NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share data and unless otherwise indicated)
1. Organization, Description of Business and Consolidation
United Rentals, Inc. ("Holdings") 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 stockholder. As used in this report, the terms the “Company,” “United Rentals,” “we,” “us,” and “our” refer to United Rentals, Inc. and its subsidiaries, unless otherwise indicated.
We rent equipment to a diverse customer base that includes construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government entities. We primarily operate in the United States and Canada, and have a limited presence in Europe, Australia and New Zealand. In addition to renting equipment, we sell new and used rental equipment, as well as related contractor supplies, parts and service.
The accompanying consolidated financial statements include our accounts and those of our controlled subsidiary companies. All significant intercompany accounts and transactions have been eliminated. We consolidate variable interest entities if we are deemed the primary beneficiary of the entity.
2. Summary of Significant Accounting Policies
Cash Equivalents
We consider all highly liquid instruments with maturities of three months or less when purchased to be cash equivalents.
Allowance for Credit Losses
We maintain allowances for credit losses. These allowances reflect our estimate of the amount of our receivables that we will be unable to collect based on historical write-off experience and, as applicable, current conditions and reasonable and supportable forecasts that affect collectibility. Our estimate could require change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase or decrease our allowances. Trade receivables that have contractual maturities of one year or less are written-off when they are determined to be uncollectible based on the criteria necessary to qualify as a deduction for federal tax purposes. Write-offs of such receivables require management approval based on specified dollar thresholds. See note 3 to our consolidated financial statements for further detail.
Inventory
Inventory consists of new equipment, contractor supplies, tools, parts, fuel and related supply items. Inventory is stated at the lower of cost or market. Cost is determined, depending on the type of inventory, using either a specific identification or weighted-average method.
Rental Equipment
Rental equipment, which includes service and delivery vehicles, is recorded at cost and depreciated over the estimated useful life of the equipment using the straight-line method. The range of estimated useful lives for rental equipment is two to 20 years. Rental equipment is depreciated to a salvage value of zero to 50 percent of cost. The weighted average salvage value of our rental equipment is 12 percent of cost. Rental equipment is depreciated whether or not it is out on rent.
Accounts payable as of December 31, 2023 includes $74 of amounts due but unpaid for purchases of rental equipment. The net impact of accrued purchases of rental equipment was not material for the years ended December 31, 2022 and 2021.
Property and Equipment
Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. The range of estimated useful lives for property and equipment is three to 40 years. Ordinary repair and maintenance costs are charged to expense as incurred. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or the remaining life of the lease, whichever is shorter.
Acquisition Accounting
We have made a number of acquisitions in the past and may continue to make acquisitions in the future. The assets acquired and liabilities assumed are recorded based on their respective fair values at the date of acquisition. Long-lived assets (principally rental equipment), goodwill and other intangible assets generally represent the largest components of our acquisitions. Rental equipment is valued utilizing either a cost, market or income approach, or a combination of certain of these methods, depending on the asset being valued and the availability of market or income data. Goodwill is calculated as the excess of the cost of the acquired business over the net of the fair value of the assets acquired and the liabilities assumed. The intangible assets that we have acquired are non-compete agreements, customer relationships and trade names and associated trademarks. The estimated fair values of these intangible assets reflect various assumptions about discount rates, revenue growth rates, operating margins, terminal values, useful lives and other prospective financial information. Non-compete agreements, customer relationships and trade names and associated trademarks are valued based on an excess earnings or income approach based on projected cash flows.
Determining the fair value of the assets and liabilities acquired can be judgmental in nature and can involve the use of significant estimates and assumptions. The judgments made in determining the estimated fair value assigned to the assets acquired, as well as the estimated life of the assets, can materially impact net income in periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future. As discussed below, we regularly review for impairments.
When we make an acquisition, we also acquire other assets and assume liabilities. These other assets and liabilities typically include, but are not limited to, parts inventory, accounts receivable, accounts payable and other working capital items. Because of their short-term nature, the fair values of these other assets and liabilities generally approximate the book values on the acquired entities' balance sheets.
