014 and 2013 were as follows:  
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Net income
$
192

 
$
143

 
$
346

 
$
247

Diluted earnings per share
$
1.84

 
$
1.35

 
$
3.29

 
$
2.33


Net income and diluted earnings per share for the three and nine months ended September 30, 2014 and 2013 include the impacts of the following special items (amounts presented on an after-tax basis):
 
Three Months Ended September 30,

Nine Months Ended September 30,
 
2014

2013

2014

2013
 
Contribution
to net income (after-tax)

Impact on
diluted earnings per share

Contribution
to net income (after-tax)

Impact on
diluted earnings per share

Contribution
to net income (after-tax)

Impact on
diluted earnings per share

Contribution
to net income (after-tax)

Impact on
diluted earnings per share
Merger related costs (1)
$
(2
)

$
(0.02
)

$
—


$
—


$
(8
)

$
(0.08
)

$
(5
)

$
(0.05
)
Merger related intangible asset amortization (2)
(30
)

(0.29
)

(25
)

(0.23
)

(85
)

(0.80
)

(76
)

(0.70
)
Impact on depreciation related to acquired RSC fleet and property and equipment (3)
1


0.01


1


0.01


2


0.02


4


0.03

Impact of the fair value mark-up of acquired RSC fleet (4)
(6
)

(0.05
)

(5
)

(0.05
)

(17
)

(0.16
)

(21
)

(0.20
)
Impact on interest expense related to fair value adjustment of acquired RSC indebtedness (5)
—


—


1


0.01


2


0.02


3


0.03

Restructuring charge (6)
1


0.01


(1
)

(0.01
)

1


0.01


(7
)

(0.07
)
Asset impairment charge (7)
—


—


—


—


—


—


(2
)

(0.02
)
Loss on repurchase/redemption of debt securities and retirement of subordinated convertible debentures
(3
)

(0.02
)

(1
)

(0.01
)

(49
)

(0.46
)

(2
)

(0.02
)

(1)
This reflects transaction costs associated with the 2012 acquisition of RSC Holdings Inc. ("RSC") and the April 2014 acquisition of National Pump discussed in note 2 to the condensed consolidated financial statements.

33
Table of Contents

(2)
This reflects the amortization of the intangible assets acquired in the RSC and National Pump acquisitions.
(3)
This reflects the impact of extending the useful lives of equipment acquired in the RSC acquisition, 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 acquisition and subsequently sold.
(5)
This reflects a reduction of interest expense associated with the fair value mark-up of debt acquired in the RSC acquisition.
(6)
As discussed below (see “Restructuring charges”), this primarily reflects severance costs and branch closure charges associated with the RSC acquisition.
(7)
This charge primarily reflects write-offs of leasehold improvements and other fixed assets in connection with the RSC acquisition.
In addition to the matters discussed above, our 2014 performance reflects increased gross profit from equipment rentals.
EBITDA GAAP Reconciliations. EBITDA represents the sum of net income, provision for income taxes, interest expense, net, interest expense-subordinated convertible debentures, 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, the impact of the fair value mark-up of the acquired RSC fleet and the gain/loss on sale of software subsidiary. These items are excluded from adjusted EBITDA internally when evaluating our operating performance 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. 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 permit investors to 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,
 
2014

2013
 
2014
 
2013
Net income
$
192

 
$
143

 
$
346

 
$
247

Provision for income taxes
111

 
75

 
193

 
132

Interest expense, net
124

 
121

 
436

 
357

Interest expense – subordinated convertible debentures
—

 
—

 
—

 
3

Depreciation of rental equipment
236

 
219

 
682

 
629

Non-rental depreciation and amortization
70

 
59

 
200

 
185

EBITDA
$
733

 
$
617

 
$
1,857

 
$
1,553

Merger related costs (1)
4

 
—

 
13

 
8

Restructuring charge (2)
(2
)
 
1

 
(2
)
 
12

Stock compensation expense, net (3)
17

 
15

 
48

 
34

Impact of the fair value mark-up of acquired RSC fleet (4)
9

 
9

 
27

 
34

(Gain) loss on sale of software subsidiary (5)
—

 
—

 
—

 
1

Adjusted EBITDA
$
761

 
$
642

 
$
1,943

 
$
1,642


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

34
Table of Contents

 
Nine Months Ended
 
September 30,
 
2014
 
2013
Net cash provided by operating activities
$
1,466

 
$
1,115

Adjustments for items included in net cash provided by operating activities but excluded from the calculation of EBITDA:
 
 
 
Amortization of deferred financing costs and original issue discounts
(14
)
 
(16
)
Gain on sales of rental equipment
161

 
124

Gain on sales of non-rental equipment
7

 
3

Gain (loss) on sale of software subsidiary (5)
—

 
(1
)
Merger related costs (1)
(13
)
 
(8
)
Restructuring charge (2)
2

 
(12
)
Stock compensation expense, net (3)
(48
)
 
(34
)
Loss on extinguishment of debt securities
(80
)
 
(1
)
Loss on retirement of subordinated convertible debentures
—

 
(2
)
Changes in assets and liabilities
1

 
19

Cash paid for interest, including subordinated convertible debentures
315

 
322

Cash paid for income taxes, net
60

 
44

EBITDA
$
1,857

 
$
1,553

Add back:
 
 
 
Merger related costs (1)
13

 
8

Restructuring charge (2)
(2
)
 
12

Stock compensation expense, net (3)
48

 
34

Impact of the fair value mark-up of acquired RSC fleet (4)
27

 
34

(Gain) loss on sale of software subsidiary (5)
—

 
1

Adjusted EBITDA
$
1,943

 
$
1,642

 ___________________
(1)
This reflects transaction costs associated with the 2012 RSC acquisition and the April 2014 acquisition of National Pump discussed in note 2 to the condensed consolidated financial statements.
(2)
As discussed below (see “Restructuring charges”), this primarily reflects severance costs and branch closure charges associated with the RSC acquisition.
(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 acquisition and subsequently sold.
(5)
This reflects a gain/loss recognized upon the sale of a former subsidiary that developed and marketed software.
For the three months ended September 30, 2014 , EBITDA increased $116 , or 18.8 percent, and adjusted EBITDA increased $119 , or 18.5 percent. The EBITDA and adjusted EBITDA increases primarily reflect increased profit from equipment rentals and sales of rental equipment, partially offset by increased selling, general and administrative expense. For the three months ended September 30, 2014 , EBITDA margin increased 0.4 percentage points to 47.5 percent, and adjusted EBITDA margin increased 0.3 percentage points to 49.3 percent. The increases in the EBITDA and adjusted EBITDA margins primarily reflect increased margins from equipment rentals and improved selling, general and administrative leverage, partially offset by a shift in revenue mix (in particular, an increase in the proportion of sales of rental equipment and new equipment).
For the nine months ended September 30, 2014 , EBITDA increased $304 , or 19.6 percent, and adjusted EBITDA increased $301 , or 18.3 percent. The EBITDA and adjusted EBITDA increases primarily reflect increased profit from equipment rentals and sales of rental equipment, partially offset by increased selling, general and administrative expense. For the nine months ended September 30, 2014 , EBITDA margin increased 2.2 percentage points to 45.1 percent, and adjusted EBITDA margin increased 1.7 percentage points to 47.1 percent. The increases in the EBITDA and adjusted EBITDA margins primarily reflect increased margins from equipment rentals and sales of rental equipment.