Evaluation of Goodwill Impairment
Goodwill is tested for impairment annually or more frequently if an event or circumstance indicates that an impairment loss may have been incurred. Application of the goodwill impairment test requires judgment, including: the identification of reporting units; assignment of assets and liabilities to reporting units; assignment of goodwill to reporting units; determination of the fair value of each reporting unit; and an assumption as to the form of the transaction in which the reporting unit would be acquired by a market participant (either a taxable or nontaxable transaction).
When conducting the goodwill impairment test, we are required to compare the fair value of our reporting units (which are our regions) with the carrying amount. As discussed in note 5 to our consolidated financial statements, our divisions are our operating segments. We conduct the goodwill impairment test at the reporting unit level, which is one level below the operating segment level.
Financial Accounting Standards Board ("FASB") guidance permits entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. We estimate the fair value of our reporting units using a combination of an income approach based on the present value of estimated future cash flows and a market approach based on market price data of shares of our Company and other corporations engaged in similar businesses as well as acquisition multiples paid in recent transactions. We believe this approach, which utilizes multiple valuation techniques, yields the most appropriate evidence of fair value.
In connection with our goodwill impairment test that was conducted as of October 1, 2023, we bypassed the optional qualitative assessment for each reporting unit and quantitatively compared the fair values of our reporting units with their carrying amounts. Our goodwill impairment testing as of this date indicated that all of our reporting units, excluding our Mobile Storage reporting unit, had estimated fair values which exceeded their respective carrying amounts by at least 54 percent. We completed the acquisition of General Finance in May 2021, and all of the assets in the Mobile Storage reporting unit were acquired in the General Finance acquisition. The estimated fair value of our Mobile Storage reporting unit exceeded its carrying amount by eight percent. As all of the assets in the Mobile Storage reporting unit were recorded at fair value as of the May 2021 acquisition date, we expected the percentage by which the fair value for this reporting unit exceeded the carrying value to be significantly less than the equivalent percentages determined for our other reporting units.
In connection with our goodwill impairment test that was conducted as of October 1, 2022, we bypassed the optional qualitative assessment for each reporting unit and quantitatively compared the fair values of our reporting units with their carrying amounts. Our goodwill impairment testing as of this date indicated that all of our reporting units, excluding our Mobile Storage reporting unit, had estimated fair values which exceeded their respective carrying amounts by at least 37 percent. We completed the acquisition of General Finance in May 2021, and all of the assets in the Mobile Storage reporting unit were acquired in the General Finance acquisition. The estimated fair value of our Mobile Storage reporting unit exceeded its carrying
amount by eight percent. As all of the assets in the Mobile Storage reporting unit were recorded at fair value as of the May 2021 acquisition date, we expected the percentages by which the fair values for this reporting unit exceeded the carrying value to be significantly less than the equivalent percentages determined for our other reporting units.
Other Intangible Assets
Other intangible assets consist of non-compete agreements, customer relationships and trade names and associated trademarks. The non-compete agreements are being amortized on a straight-line basis over initial periods of approximately five years. The customer relationships are being amortized either using the sum of the years' digits method or on a straight-line basis over initial periods generally ranging from eight to 15 years. The trade names and associated trademarks are being amortized using the sum of the years' digits method over initial periods of approximately five years. We believe that the amortization methods used reflect the estimated pattern in which the economic benefits will be consumed.
Long-Lived Assets
Long-lived assets are recorded at the lower of amortized cost or fair value. As part of an ongoing review of the valuation of long-lived assets, we assess the carrying value of such assets if facts and circumstances suggest they may be impaired. If this review indicates the carrying value of such an asset may not be recoverable, as determined by an undiscounted cash flow analysis over the remaining useful life, the carrying value would be reduced to its estimated fair value.
Translation of Foreign Currency
Assets and liabilities of our foreign subsidiaries that have a functional currency other than U.S. dollars are translated into U.S. dollars using exchange rates at the balance sheet date. Revenues and expenses are translated at average exchange rates effective during the year. Foreign currency translation gains and losses are included as a component of accumulated other comprehensive (loss) income within stockholders’ equity.
Revenue Recognition
As discussed in note 3 to our consolidated financial statements, we recognize revenue in accordance with two different accounting standards: 1) Topic 606 (which addresses revenue from contracts with customers) and 2) Topic 842 (which addresses lease revenue). As discussed in note 3, most of our revenue is accounted for under Topic 842. The discussion below addresses our primary revenue types based on the accounting standard used to determine the accounting.
Lease revenues (Topic 842)
The accounting for the significant types of revenue that are accounted for under Topic 842 is discussed below.
Owned equipment rentals: Owned equipment rentals represent revenues from renting equipment that we own. We account for such rentals as operating leases.
Re-rent revenue: Re-rent revenue reflects revenues from equipment that we rent from vendors and then rent to our customers. We account for such rentals as subleases. The accounting for re-rent revenue is the same as the accounting for owned equipment rentals described above.
Revenues from contracts with customers (Topic 606)
The accounting for the significant types of revenue that are accounted for under Topic 606 is discussed below.
Delivery and pick-up: Delivery and pick-up revenue associated with renting equipment is recognized when the service is performed.
Sales of rental equipment, new equipment and contractor supplies are recognized at the time of delivery to, or pick-up by, the customer and when collectibility is probable.
Service and other revenues primarily represent revenues earned from providing repair and maintenance services on our customers’ fleet (including parts sales). Service revenue is recognized as the services are performed.
See note 3 to our consolidated financial statements for further discussion of our revenue accounting.
Delivery Expense
Equipment rentals include our revenues from fees we charge for equipment delivery. Delivery costs are charged to operations as incurred, and are included in cost of revenues on our consolidated statements of income.
Advertising Expense
We promote our business through local and national advertising in various media, including television, trade publications, branded sponsorships, yellow pages, the internet, radio and direct mail. Advertising costs are generally expensed as incurred. These costs may include the development costs for branded content and advertising campaigns. Advertising expense, net of the qualified advertising reimbursements discussed below, was not material for the years ended December 31, 2023, 2022 and 2021.
We receive reimbursements for advertising that promotes a vendor’s products or services. Such reimbursements that meet the applicable criteria under U.S. generally accepted accounting principles (“GAAP”) are offset against advertising costs in the period in which we recognize the incremental advertising cost. The amounts of qualified advertising reimbursements that reduced advertising expense were $44, $53 and $49 for the years ended December 31, 2023, 2022 and 2021, respectively.
Insurance
We are insured for general liability, workers’ compensation and automobile liability, subject to deductibles or self-insured retentions per occurrence. Losses within the deductible amounts are accrued based upon the aggregate liability for reported claims incurred, as well as an estimated liability for claims incurred but not yet reported. These liabilities are not discounted. We are also self-insured for group medical claims but purchase “stop loss” insurance as protection against any one significant loss.
Income Taxes
We use the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities and are measured using the tax rates and laws that are expected to be in effect when the differences are expected to reverse. Recognition of deferred tax assets is limited to amounts considered by management to be more likely than not to be realized in future periods. The most significant positive evidence that we consider in the recognition of deferred tax assets is the expected reversal of cumulative deferred tax liabilities resulting from book versus tax depreciation of our rental equipment fleet that is well in excess of the deferred tax assets.
We use a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return regarding uncertainties in income tax positions. The first step is recognition: we determine whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, we presume that the position will be examined by the appropriate taxing authority with full knowledge of all relevant information. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in one or more of the following: an increase in a liability for income taxes payable, a reduction of an income tax refund receivable, a reduction in a deferred tax asset or an increase in a deferred tax liability.