35
Table of Contents

Results of Operations
As discussed in note 3 to our condensed consolidated financial statements, our reportable segments are general rentals and trench safety, power and HVAC (“heating, ventilating and air conditioning”), and pump 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. The general rentals segment operates throughout the United States and Canada. The trench safety, power and HVAC, and pump solutions segment is comprised of 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, 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 the Pump Solutions region, which rents pumps primarily used by energy and petrochemical customers. The trench safety, power and HVAC, and pump solutions segment’s customers include construction companies involved in infrastructure projects, municipalities and industrial companies. The trench safety, power and HVAC, and pump solutions segment operates throughout the United States and in Canada.
As discussed in note 3 to our condensed consolidated financial statements, we aggregate our 12 geographic regions—Eastern Canada, Gulf South, Industrial (which serves the geographic Gulf region and has a strong industrial presence), Mid-Atlantic, Mid-Central, Midwest, Mountain West, 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 instance, for the five year period ended September 30, 2014 , certain of our regions had equipment rentals gross margins that varied by between 10 percent and 15 percent from the equipment rentals gross margins of the aggregated general rentals' regions over the same period. For the nine months ended September 30, 2014 , the aggregate general rentals' equipment rentals gross margin increased 1.9 percentage points to 41.1 percent as compared to the same period in 2013, primarily reflecting increased rental rates, a 0.4 percentage point increase in time utilization, which is calculated by dividing the amount of time equipment is on rent by the amount of time we have owned the equipment, and cost improvements. As compared to the equipment rentals revenue increase of 9.0 percent, compensation costs increased 4.8 percent due primarily to increased headcount associated with higher rental volume, aggregate repair and maintenance and delivery costs increased 4.0 percent and depreciation increased 5.2 percent . Our equipment rental revenue increased more than our costs because rates—which were a significant driver of the year-over-year revenue improvement—result in fewer variable costs compared to utilization.
For the five year period ended September 30, 2014 , the general rentals' region with the lowest equipment rentals gross margin was the Pacific West . The Pacific West region's equipment rentals gross margin of 34.2 percent for the five year period ended September 30, 2014 was 13 percent less than the equipment rentals gross margins of the aggregated general rentals' regions over the same period. The Pacific West region's equipment rentals gross margin was less than the other general rentals' regions during this period due to weaker end markets. For the nine months ended September 30, 2014 , the Pacific West region's equipment rentals gross margin increased 4.4 percentage points to 41.4 percent as compared to the same period in 2013, primarily reflecting a 5.4 percent rental rate increase, a 1.4 percentage point increase in time utilization, and cost improvements. As compared to the equipment rentals revenue increase of 7.0 percent, compensation costs, deprecation, and aggregate repair and maintenance and delivery costs were flat. Rental rate changes are calculated based on the year over year variance in average contract rates, weighted by the prior period revenue mix.
For the five year period ended September 30, 2014 , the general rentals' region with the highest equipment rentals gross margin was Western Canada . The Western Canada region's equipment rentals gross margin of 43.9 percent for the five year period ended September 30, 2014 was 15 percent more 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 more than the other general rentals' regions during this period as the region benefited from strong demand for natural resources which have been more resistant to the economic pressures experienced in other regions. For the nine months ended September 30, 2014 , the Western Canada region's equipment rentals gross margin decreased 2.5 percentage points to 42.8 percent as compared to the same period in 2013 primarily due to depreciation, compensation and delivery costs, which increased slightly as a percentage of revenue.
Although the margins for certain of our general rentals' regions exceeded a 10 percent variance level for the five year period ended September 30, 2014 , we expect convergence going forward given the cyclical nature of the construction industry, which impacts each region differently, and our continued focus on cost cutting, improved processes and fleet sharing. Additionally, the margins for the five year period ended September 30, 2014 include the significant impact of the economic downturn in 2009 that impacted all our regions. Although we believe aggregating these regions into our general rentals reporting segment for segment reporting purposes is appropriate, to the extent that the margin variances persist and the

36
Table of Contents

equipment rentals gross margins 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 and allocates resources. We evaluate segment performance based on segment equipment rentals gross profit. Our revenues, operating results, and financial condition fluctuate from quarter to quarter reflecting the seasonal rental patterns of our customers, with rental activity tending to be lower in the winter.
Revenues by segment were as follows:  
 
General
rentals
 
Trench safety,
power and HVAC, and pump solutions
 
Total
Three Months Ended September 30, 2014
 
 
 
 
 
Equipment rentals
$
1,127

 
$
188

 
$
1,315

Sales of rental equipment
133

 
7

 
140

Sales of new equipment
31

 
11

 
42

Contractor supplies sales
19

 
4

 
23

Service and other revenues
21

 
3

 
24

Total revenue
$
1,331

 
$
213

 
$
1,544

Three Months Ended September 30, 2013
 
 
 
 
 
Equipment rentals
$
1,038

 
$
100

 
$
1,138

Sales of rental equipment
98

 
4

 
102

Sales of new equipment
27

 
2

 
29

Contractor supplies sales
21

 
2

 
23

Service and other revenues
18

 
1

 
19

Total revenue
$
1,202

 
$
109

 
$
1,311

Nine Months Ended September 30, 2014
 
 
 
 
 
Equipment rentals
$
3,079

 
$
420

 
$
3,499

Sales of rental equipment
371

 
17

 
388

Sales of new equipment
80

 
25

 
105

Contractor supplies sales
55

 
9

 
64

Service and other revenues
55

 
10

 
65

Total revenue
$
3,640

 
$
481

 
$
4,121

Nine Months Ended September 30, 2013
 
 
 
 
 
Equipment rentals
$
2,824

 
$
239

 
$
3,063

Sales of rental equipment
343

 
13

 
356

Sales of new equipment
69

 
5

 
74

Contractor supplies sales
60

 
6

 
66

Service and other revenues
54

 
4

 
58

Total revenue
$
3,350

 
$
267

 
$
3,617


Equipment rentals . For the three months ended September 30, 2014 , equipment rentals of $ 1,315 increased $ 177 , or 15.6 percent, as compared to the same period in 2013, primarily reflecting a 9.5 percent increase in the volume of OEC on rent and a 4.7 percent rental rate increase, partially offset by fluctuations in the exchange rate between the U.S. and Canadian dollars, and changes in rental mix. There are two components of rental mix that impact equipment rentals: 1) the type of equipment rented and 2) the duration of the rental contract (daily, weekly and monthly). In 2014, we increased the portion of equipment rentals from monthly rental contracts, which results in equipment rentals increasing at a lesser rate than the volume of OEC on rent, but produces higher margins as there are less transaction costs. We believe that the rate and volume improvements for the three months ended September 30, 2014 reflect improvements in our operating environment and the execution of our strategy. Equipment rentals represented 85 percent of total revenues for the three months ended September 30, 2014 . On a segment basis, equipment rentals represented 85 percent and 88 percent of total revenues for the three months ended September 30, 2014 for general rentals and trench safety, power and HVAC, and pump solutions, respectively. General rentals equipment

37
Table of Contents

rentals increased $ 89 , or 8.6 percent, primarily reflecting a 6.0 percent increase in the volume of OEC on rent and increased rental rates, partially offset by fluctuations in the exchange rate between the U.S. and Canadian dollars, and an increase in the portion of equipment rentals from monthly rental contracts, which results in equipment rentals increasing at a lesser rate than the volume of OEC on rent. Trench safety, power and HVAC, and pump solutions equipment rentals increased $ 88 , or 88.0 percent, primarily reflecting an increase in the volume of OEC on rent and increased rental rates. Trench safety, power and HVAC, and pump solutions average OEC for the three months ended September 30, 2014 increased 89 percent as compared to the same period in 2013, including the impact of the acquisition of National Pump discussed in note 2 to the condensed consolidated financial statements. Capitalizing on the demand for the higher margin equipment rented by our trench safety, power and HVAC, and pump solutions segment has been a key component of our strategy in 2014 and 2013.

For the nine months ended September 30, 2014 , equipment rentals of $ 3,499 increased $ 436 , or 14.2 percent, as compared to the same period in 2013, primarily reflecting a 9.2 percent increase in the volume of OEC on rent and a 4.6 percent rental rate increase, partially offset by fluctuations in the exchange rate between the U.S. and Canadian dollars, and changes in rental mix. In 2014, we increased the portion of equipment rentals from monthly rental contracts, which results in equipment rentals increasing at a lesser rate than the volume of OEC on rent, but produces higher margins as there are less transaction costs. We believe that the rate and volume improvements for the nine months ended September 30, 2014 reflect improvements in our operating environment and the execution of our strategy. Equipment rentals represented 85 percent of total revenues for the nine months ended September 30, 2014 . On a segment basis, equipment rentals represented 85 percent and 87 percent of total revenues for the nine months ended September 30, 2014 for general rentals and trench safety, power and HVAC, and pump solutions, respectively. General rentals equipment rentals increased $ 255 , or 9.0 percent, primarily reflecting a 6.6 percent increase in the volume of OEC on rent and increased rental rates, partially offset by fluctuations in the exchange rate between the U.S. and Canadian dollars, and an increase in the portion of equipment rentals from monthly rental contracts, which results in equipment rentals increasing at a lesser rate than the volume of OEC on rent. Trench safety, power and HVAC, and pump solutions equipment rentals increased $ 181 , or 75.7 percent, primarily reflecting an increase in the volume of OEC on rent and increased rental rates. Trench safety, power and HVAC, and pump solutions average OEC for the nine months ended September 30, 2014 increased 69 percent as compared to the same period in 2013, including the impact of the acquisition of National Pump discussed in note 2 to the condensed consolidated financial statements.
Sales of rental equipment . For the nine months ended September 30, 2014 , sales of rental equipment represented approximately 9 percent of our total revenues. Our general rentals segment accounted for substantially all of these sales. For the three and nine months ended September 30, 2014 , sales of rental equipment increased 37.3 percent and 9.0 percent, respectively, as compared to the same periods in 2013, primarily reflecting increased volume and improved pricing.
Sales of new equipment. For the nine months ended September 30, 2014 , sales of new equipment represented approximately 3 percent of our total revenues. Our general rentals segment accounted for substantially all of these sales. For the three and nine months ended September 30, 2014 , sales of new equipment increased 44.8 percent and 41.9 percent, respectively, as compared to the same periods in 2013, primarily reflecting increased volume, including the impact of the acquisition of National Pump discussed in note 2 to the condensed consolidated financial statements, improved pricing and changes in mix.
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, 2014 , contractor supplies sales represented approximately 2 percent of our total revenues. Our general rentals segment accounted for substantially all of these sales. Contractor supplies sales for the three and nine months ended September 30, 2014 didn't change significantly from the same periods in 2013.
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, 2014 , service and other revenues represented approximately 2 percent of our total revenues. Our general rentals segment accounted for substantially all of these sales. For the three and nine months ended September 30, 2014 , service and other revenues increased 26.3 percent and 12.1 percent, respectively, as compared to the same periods in 2013, primarily reflecting the impact of the acquisition of National Pump discussed in note 2 to the condensed consolidated financial statements.
Segment Equipment Rentals Gross Profit
Segment equipment rentals gross profit and gross margin were as follows:

38
Table of Contents

 
 
General
rentals
 
Trench safety,
power and HVAC, and pump solutions
 
Total
Three Months Ended September 30, 2014
 
 
 
 
 
Equipment Rentals Gross Profit
$
496

 
$
103

 
$
599

Equipment Rentals Gross Margin
44.0
%
 
54.8
%
 
45.6
%
Three Months Ended September 30, 2013
 
 
 
 
 
Equipment Rentals Gross Profit
$
445

 
$
52

 
$
497

Equipment Rentals Gross Margin
42.9
%
 
52.0
%
 
43.7
%
Nine Months Ended September 30, 2014
 
 
 
 
 
Equipment Rentals Gross Profit
$
1,266

 
$
215

 
$
1,481

Equipment Rentals Gross Margin
41.1
%
 
51.2
%
 
42.3
%
Nine Months Ended September 30, 2013
 
 
 
 
 
Equipment Rentals Gross Profit
$
1,106

 
$
114

 
$
1,220

Equipment Rentals Gross Margin
39.2
%
 
47.7
%
 
39.8
%

General rentals . For the three months ended September 30, 2014 , equipment rentals gross profit increased by $ 51 and equipment rentals gross margin increased by 1.1 percentage points from 2013, primarily reflecting increased rental rates, a 0.7 percentage point increase in time utilization and cost improvements. As compared to the equipment rentals revenue increase of 8.6 percent, compensation costs increased 6.6 percent due primarily to increased headcount associated with higher rental volume, aggregate repair and maintenance and delivery costs increased 3.5 percent and depreciation increased 3.9 percent. Equipment rental revenue increased more than costs because rates—which were a significant driver of the year-over-year revenue improvement—result in fewer variable costs compared to utilization. For the three months ended September 30, 2014 and 2013, time utilization was 72.1 percent and 71.4 percent, respectively.

For the nine months ended September 30, 2014 , equipment rentals gross profit increased by $ 160 and equipment rentals gross margin increased by 1.9 percentage points from 2013, primarily reflecting increased rental rates, a 0.4 percentage point increase in time utilization and cost improvements. As compared to the equipment rentals revenue increase of 9.0 percent, compensation costs increased 4.8 percent due primarily to increased headcount associated with higher rental volume, aggregate repair and maintenance and delivery costs increased 4.0 percent and depreciation increased 5.2 percent . Equipment rental revenue increased more than costs because rates—which were a significant driver of the year-over-year revenue improvement—result in fewer variable costs compared to utilization. For the nine months ended September 30, 2014 and 2013, time utilization was 68.8 percent and 68.4 percent, respectively.
Trench safety, power and HVAC, and pump solutions . For the three months ended September 30, 2014 , equipment rentals gross profit increased by $51 and equipment rentals gross margin increased by 2.8 percentage points from 2013, primarily reflecting increased equipment rentals revenue due to an increase in the volume of OEC on rent and increased rental rates, and decreases in depreciation and compensation costs as a percentage of revenue. Equipment rentals revenue increased 88.0 percent, and average OEC increased 89 percent, as compared to the same period in 2013, including the impact of the acquisition of National Pump discussed in note 2 to the condensed consolidated financial statements. As compared to the equipment rentals revenue increase of 88.0 percent, depreciation increased 69.2 percent and compensation costs increased 69.7 percent as compared to the same period in 2013.
For the nine months ended September 30, 2014 , equipment rentals gross profit increased by $101 and equipment rentals gross margin increased by 3.5 percentage points from 2013, primarily reflecting increased equipment rentals revenue due to an increase in the volume of OEC on rent and increased rental rates, and decreases in depreciation and compensation costs as a percentage of revenue. Equipment rentals revenue increased 75.7 percent, and average OEC increased 69 percent, as compared to the same period in 2013, including the impact of the acquisition of National Pump discussed in note 2 to the condensed consolidated financial statements. As compared to the equipment rentals revenue increase of 75.7 percent, depreciation increased 66.7 percent and compensation costs increased 54.0 percent as compared to the same period in 2013.
Gross Margin . Gross margins by revenue classification were as follows:
  

39
Table of Contents

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Total gross margin
44.6
%
 
43.0
%
 
41.9
%
 
39.3
%
Equipment rentals
45.6
%
 
43.7
%
 
42.3
%
 
39.8
%
Sales of rental equipment
41.4
%
 
39.2
%
 
41.5
%
 
34.8
%
Sales of new equipment
21.4
%
 
20.7
%
 
20.0
%
 
20.3
%
Contractor supplies sales
30.4
%
 
34.8
%
 
31.3
%
 
33.3
%
Service and other revenues
62.5
%
 
68.4
%
 
64.6
%
 
67.2
%

For the three months ended September 30, 2014 , total gross margin increased 1.6 percentage points as compared to the same period in 2013, primarily reflecting increased gross margins from equipment rentals and sales of rental equipment. Equipment rentals gross margin increased 1.9 percentage points, primarily reflecting a 4.7 percent rental rate increase, a 0.7 percentage point increase in time utilization and cost improvements. As compared to the equipment rentals revenue increase of 15.6 percent, compensation costs, aggregate repair and maintenance and delivery costs, and depreciation each increased between 8 and 11 percent. Our equipment rental revenue increased more than our costs because rates—which were a significant driver of the year-over-year revenue improvement—result in fewer variable costs compared to utilization. For the three months ended September 30, 2014 and 2013, time utilization was 71.5 percent and 70.8 percent, respectively. Gross margin from sales of rental equipment increased 2.2 percentage points primarily due to improvements in pricing. Gross margins from sales of rental equipment may change in future periods if the mix of the channels (primarily retail and auction) that we use to sell rental equipment changes.

For the nine months ended September 30, 2014 , total gross margin increased 2.6 percentage points as compared to the same period in 2013, primarily reflecting increased gross margins from equipment rentals and sales of rental equipment. Equipment rentals gross margin increased 2.5 percentage points, primarily reflecting a 4.6 percent rental rate increase, a 0.5 percentage point increase in time utilization and cost improvements. As compared to the equipment rentals revenue increase of 14.2 percent, compensation costs, aggregate repair and maintenance and delivery costs, and depreciation each increased between 8 and 9 percent. Our equipment rental revenue increased more than our costs because rates—which were a significant driver of the year-over-year revenue improvement—result in fewer variable costs compared to utilization. For the nine months ended September 30, 2014 and 2013, time utilization was 68.2 percent and 67.7 percent, respectively. Gross margin from sales of rental equipment increased 6.7 percentage points primarily due to improvements in pricing.
Selling, general and administrative expenses (“SG&A”) . SG&A expense information for the three and nine months ended September 30, 2014 and 2013 was as follows:  
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Total SG&A expenses
$
194

 
$
167

 
$
549

 
$
479

SG&A as a percentage of revenue
12.6
%
 
12.7
%
 
13.3
%
 
13.2
%

SG&A expense primarily includes sales force compensation, bad debt expense, information technology costs, advertising and marketing expenses, third-party professional fees, management salaries and clerical and administrative overhead. For the three months ended September 30, 2014 , SG&A expense of $194 increased $27 as compared to 2013, primarily reflecting increased compensation costs associated with higher revenues, improved profitability and increased headcount. As a percentage of revenue, SG&A decreased 0.1  percentage points year over year.