We have historically considered the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested, and, accordingly, no taxes were provided on such earnings prior to the fourth quarter of 2020. In 2021, we remitted the cumulative amount of identified cash in our foreign operations in excess of near-term working capital needs. The taxes recorded associated with the remitted cash were immaterial. We continue to expect that the remaining balance of our undistributed foreign earnings will be indefinitely reinvested. If we determine that all or a portion of such foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes and U.S. state income taxes.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates impact the calculation of the allowance for credit losses, depreciation and amortization, income taxes and reserves for claims. Actual results could materially differ from those estimates.
Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentrations of credit risk include cash and cash equivalents and accounts receivable. We maintain cash and cash equivalents with high quality financial institutions. Concentration of credit risk with respect to receivables is limited because a large number of geographically diverse customers makes up our customer base (see note 3 to our consolidated financial statements for further detail). We manage credit risk through credit approvals, credit limits and other monitoring procedures.
Stock-Based Compensation
We measure stock-based compensation at the grant date based on the fair value of the award and recognize stock-based compensation expense over the requisite service period. Determining the fair value of stock option awards requires judgment, including estimating stock price volatility and expected option life. Restricted stock awards are valued based on the fair value of the stock on the grant date and the related compensation expense is recognized over the service period. Similarly, for time-based restricted stock awards subject to graded vesting, we recognize compensation cost on a straight-line basis over the requisite service period. For performance-based restricted stock units ("RSUs"), compensation expense is recognized if satisfaction of the performance condition is considered probable. We recognize forfeitures of stock-based compensation as they occur.
New Accounting Pronouncements
Improvements to Reportable Segment Disclosures. In November 2023, the FASB issued ASU 2023-07, which expands reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in the ASU require, among other things, disclosure of significant segment expenses that are regularly provided to an entity's chief operating decision maker (“CODM”) and a description of other segment items (the difference between segment revenue less the segment expenses disclosed under the significant expense principle and each reported measure of segment profit or loss) by reportable segment, as well as disclosure of the title and position of the CODM, and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. Annual disclosures are required for fiscal years beginning after December 15, 2023 and interim disclosures are required for periods within fiscal years beginning after December 15, 2024. Retrospective application is required, and early adoption is permitted. These requirements are not expected to have an impact on our financial statements, but will result in significantly expanded reportable segment disclosures.
Improvements to Income Tax Disclosures. In December 2023, the FASB issued ASU 2023-09, which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, may be applied prospectively or retrospectively, and allows for early adoption. These requirements are not expected to have an impact on our financial statements, but will impact our income tax disclosures.
Accounting Guidance Adopted in 2023
Reference Rate Reform. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to accounting guidance on contract modifications and hedge accounting to ease entities’ financial reporting burdens as the market transitions from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. This guidance generally allows for contract modifications solely related to the replacement of the reference rate to be accounted for as a continuation of the existing contract instead of as an extinguishment of the contract, without triggering certain accounting impacts that could be required associated with an extinguishment of the contract. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, to expand the scope of this guidance to include derivatives. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends the period of time entities can utilize the reference rate reform relief guidance under ASU 2020-04 from December 31, 2022, to December 31, 2024. In April 2023, our term loan facility was amended to transition to an interest rate based on the Secured Overnight Financing Rate ("SOFR"). Prior to the amendment, interest on the term loan facility reflected LIBOR plus a margin (or an alternative base rate plus a margin). We applied the above guidance when accounting for the term loan facility amendment, and adoption of this guidance did not have a material impact on our financial statements. As of December 31, 2023, we have no debt instruments that use LIBOR as a reference rate, and this guidance is not expected to have a material impact on our financial statements in the future.
3. Revenue Recognition
Revenue Recognition Accounting Standards
We recognize revenue in accordance with two different accounting standards: 1) Topic 606 (which addresses revenue from contracts with customers) and 2) Topic 842 (which addresses lease revenue). Under Topic 606, revenue from contracts with customers is measured based on the consideration specified in the contract with the customer, and excludes any sales incentives and amounts collected on behalf of third parties. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer, and is the unit of account under Topic 606. As reflected below, most of our revenue is accounted for under Topic 842. Our contracts with customers generally do not include multiple performance obligations. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for such products or services.
Nature of goods and services
In the following table, revenue is summarized by type and by the applicable accounting standard.
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| Year Ended December 31, |
| | | 2023 | | | | | | 2022 | | | | | | 2021 | | |
| Topic 842 | | Topic 606 | | Total | | Topic 842 | | Topic 606 | | Total | | Topic 842 | | Topic 606 | | Total |
| Revenues: | | | | | | | | | | | | | | | | | |
| Owned equipment rentals | $ | 9,948 | | | $ | — | | | $ | 9,948 | | | $ | 8,310 | | | $ | — | | | $ | 8,310 | | | $ | 6,840 | | | $ | — | | | $ | 6,840 | |
| Re-rent revenue | 233 | | — | | 233 | | 235 | | — | | 235 | | 194 | | — | | 194 |
| Ancillary and other rental revenues: | | | | | | | | | | | | | | | | | |
| Delivery and pick-up | — | | 941 | | 941 | | — | | 799 | | 799 | | — | | 616 | | 616 |
| Other | 756 | | 186 | | 942 | | 596 | | 176 | | 772 | | 426 | | 131 | | 557 |
| Total ancillary and other rental revenues | 756 | | | 1,127 | | | 1,883 | | | 596 | | | 975 | | | 1,571 | | | 426 | | | 747 | | | 1,173 | |
| Total equipment rentals | 10,937 | | | 1,127 | | | 12,064 | | | 9,141 | | | 975 | | | 10,116 | | | 7,460 | | | 747 | | | 8,207 | |
| Sales of rental equipment | — | | 1,574 | | 1,574 | | — | | 965 | | 965 | | — | | 968 | | 968 |
| Sales of new equipment | — | | 218 | | 218 | | — | | 154 | | 154 | | — | | 203 | | 203 |
| Contractor supplies sales | — | | 146 | | 146 | | — | | 126 | | 126 | | — | | 109 | | 109 |
| Service and other revenues | — | | 330 | | 330 | | — | | 281 | | 281 | | — | | 229 | | 229 |
| Total revenues | $ | 10,937 | | | $ | 3,395 | | | $ | 14,332 | | | $ | 9,141 | | | $ | 2,501 | | | $ | 11,642 | | | $ | 7,460 | | | $ | 2,256 | | | $ | 9,716 | |
Revenues by reportable segment and geographical market are presented in note 5 of the consolidated financial statements using the revenue captions reflected in our consolidated statements of operations. The majority of our revenue is recognized in our general rentals segment and in the U.S. (for the year ended December 31, 2023, 75 percent and 91 percent, respectively). We believe that the disaggregation of our revenue from contracts to customers as reflected above, coupled with the further discussion below and the reportable segment and geographical market disclosures in note 5, depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors.
Lease revenues (Topic 842)
The accounting for the types of revenue that are accounted for under Topic 842 is discussed below.
Owned equipment rentals represent our most significant revenue type (they accounted for 69 percent of total revenues for the year ended December 31, 2023) and are governed by our standard rental contract. We account for such rentals as operating leases. The lease terms are included in our contracts, and the determination of whether our contracts contain leases generally does not require significant assumptions or judgments. Our lease revenues do not include material amounts of variable payments.
Owned equipment rentals: Owned equipment rentals represent revenues from renting equipment that we own. We do not generally provide an option for the lessee to purchase the rented equipment at the end of the lease, and do not generate material revenue from sales of equipment under such options.