For the nine months ended September 30, 2014 , SG&A expense of $549 increased $70 as compared to 2013, primarily reflecting increased compensation costs associated with higher revenues, improved profitability and increased headcount. As a percentage of revenue, SG&A increased 0.1  percentage points year over year.
Merger related costs for the three and nine months ended September 30, 2014 and 2013 were as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Merger related costs
$
4

 
$
—

 
$
13

 
$
8


40
Table of Contents

In the second quarter of 2012, we completed the acquisition of RSC. As discussed in note 2 to the condensed consolidated financial statements, in April 2014, we completed the acquisition of National Pump. The acquisition-related costs primarily relate to financial and legal advisory fees, and branding costs associated with the RSC and National Pump acquisitions. The 2014 costs also include changes subsequent to the acquisition date to the fair value of the contingent cash consideration we expect to pay associated with the National Pump acquisition as discussed in note 7 to our condensed consolidated financial statements.
Restructuring charges for the three and nine months ended September 30, 2014 and 2013 were as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Restructuring charge
$
(2
)
 
$
1

 
$
(2
)
 
$
12

The restructuring charges for the three and nine months ended September 30, 2014 and 2013 primarily reflect severance costs and branch closure charges associated with the RSC acquisition. The branch closure charges primarily reflect continuing lease obligations at vacant facilities. The income for the three and nine months ended September 30, 2014 primarily reflects buyouts or settlements of real estate leases for less than the recognized reserves. We do not expect to incur significant additional charges in connection with the restructuring, which was complete as of June 30, 2013 (the end of the restructuring period).
Non-rental depreciation and amortization for the three and nine months ended September 30, 2014 and 2013 was as follows:  
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Non-rental depreciation and amortization
$
70

 
$
59

 
$
200

 
$
185


Non-rental depreciation and amortization for the three and nine months ended September 30, 2014 increased $11 , or 18.6 percent, and $15 , or 8.1 percent, as compared to 2013, respectively. The increases for the three and nine months ended September 30, 2014 primarily reflect the amortization of the intangible assets associated with the acquisition of National Pump discussed in note 2 to the condensed consolidated financial statements.
Interest expense, net for the three and nine months ended September 30, 2014 and 2013 was as follows:  
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Interest expense, net
$
124

 
$
121

 
$
436

 
$
357


Interest expense, net for the three and nine months ended September 30, 2014 increased $3 , or 2.5 percent, and $79 , or 22.1 percent, as compared to 2013, respectively. Interest expense, net for the three and nine months ended September 30, 2014 includes aggregate losses of $5 and $80 , respectively, associated with redemptions of our 10  1 / 4  percent Senior Notes, 9  1 / 4  percent Senior Notes and 4 percent Convertible Notes (see note 8 to our condensed consolidated financial statements for additional detail).
Income taxes. The following table summarizes our provision for income taxes and the related effective tax rates for the three and nine months ended September 30, 2014 and 2013:  
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Income before provision for income taxes
$
303

 
$
218

 
$
539

 
$
379

Provision for income taxes
111

 
75

 
193

 
132

Effective tax rate
36.6
%
 
34.4
%
 
35.8
%
 
34.8
%
 
The differences between the 2014 and 2013 effective tax rates and the U.S. federal statutory income tax rate of 35 percent primarily relate to the geographical mix of income between foreign and domestic operations, as well as the impact of state and local taxes, and certain nondeductible charges.
Balance sheet. The asset increases from December 31, 2013 to September 30, 2014 reflect the significant impact of the National Pump acquisition discussed in note 2 to the condensed consolidated financial statements. Deferred tax assets

41
Table of Contents

decreased by $ 167 , or 64.2 percent, from December 31, 2013 to September 30, 2014 primarily due to the amount of net operating loss carryforwards ("NOLs") expected to be utilized in 2014 due to expected profitability in 2014. Accounts payable increased by $ 213 , or 72.9 percent, from December 31, 2013 to September 30, 2014 primarily due to increased capital expenditures and a seasonal increase in business activity. Accrued expenses and other liabilities increased by $ 182 , or 46.7 percent , from December 31, 2013 to September 30, 2014 primarily due to contingent cash consideration we expect to pay associated with the National Pump acquisition.
Liquidity and Capital Resources
Liquidity and Capital Markets Activity. 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.
As discussed further in note 8 to the condensed consolidated financial statements, during the nine months ended September 30, 2014 , we took the following actions that have improved our financial flexibility and liquidity:
•
In January 2014, we redeemed all of our 10  1 / 4  percent Senior Notes.
•
In March 2014, URNA issued $ 525 principal amount of 6  1 / 8  percent Senior Notes as an add on to our existing 6  1 / 8  percent Senior Notes.
•
In March 2014, URNA issued $ 850 principal amount of 5  3 / 4  percent Senior Notes.
•
In April 2014, we redeemed all of our 9  1 / 4  percent Senior Notes.
•
In September 2014, we amended our accounts receivable securitization facility primarily to extend the expiration date of the facility until September 2015.
As previously announced, in 2013, the Company’s Board of Directors authorized a $ 500 share repurchase program. The Company’s current intention is to complete such program by December 2014. As of October 13, 2014 , we have repurchased $395 of Holdings' common stock under such program.
Our principal existing sources of cash are cash generated from operations and from the sale of rental equipment and borrowings available under our ABL facility and accounts receivable securitization facility. As of September 30, 2014 , we had (i) $ 908 of borrowing capacity, net of $ 56 of letters of credit, available under the ABL facility, (ii) $ 0 of borrowing capacity available under the accounts receivable securitization facility and (iii) cash and cash equivalents of $ 168 . Cash equivalents at September 30, 2014 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.
As of September 30, 2014 , $ 1.3 billion and $550 were outstanding under the ABL facility and the accounts receivable securitization facility, respectively. The interest rates applicable to the ABL facility and the accounts receivable securitization facility at September 30, 2014 were 2.2 percent and 0.8 percent , respectively. During the nine months ended September 30, 2014 , the monthly average amounts outstanding under the ABL facility and the accounts receivable securitization facility were $1.1 billion and $449 , respectively, and the weighted-average interest rates thereon were 2.3 percent and 0.8 percent , respectively. The maximum month-end amounts outstanding under the ABL facility and the accounts receivable securitization facility during the nine months ended September 30, 2014 were $1.3 billion and $550 , respectively.
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) acquisitions and (vi) share repurchases. 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 13, 2014 were as follows:  
 
Corporate Rating
 
Outlook
Moody’s
Ba3
 
Stable
Standard & Poor’s
BB-
 
Stable

42
Table of Contents

A security rating is not a recommendation to buy, sell or hold securities. There is no assurance that any rating will remain in effect for a given period of time or that any rating will not be revised or withdrawn by a rating agency in the future.
The amount of our future capital expenditures will depend on a number of factors, including general economic conditions and growth prospects. Net rental capital expenditures (defined as purchases of rental equipment less the proceeds from sales of rental equipment) were $ 1.1 billion during the nine months ended September 30, 2014 and 2013. For the full year 2014, we expect net rental capital expenditures of approximately $1.2 billion , after gross purchases of approximately $ 1.7 billion. We expect that we will fund such expenditures from cash generated from operations, proceeds from the sale of rental and non-rental equipment and, if required, borrowings available under the ABL facility and accounts receivable securitization facility.
Loan Covenants and Compliance. As of September 30, 2014 , we were in compliance with the covenants and other provisions of the ABL facility, the accounts receivable securitization facility 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.
In October 2011, we amended the ABL facility. The only material financial covenants which currently exist relate to the fixed charge coverage ratio and the senior secured leverage ratio under the ABL facility. Since the October 2011 amendment of the ABL facility and through September 30, 2014 , availability under the ABL facility has exceeded the required threshold and, as a result, these maintenance covenants have been inapplicable. Subject to certain limited exceptions specified in the amended ABL facility, the fixed charge coverage ratio and the senior secured leverage ratio under the amended ABL facility will only apply in the future if availability under the amended ABL facility falls below the greater of 10 percent of the maximum revolver amount under the amended ABL facility and $150 . 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.
URNA’s payment capacity is restricted under the covenants in 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, 2014 , we (i) generated cash from operating activities of $ 1,466 , (ii) generated cash from the sale of rental and non-rental equipment of $ 414 and (iii) received cash from debt proceeds, net of payments, of $ 829 . We used cash during this period principally to (i) purchase rental and non-rental equipment of $ 1,568 , (ii) purchase other companies for $ 752 and (iii) purchase shares of our common stock for $399 . During the nine months ended September 30, 2013 , we (i) generated cash from operating activities of $ 1,115 , (ii) generated cash from the sale of rental and non-rental equipment of $ 371 and (iii) received cash from debt proceeds, net of payments, of $ 250 . We used cash during this period principally to (i) purchase rental and non-rental equipment of $ 1,570 , (ii) purchase shares of our common stock for $ 99 and (iii) pay $ 40 in connection with redemptions of our 4 percent Convertible Senior Notes and the related hedge.
Free Cash Flow GAAP Reconciliation. We define “free cash flow (usage)” as (i) net cash provided by operating activities less (ii) purchases of rental and non-rental equipment plus (iii) proceeds from sales of rental and non-rental equipment. Management believes that free cash flow (usage) provides useful additional information concerning cash flow available to meet future debt service obligations and working capital requirements. However, free cash flow (usage) is not a measure of financial performance or liquidity under GAAP. Accordingly, free cash flow (usage) 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 (usage).  
 
Nine Months Ended
 
September 30,
 
2014
 
2013
Net cash provided by operating activities
$
1,466

 
$
1,115

Purchases of rental equipment
(1,484
)
 
(1,499
)
Purchases of non-rental equipment
(84
)
 
(71
)
Proceeds from sales of rental equipment
388

 
356

Proceeds from sales of non-rental equipment
26

 
15

Free cash flow (usage)
$
312

 
$
(84
)

Free cash flow for the nine months ended September 30, 2014 was $ 312 , an increase of $ 396 as compared to free cash usage of $ 84 for the nine months ended September 30, 2013 . Free cash flow increased primarily due to increased net cash provided by operating activities. Free cash flow for the nine months ended September 30, 2014 and 2013 includes the impact of

43
Table of Contents

the merger and restructuring costs discussed above. We expect free cash flow in the range of $ 475 to $ 525 in 2014 and intend to use this primarily to fund our share repurchase activity in 2014.
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, 2014 :
 
 
2014
2015
2016
2017
2018
Thereafter
Total 
Debt and capital leases (1)
$
9

$
626

$
1,365

$
16

$
758

$
5,259

$
8,033

Interest due on debt (2)
115

460

448

423

403

1,170

3,019

Operating leases (1):
 
 
 
 
 
 
 
Real estate
26

100

84

65

46

75

396

Non-rental equipment
12

32

29

27

20

27

147

Service agreements (3)
5

11

2

—

—

—

18

Purchase obligations (4)
137

76

—

—

—

—

213

Total (5)
$
304

$
1,305

$
1,928

$
531

$
1,227

$
6,531

$
11,826

 
_________________
(1)
The payments due with respect to a period represent (i) in the case of debt and capital leases, the scheduled principal payments due in such period, and (ii) in the case of operating leases, the minimum lease payments due in such period under non-cancelable operating leases. Our 4 percent Convertible Senior Notes mature in November 2015, but are reflected as short-term debt in our consolidated balance sheet because they were redeemable at September 30, 2014 . The 4 percent Convertible Senior Notes are reflected in the table above based on the contractual maturity date in 2015.
(2)
Estimated interest payments have been calculated based on the principal amount of debt and the applicable interest rates as of September 30, 2014 . As discussed above, our 4 percent Convertible Senior Notes mature in November 2015, but are reflected as short-term debt in our consolidated balance sheet because they were redeemable at September 30, 2014 . Interest on the 4 percent Convertible Senior Notes is reflected in the table above based on the contractual maturity date in 2015.
(3)
These primarily represent service agreements with third parties to provide wireless and network services.
(4)
As of September 30, 2014 , we had outstanding purchase orders, which were negotiated in the ordinary course of business, with our equipment and inventory suppliers. These purchase commitments can be cancelled by us, generally with 30 days notice and without cancellation penalties. The equipment and inventory receipts from the suppliers for these purchases and related payments to the suppliers are expected to be completed throughout 2014 and 2015.
(5)
This information excludes $ 7 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.
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.


44
Table of Contents

Item 3.
Quantitative and Qualitative Disclosures about Market Risk
Our exposure to market risk primarily consists of (i) interest rate risk associated with our variable and fixed rate debt, (ii) foreign currency exchange rate risk associated with our Canadian operations and (iii) equity price risk associated with our convertible debt.
Interest Rate Risk. As of September 30, 2014 , we had an aggregate of $ 1.9 billion of indebtedness that bears interest at variable rates, comprised of $ 1.3 billion of borrowings under the ABL facility and $550 of borrowings under our accounts receivable securitization facility. The amount of variable rate indebtedness outstanding under the ABL facility and accounts receivable securitization facility may fluctuate significantly. The interest rates applicable to our variable rate debt on September 30, 2014 were 2.2 percent for the ABL facility and 0.8 percent for the accounts receivable securitization facility. As of September 30, 2014 , based upon the amount of our variable rate debt outstanding, our annual after-tax earnings would decrease by approximately $ 11 for each one percentage point increase in the interest rates applicable to our variable rate debt.
At September 30, 2014 , we had an aggregate of $ 6.2 billion of indebtedness that bears interest at fixed rates. A one percentage point decrease in market interest rates as of September 30, 2014 would increase the fair value of our fixed rate indebtedness by approximately six percent . For additional information concerning the fair value of our fixed rate debt, see note 7 (see “Fair Value of Financial Instruments”) to our condensed consolidated financial statements.
Currency Exchange Risk . The functional currency for our Canadian operations is the Canadian dollar. As a result, our future earnings could be affected by fluctuations in the exchange rate between the U.S. and Canadian dollars. Based upon the level of our Canadian operations during 2013 relative to the Company as a whole, a 10 percent change in this exchange rate would cause our annual after-tax earnings to change by approximately $11. We do not engage in purchasing forward exchange contracts for speculative purposes.
Equity Price Risk . In connection with the November 2009 4 percent Convertible Notes offering, Holdings entered into convertible note hedge transactions with option counterparties. The convertible note hedge transactions cost $26, and decreased additional paid-in capital by $17, net of taxes, in our accompanying condensed consolidated statements of stockholders’ equity. The convertible note hedge transactions cover, subject to anti-dilution adjustments, 3.0 million shares of our common stock. The convertible note hedge transactions are intended to reduce, subject to a limit, the potential dilution with respect to our common stock upon conversion of the 4 percent Convertible Notes. The effect of the convertible note hedge transactions is to increase the effective conversion price to $15.56 per share, equal to an approximately 75 percent premium over the $8.89 closing price of our common stock at issuance. The effective conversion price is subject to change in certain circumstances, such as if the 4 percent Convertible Notes are converted prior to May 15, 2015. In the event the market value of our common stock exceeds the effective conversion price per share, the settlement amount received from such transactions will only partially offset the potential dilution. For example, if, at the time of exercise of the conversion right, the price of our common stock was $ 110.00 per share, assuming an effective conversion price of $15.56 per share, on a net basis, we would issue 2.6 million shares. Based on the price of our common stock during the third quarter of 2014, holders of the 4 percent Convertible Notes have the right to redeem the notes during the fourth quarter of 2014 at a conversion price of $11.11 per share of common stock. Since October 1, 2014 (the beginning of the fourth quarter), none of the 4 percent Convertible Senior Notes were redeemed.
If the total $34 outstanding principal amount of the 4 percent Convertible Notes was converted, the total cost to settle the notes would be $338 , assuming a conversion price of  $111.10 (the closing price of our common stock on September 30, 2014 ) per share of common stock. The $34 principal amount would be settled in cash, and the remaining $304 could be settled in cash, shares of our common stock, or a combination thereof, at our discretion. Based on the September 30, 2014 closing stock price, approximately 3 million shares of stock, excluding any stock we would receive from the option counterparties as discussed below, would be issued if we settled the entire $304 of conversion value in excess of the principal amount in stock. The total cost to settle would change approximately $ 3 for each $1 (actual dollars) change in our stock price. If the full principal amount was converted at our September 30, 2014 closing stock price, we estimate that we would receive approximately $ 13 in either cash or stock from the option counterparties, after which the effective conversion price would be approximately $15.52 . 

45
Table of Contents

Item 4.
Controls and Procedures
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
The Company’s management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a–15(e) and 15d–15(e) of the Exchange Act, as of September 30, 2014 . Based on the evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2014 .
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2014 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


46
Table of Contents

PART II. OTHER INFORMATION
 
Item 1.
Legal Proceedings
The information set forth under note 9 to our unaudited condensed consolidated financial statements of this quarterly report on Form 10-Q is incorporated by reference in answer to this item. Such information is limited to certain recent developments and should be read in conjunction with note 14 to our consolidated financial statements for the year ended December 31, 2013 filed on Form 10-K on January 22, 2014.

Item 1A.
Risk Factors
Our results of operations and financial condition are subject to numerous risks and uncertainties described in our 2013 Form 10-K, which risk factors are incorporated herein by reference. You should carefully consider these risk factors in conjunction with the other information contained in this report. Should any of these risks materialize, our business, financial condition and future prospects could be negatively impacted.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
(c) The following table provides information about purchases of Holdings’ common stock by Holdings during the third quarter of 2014:   
Period
Total Number of
Shares Purchased
 
Average Price
Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
 
Maximum Dollar Amount of Shares That May Yet Be Purchased Under the Program (2)
July 1, 2014 to July 31, 2014
341,937

(1)
$
106.96

 
341,051

 
—

August 1, 2014 to August 31, 2014
528,907

(1)
$
106.87

 
527,370

 
—

September 1, 2014 to September 30, 2014
511,331

(1)
$
115.98

 
509,328

 
—

Total
1,382,175

 
$
110.26

 
1,377,749

 
$
110,842,518


(1)
In July 2014 , August 2014 and September 2014 , 886 , 1,537 and 2,003 shares, respectively, were withheld by Holdings to satisfy tax withholding obligations upon the vesting of restricted stock unit awards. These shares were not acquired pursuant to any repurchase plan or program.
(2)
Our Board approved a share repurchase program authorizing up to $500 million in repurchases of Holdings' common stock, which we intend to complete by December 2014.



47
Table of Contents

Item 6.
Exhibits

3(a)
Restated Certificate of Incorporation of United Rentals, Inc., dated March 16, 2009 (incorporated by reference to Exhibit 3.1 of the United Rentals, Inc. and United Rentals (North America), Inc. Current Report on Form 8-K filed on March 17, 2009)
 
 
3(b)
By-laws of United Rentals, Inc., amended as of December 20, 2010 (incorporated by reference to Exhibit 3.1 of the United Rentals, Inc. and United Rentals (North America), Inc. Current Report on Form 8-K filed on December 23, 2010)
 
 
3(c)
Restated Certificate of Incorporation of United Rentals (North America), Inc., dated April 30, 2012 (incorporated by reference to Exhibit 3(c) of the United Rentals, Inc. and United Rentals (North America), Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2013)
 
 
3(d)
By-laws of United Rentals (North America), Inc. dated May 8, 2013 (incorporated by reference to Exhibit 3(d) of the United Rentals, Inc. and United Rentals (North America), Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2013)
 
 
10(a)*
Form of Indemnification Agreement for Executive Officers and Directors
 
 
10(b)
Amendment No. 3 to the Third Amended and Restated Receivables Purchase Agreement, dated as of September 18, 2014, by and among United Rentals (North America), Inc., United Rentals Receivables LLC II, United Rentals, Inc., Liberty Street Funding LLC, Gotham Funding Corporation, The Bank of Nova Scotia, PNC Bank, National Association, SunTrust Bank and The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch (incorporated by reference to Exhibit 10.1 of the United Rentals, Inc. Form 8-K filed on September 18, 2014)
 
 
12*
Computation of Ratio of Earnings to Fixed Charges
 
 
31(a)*
Rule 13a-14(a) Certification by Chief Executive Officer
 
 
31(b)*
Rule 13a-14(a) Certification by Chief Financial Officer
 
 
32(a)**
Section 1350 Certification by Chief Executive Officer
 
 
32(b)**
Section 1350 Certification by Chief Financial Officer
 
 
101
The following materials from the Quarterly Report on Form 10-Q for United Rentals, Inc. and United Rentals (North America), Inc., for the quarter ended September 30, 2014, filed on October 15, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statement of Stockholders' Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Unaudited Condensed Consolidated Financial Statements.

*
Filed herewith.
**
Furnished (and not filed) herewith pursuant to Item 601(b)(32)(ii) of Regulation S-K under the Exchange Act.




48
Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
UNITED RENTALS, INC.
 
 
 
 
Dated:
October 15, 2014
By:
 
/ S /    J OHN  J. F AHEY        
 
 
 
 
John J. Fahey
Vice President, Controller and Principal Accounting Officer
 
 
 
 
 
UNITED RENTALS (NORTH AMERICA), INC.
 
 
 
 
Dated:
October 15, 2014
By:
 
/ S /    J OHN  J. F AHEY        
 
 
 
 
John J. Fahey
Vice President, Controller and Principal Accounting Officer
 
 
 
 
 


49


Exhibit 10(a)



INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of ________ __, 20__ by and between United Rentals, Inc., a Delaware corporation (the "Company"), and ______________ ("Indemnitee"). This Agreement supersedes and replaces any and all previous agreements between the Company and Indemnitee covering the subject matter of this Agreement.
RECITALS
WHEREAS, the Board of Directors of the Company (the “Board”) believes that highly competent persons have become more reluctant to serve publicly-held corporations as directors or officers or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;
WHEREAS, directors, officers, and other persons in service to corporations or business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the Company or business enterprise itself. Indemnitee may be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (the "DGCL"). The DGCL expressly provides that the indemnification provisions set forth therein are not exclusive, and thereby contemplates that contracts may be entered into between the Company and members of the board of directors, officers and other persons with respect to indemnification;
WHEREAS, the uncertainties relating to the availability of insurance and to indemnification may increase the difficulty of attracting and retaining such persons;
WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company and its stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;
WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified; and
WHEREAS, Indemnitee may not be willing to serve or continue to serve as an officer, director, employee or agent without adequate protection, and the Company desires Indemnitee to serve or continue to serve in such capacity. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that Indemnitee be so indemnified.
NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:
Section 1. Services to the Company. Indemnitee agrees to serve and continue to serve as a director or officer of the Company. The provisions of this Agreement shall also apply to any future service by Indemnitee as a director, officer, employee or agent of the Company or service at the request of the Company

1


as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust or other enterprise, undertaken after the date of this Agreement. Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed an employment contract between the Company (or any of its Subsidiaries or any Enterprise) and Indemnitee. Indemnitee specifically acknowledges that Indemnitee's employment with the Company (or any of its Subsidiaries or any Enterprise), if any, is at will, and the Indemnitee may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written employment contract between Indemnitee and the Company (or any of its Subsidiaries or any Enterprise), or, with respect to service as a director or officer of the Company, by the Certificate of Incorporation, the Company's By-laws, and the DGCL. The foregoing notwithstanding, this Agreement shall continue in force after Indemnitee has ceased to serve as a director or officer, as provided in Section 16 hereof.
Section 2. Definitions. As used in this Agreement:
(a) References to "agent" shall mean any person who is or was a director, officer, employee or other agent of the Company or a Subsidiary of the Company or other person authorized by the Company to act for the Company, to include such person serving in such capacity as a director, officer, employee, fiduciary or other official of another corporation, partnership, limited liability company, joint venture, trust or other enterprise at the request of, for the convenience of, or to represent the interests of the Company or a Subsidiary of the Company.
(b) A "Change in Control shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:
i. Acquisition of Stock by Third Party. Any Person (as defined below) is or becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of the Company representing fifteen percent (15%) or more of the combined voting power of the Company's then outstanding securities unless the change in relative Beneficial Ownership of the Company's securities by any Person results solely from a reduction in the aggregate number of outstanding shares of securities entitled to vote generally in the election of directors;
ii. Change in Board of Directors. During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 2(b)(i), 2(b)(iii) or 2(b)(iv)) whose election by the Board or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Board;
iii. Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 51% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity;
iv. Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; and
v. Other Events. There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar item

2


on any similar schedule or form) promulgated under the Exchange Act (as defined below), whether or not the Company is then subject to such reporting requirement.
For purposes of this Section 2(b), the following terms shall have the following meanings:
(A)      "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time.
(B)      "Person" shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.
(C)      "Beneficial Owner" shall have the meaning given to such term in Rule 13d-3 under the Exchange Act; provided, however, that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity.
(c) "Corporate Status" describes the status of a person who is or was a director, officer, employee or agent of the Company or of any other corporation, limited liability company, partnership or joint venture, trust or other enterprise which such person is or was serving at the request of the Company.
(d) "Disinterested Director" shall mean a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
(e) "Enterprise" shall mean the Company and any other corporation, limited liability company, partnership, joint venture, trust or other enterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, partner, managing member, employee, agent or fiduciary.
(f) "Expenses" shall include, subject to the last sentence of this paragraph, all reasonable attorneys' fees for one or more counsel, retainers, court costs, transcript costs, fees of experts and other professionals, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, ERISA excise taxes and penalties, and all other disbursements or expenses of the types incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. Expenses also shall include (i) Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent, and (ii) for purposes of Section 14(d) only, Expenses incurred by Indemnitee in connection with the interpretation, enforcement or defense of Indemnitee's rights under this Agreement, by litigation or otherwise. The parties agree that for the purposes of any advancement or indemnification of Expenses for which Indemnitee has made written demand to the Company in accordance with this Agreement, all Expenses included in such demand that are certified by affidavit of Indemnitee's counsel as being reasonable in the good faith judgment of such counsel shall be presumed conclusively to be reasonable, both as to amount and as to any allocation which is required to be made. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee. The parties also agree that the selection of counsel to represent Indemnitee shall be subject to the prior written approval of the Company and that any such Indemnitee’s counsel shall agree, as a condition of such selection, to abide by the Company’s Outside Counsel Policies and Procedures, as such may be amended from time to time.

3


(g) "Independent Counsel" shall mean a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee's rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
(h) The term "Proceeding" shall include any threatened, pending or completed action, suit, claim, counterclaim, cross claim, arbitration, mediation, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, legislative, or investigative (formal or informal) nature, including any appeal therefrom, in which Indemnitee was, is or will be involved as a party, potential party, non-party witness or otherwise by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, by reason of any action taken by Indemnitee (or a failure to take action by Indemnitee) or of any action (or failure to act) on Indemnitee's part while acting pursuant to Indemnitee's Corporate Status, in each case whether or not serving in such capacity at the time any liability or Expense is incurred for which indemnification, reimbursement, or advancement of Expenses can be provided under this Agreement. If the Indemnitee believes in good faith that a given situation may lead to or culminate in the institution of a Proceeding, this shall be considered a Proceeding under this paragraph.
(i) The term “Subsidiary” means any corporation or entity of which more than 10% of the outstanding voting securities or other voting interests is owned directly or indirectly by the Company, and one or more other Subsidiaries, taken as a whole.
(j) Reference to "other enterprise" shall include employee benefit plans; references to "fines" shall include any excise tax assessed with respect to any employee benefit plan; references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner Indemnitee reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement.
Section 3. Indemnity in Third-Party Proceedings. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor, by reason of Indemnitee’s Corporate Status. Pursuant to this Section 3, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses, judgments, fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal Proceeding had no reasonable cause to believe that Indemnitee's conduct was unlawful.
Section 4. Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is, or is threatened

4


to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor by reason of Indemnitee’s Corporate Status. Pursuant to this Section 4, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that the Delaware Court (as hereinafter defined) or any court in which the Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification.
Section 5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provisions of this Agreement, to the fullest extent permitted by applicable law and to the extent that Indemnitee is a party to (or a participant in) and is successful, on the merits or otherwise, in any Proceeding or in defense of any claim, issue or matter therein, in whole or in part, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in connection with or related to each successfully resolved claim, issue or matter to the fullest extent permitted by law. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.
Section 6. Indemnification For Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the fullest extent permitted by applicable law and to the extent that Indemnitee is, by reason of Indemnitee's Corporate Status, a witness or otherwise asked to participate in any Proceeding to which Indemnitee is not a party, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee's behalf in connection therewith.
Section 7. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. The parties agree that for purposes of determining such portion of the total Expenses to which Indemnitee is entitled under this paragraph, such allocation as is certified by affidavit of Indemnitee’s counsel shall be presumed conclusively as a reasonable allocation.
Section 8. Additional Indemnification.
(a) Notwithstanding any limitation in Sections 3, 4, or 5, but subject to the last sentence of Section 2(f), the Company shall indemnify Indemnitee to the fullest extent permitted by applicable law if Indemnitee is a party to or participant in or threatened to be made a party to or participant in any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) by reason of Indemnitee’s Corporate Status.
(b) For purposes of Section 8(a), the meaning of the phrase "to the fullest extent permitted by applicable law" shall include, but not be limited to:
i. to the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the DGCL, and
ii. to the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers, directors, employees and agents.

5


Section 9. Exclusions. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnification payment in connection with any claim involving Indemnitee:
(a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; or
(b) for (i) an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act (as defined in Section 2(b) hereof) or similar provisions of state statutory law or common law, (ii) any reimbursement of the Company by the Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by the Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act) or (iii) any reimbursement of the Company by Indemnitee of any compensation pursuant to any compensation recoupment or clawback policy adopted by the Board or the compensation committee of the Board, including but not limited to any such policy adopted to comply with stock exchange listing requirements implementing Section 10D of the Exchange Act; or
(c) except as provided in Section 14(d) of this Agreement, in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board authorized the Proceeding (or any part of any Proceeding) or declaratory judgment action prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; or
(d) for any amounts paid in settlement of a Proceeding without the prior written consent of the Company to such settlement.
Section 10. Advances of Expenses. Notwithstanding any provision of this Agreement to the contrary (other than Section 14(d)), the Company shall advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding (or any part of any Proceeding) not initiated by Indemnitee or any Proceeding initiated by Indemnitee with the prior approval of the Board as provided in Section 9(c), and such advancement shall be made within twenty (20) days after the receipt by the Company of a statement or statements requesting such advances from time to time, whether prior to or after final disposition of any Proceeding. Indemnitee shall notify the Company in writing of any matter with respect to which Indemnitee intends to seek advancement of Expenses hereunder as soon as reasonably practicable following the receipt by Indemnitee of written notice thereof. The written notification to the Company shall include a description of the nature of the Proceeding and the facts underlying the Proceeding. The omission by Indemnitee to notify the Company hereunder of a matter with respect to which Indemnitee intends to seek advancement will not relieve the Company from any liability which it may have to Indemnitee hereunder or otherwise than under this Agreement, and any delay in so notifying the Company shall not constitute a waiver by Indemnitee of any rights under this Agreement. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee's ability to repay the Expenses and without regard to Indemnitee's ultimate entitlement to indemnification under the other provisions of this Agreement. In accordance with Section 14(d), advances shall include any and all reasonable Expenses incurred pursuing an action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed. The Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement, which shall constitute an undertaking providing that the Indemnitee undertakes to repay the amounts advanced (without interest) to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company.

6


No other form of undertaking shall be required other than the execution of this Agreement. This Section 10 shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 9.
Section 11. Procedure for Notification of Indemnification Request.
(a) Indemnitee shall notify the Company in writing of any matter with respect to which Indemnitee intends to seek indemnification hereunder as soon as reasonably practicable following the receipt by Indemnitee of written notice thereof. The written notification to the Company shall include a description of the nature of the Proceeding and the facts underlying the Proceeding. To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the final disposition of such Proceeding. The omission by Indemnitee to notify the Company hereunder of a matter with respect to which Indemnitee intends to seek indemnification will not relieve the Company from any liability which it may have to Indemnitee hereunder or otherwise than under this Agreement, and any delay in so notifying the Company shall not constitute a waiver by Indemnitee of any rights under this Agreement.
(b) The Company will be entitled to participate in the Proceeding at its own expense.
Section 12. Procedure Upon Application for Indemnification.
(a) Upon written request by Indemnitee for indemnification pursuant to Section 11(a), a determination, if required by applicable law, with respect to Indemnitee's entitlement thereto shall be made in the specific case: (i) if a Change in Control shall have occurred, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee; or (ii) if a Change in Control shall not have occurred, (A) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, (B) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, (C) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee or (D) if so directed by the Board, by the stockholders of the Company; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee's entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or Expenses (including attorneys' fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee's entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom. The Company promptly will advise Indemnitee in writing with respect to any determination that Indemnitee is or is not entitled to indemnification, including a description of any reason or basis for which indemnification has been denied.
(b) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 12(a) hereof, the Independent Counsel shall be selected as provided in this Section 12(b). If a Change in Control shall not have occurred, the Independent Counsel shall be selected by the Board, and the Company shall give written notice to Indemnitee advising Indemnitee of the identity of the Independent Counsel so selected. If a Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within ten (10) days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided , however , that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of "Independent Counsel" as defined in Section 2 of this Agreement,

7


and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or the Delaware Court has determined that such objection is without merit. If, within twenty (20) days after the later of submission by Indemnitee of a written request for indemnification pursuant to Section 11(a) hereof and the final disposition of the Proceeding, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Delaware Court for resolution of any objection which shall have been made by the Company or Indemnitee to the other's selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by such court or by such other person as such court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 12(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 14(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
Section 13. Presumptions and Effect of Certain Proceedings.
(a) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall, to the fullest extent not prohibited by law, presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 11(a) of this Agreement, and the Company shall, to the fullest extent not prohibited by law, have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Neither the failure of the Company (including by its directors or Independent Counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or Independent Counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.
(b) Subject to Section 14(e), if the person, persons or entity empowered or selected under Section 12 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall, to the fullest extent not prohibited by law, be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 13(b) shall not apply (i) if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 12(a) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination the Board has resolved to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat, or (ii) if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 12(a) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except

8


as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful.
(d) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee's action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the directors or officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser, financial advisor or other expert selected with reasonable care by or on behalf of the Enterprise. The provisions of this Section 13(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.
(e) The knowledge and/or actions, or failure to act, of any director, officer, trustee, partner, managing member, fiduciary, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.
(f) The parties hereto intend that this Agreement shall provide to the fullest extent permitted by law for indemnification in excess of that expressly permitted by statute, including, without limitation, any indemnification provided by the Certificate of Incorporation, the By-laws, vote of its stockholders or disinterested directors or applicable law.
Section 14. Remedies of Indemnitee.
(a) Subject to Section 14(e), in the event that (i) a determination is made pursuant to Section 12 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 10 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 12(a) of this Agreement within ninety (90) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5, 6 or 7 or the second to last sentence of Section 12(a) of this Agreement within ten (10) days after receipt by the Company of a written request therefor, (v) payment of indemnification pursuant to Section 3, 4 or 8 of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, or (vi) in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or Proceeding designed to deny, or to recover from, the Indemnitee the benefits provided or intended to be provided to the Indemnitee hereunder, Indemnitee shall be entitled to an adjudication by a court of Indemnitee's entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at Indemnitee's option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 14(a); provided , however , that the foregoing clause shall not apply in respect of a proceeding brought by Indemnitee to enforce Indemnitee's rights under Section 5 of this Agreement. The Company shall not oppose Indemnitee's right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to Section 12(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 14 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 14 the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be.

9


(c) If a determination shall have been made pursuant to Section 12(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 14, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.
(d) The Company shall, to the fullest extent not prohibited by law, be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 14 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. It is the intent of the Company that, to the fullest extent permitted by law, the Indemnitee not be required to incur legal fees or other Expenses associated with the interpretation, enforcement or defense of Indemnitee's rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Indemnitee hereunder. The Company shall, to the fullest extent permitted by law, indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within twenty (20) days after receipt by the Company of a written request therefor) advance, to the extent not prohibited by law, such Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advancement of Expenses from the Company under this Agreement or under any directors' and officers' liability insurance policies maintained by the Company if, in the case of indemnification, Indemnitee is wholly successful on the underlying claims; if Indemnitee is not wholly successful on the underlying claims, then such indemnification shall be only to the extent Indemnitee is successful on such underlying claims or otherwise as permitted by law, whichever is greater.
(e) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement of Indemnitee to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.
Section 15. Non-exclusivity; Survival of Rights; Insurance; Subrogation.
(a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall be in addition to, and shall not be deemed exclusive of, any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the By-laws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment or modification of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by Indemnitee in Indemnitee's Corporate Status prior to such amendment or modification. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would then be afforded under the Certificate of Incorporation and/or By-laws of the Company and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
(b) The Company shall obtain and maintain in full force and effect, subject to the last sentence of this paragraph, an insurance policy or policies providing liability insurance for directors, officers, employees, or agents of the Enterprise in reasonable amounts as the Board shall determine from established and reputable insurers. Such liability insurance shall provide for individual coverage for non-indemnifiable claims, as well as coverage for the Company’s indemnification obligations under this Agreement. Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies. If, at

10


the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of such claim or of the commencement of a Proceeding, as the case may be, to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies. Notwithstanding the foregoing, the Company shall have no obligation to obtain and maintain such liability insurance if the Company determines in good faith that the premium costs for such insurance are (i) disproportionate to the amount of coverage provided after giving effect to exclusions and (ii) substantially more burdensome to the Company than the premiums charged to the Company for such liability insurance currently in effect.
(c) In the event of any payment made by the Company under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable (or for which advancement is provided hereunder) hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.     
(e) The Company's obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise shall be excess of any amount Indemnitee has actually received as indemnification or advancement of Expenses from such other corporation, limited liability company, partnership, joint venture, trust or other enterprise, and excess of any insurance provided by such other corporation, limited liability company, partnership, joint venture, trust or other enterprise.
Section 16. Duration of Agreement. This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a director or officer of the Company or (b) one (1) year after the final termination of any Proceeding then pending in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 14 of this Agreement relating thereto. The indemnification and advancement of expenses rights provided by or granted pursuant to this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the Company or of any other Enterprise, and shall inure to the benefit of Indemnitee and Indemnitee's spouse, assigns, heirs, devisees, executors and administrators and other legal representatives.
Section 17. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.
Section 18. Enforcement.

11


(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve and continue to serve as a director, officer, employee or agent of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving or continuing to serve as a director, officer, employee or agent of the Company.
(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided, however, that this Agreement is a supplement to and in furtherance of the Certificate of Incorporation, the By-laws and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.
Section 19. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties hereto. No waiver of any of the provisions of this Agreement shall be implied by the conduct of the parties. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.
Section 20. Notice by Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document (including any correspondence or other communication) relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder, or which may be covered by a policy of insurance provided pursuant to Section 15 (b). The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement or otherwise.
Section 21. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (a) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (b) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (c) mailed by reputable overnight courier and receipted for by the party to whom said notice or other communication shall have been directed or (d) sent by facsimile transmission, with receipt of oral confirmation that such transmission has been received:
(a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide to the Company.
(b) If to the Company to
United Rentals, Inc.
100 First Stamford Place
Stamford, CT 06902
Attention: General Counsel

or to any other address as may have been furnished to Indemnitee by the Company.
Section 22. Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).

12


Section 23. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 14(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the "Delaware Court"), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, irrevocably RL&F Service Corp., 920 North King Street, 2 nd Floor, Wilmington, New Castle County, Delaware 19801 as its agent in the State of Delaware as such party's agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.
Section 24. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
Section 25. Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. The headings of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.
UNITED RENTALS, INC.                  INDEMNITEE


By:                                             
Name:                              Name:
Office:                              Address:             
                                            
                                            


13


Exhibit 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions, except ratios)
 
 
Year Ended December 31,  
 
 
Nine Months Ended September 30,
 
2009
2010
2011
2012
2013
 
2014
Earnings:
 
 
 
 
 
 
 
(Loss) income from continuing operations before (benefit) provision for income taxes
$
(107
)
$
(63
)
$
164

$
88

$
605

 
$
539

Add:
 
 
 
 
 
 
 
Fixed charges, net of capitalized interest
288

279

271

504

521

 
389

Total earnings available for fixed charges
181

216

435

592

1,126

 
928

Fixed charges (1):
 
 
 
 
 
 
 
Interest expense, net
226

255

228

512

475

 
436

Add back interest income, which is netted in interest expense
1

1

1

2

1

 
1

Add back gains (losses) on bond repurchases/retirement of subordinated convertible debentures, included in interest expense
20

(28
)
(5
)
(72
)
(3
)
 
(80
)
Interest expense—subordinated convertible debentures, net
(4
)
8

7

4

3

 
—

Capitalized interest
1

—

—

—

—

 
—

Interest component of rent expense
45

43

40

58

45

 
32

Fixed charges
$
289

$
279

$
271

$
504

$
521

 
$
389

Ratio of earnings to fixed charges
   —  (2)

—  (2)

1.6x

1.2x

2.2x

 
2.4x

 
_________________
(1)
Fixed charges consist of interest expense, which includes amortization of deferred finance charges, interest expense-subordinated debentures, capitalized interest and imputed interest on our lease obligations. The interest component of rent was determined based on an estimate of a reasonable interest factor at the inception of the leases.
(2)
Due to our losses for the years ended December 31, 2010 and 2009, the ratio coverage was less than 1:1 for these years. We would have had to have generated additional earnings of $63 and $108 for the years ended December 31, 2010 and 2009, respectively, to have achieved coverage ratios of 1:1.
 





Exhibit 31(a)
CERTIFICATIONS
I, Michael J. Kneeland, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of United Rentals, Inc. and United Rentals (North America), Inc. for the quarterly period ended September 30, 2014 ;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in this report;
4.
The registrants' other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrants and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrants' disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and.
d)
disclosed in this report any change in the registrants' internal control over financial reporting that occurred during the registrants' most recent fiscal quarter (the registrants' fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants' internal control over financial reporting; and
5.
The registrants' other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants' auditors and the audit committee of the registrants' board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants' ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants' internal control over financial reporting.  
 
/ S /    M ICHAEL  J. K NEELAND        
Michael J. Kneeland
Chief Executive Officer

October 15, 2014




Exhibit 31(b)
CERTIFICATIONS
I, William B. Plummer, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of United Rentals, Inc. and United Rentals (North America), Inc. for the quarterly period ended September 30, 2014 ;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrants as of, and for, the periods presented in this report;
4.
The registrants' other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrants and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrants, including their consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrants' disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and.
d)
disclosed in this report any change in the registrants' internal control over financial reporting that occurred during the registrants' most recent fiscal quarter (the registrants' fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants' internal control over financial reporting; and
5.
The registrants' other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants' auditors and the audit committee of the registrants' board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants' ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants' internal control over financial reporting.
 
/ S /    W ILLIAM  B. P LUMMER        
William B. Plummer
Chief Financial Officer

October 15, 2014




Exhibit 32(a)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of United Rentals, Inc. and United Rentals (North America), Inc. (the “Companies”) on Form 10-Q for the quarterly period ended September 30, 2014 as filed with the Securities and Exchange Commission (the “Report”), I, Michael J. Kneeland, Chief Executive Officer of the Companies, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.
the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m); and
2.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Companies.
 
/ S /    M ICHAEL  J. K NEELAND        
Michael J. Kneeland
Chief Executive Officer
October 15, 2014





Exhibit 32(b)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of United Rentals, Inc. and United Rentals (North America), Inc. (the “Companies”) on Form 10-Q for the quarterly period ended September 30, 2014 as filed with the Securities and Exchange Commission (the “Report”), I, William B. Plummer, Chief Financial Officer of the Companies, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
1.
the Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m); and
2.
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Companies.
 
/ S /    W ILLIAM  B. P LUMMER        
William B. Plummer
Chief Financial Officer
October 15, 2014