We recognize revenues from renting equipment on a straight-line basis. Our rental contract periods are hourly, daily, weekly or monthly. By way of example, if a customer were to rent a piece of equipment and the daily, weekly and monthly rental rates for that particular piece were (in actual dollars) $100, $300 and $900, respectively, we would recognize revenue of $32.14 per day. The daily rate for recognition purposes is calculated by dividing the monthly rate of $900 by the monthly term
of 28 days. This daily rate assumes that the equipment will be on rent for the full 28 days, as we are unsure of when the customer will return the equipment and therefore unsure of which rental contract period will apply.
As part of this straight-line methodology, when the equipment is returned, we recognize as incremental revenue the excess, if any, between the amount the customer is contractually required to pay, which is based on the rental contract period applicable to the actual number of days the equipment was out on rent, over the cumulative amount of revenue recognized to date. In any given accounting period, we will have customers return equipment and be contractually required to pay us more than the cumulative amount of revenue recognized to date under the straight-line methodology. For instance, continuing the above example, if the customer rented the above piece of equipment on December 29 and returned it at the close of business on January 1, we would recognize incremental revenue on January 1 of $171.44 (in actual dollars, representing the difference between the amount the customer is contractually required to pay, or $300 at the weekly rate, and the cumulative amount recognized to date on a straight-line basis, or $128.56, which represents four days at $32.14 per day).
We record amounts billed to customers in excess of recognizable revenue as deferred revenue on our balance sheet. We had deferred revenue (associated with both Topic 842 and Topic 606) of $138 and $131 as of December 31, 2023 and 2022, respectively.
As noted above, we are unsure of when the customer will return rented equipment. As such, we do not know how much the customer will owe us upon return of the equipment and cannot provide a maturity analysis of future lease payments. Our equipment is generally rented for short periods of time (significantly less than a year). Lessees do not provide residual value guarantees on rented equipment.
We expect to derive significant future benefits from our equipment following the end of the rental term. Our rentals are generally short-term in nature, and our equipment is typically rented for the majority of the time that we own it. We additionally recognize revenue from sales of rental equipment when we dispose of the equipment.
Re-rent revenue: Re-rent revenue reflects revenues from equipment that we rent from vendors and then rent to our customers. We account for such rentals as subleases. The accounting for re-rent revenue is the same as the accounting for owned equipment rentals described above.
“Other” equipment rental revenue is primarily comprised of 1) Rental Protection Plan (or "RPP") revenue associated with the damage waiver customers can purchase when they rent our equipment to protect against potential loss or damage, 2) environmental charges associated with the rental of equipment, 3) charges for rented equipment that is damaged by our customers and 4) charges for setup and other services performed on rented equipment.
Revenues from contracts with customers (Topic 606)
The accounting for the types of revenue that are accounted for under Topic 606 is discussed below. Substantially all of our revenues under Topic 606 are recognized at a point-in-time rather than over time.
Delivery and pick-up: Delivery and pick-up revenue associated with renting equipment is recognized when the service is performed.
“Other” equipment rental revenue is primarily comprised of revenues associated with the consumption of fuel by our customers which are recognized when the equipment is returned by the customer (and consumption, if any, can be measured).
Sales of rental equipment, new equipment and contractor supplies are recognized at the time of delivery to, or pick-up by, the customer and when collectibility is probable.
Service and other revenues primarily represent revenues earned from providing repair and maintenance services on our customers’ fleet (including parts sales). Service revenue is recognized as the services are performed.
Receivables and contract assets and liabilities
As reflected above, most of our equipment rental revenue is accounted for under Topic 842 (such revenue represented 76 percent of our total revenues for the year ended December 31, 2023). The customers that are responsible for the remaining revenue that is accounted for under Topic 606 are generally the same customers that rent our equipment. We manage credit risk associated with our accounts receivables at the customer level. Because the same customers generate the revenues that are accounted for under both Topic 606 and Topic 842, the discussions below on credit risk and our allowance for credit losses address receivables arising from revenues from both Topic 606 and Topic 842.
Concentration of credit risk with respect to our receivables is limited because a large number of geographically diverse customers makes up our customer base. Our largest customer accounted for less than one percent of total revenues in each of 2023, 2022, and 2021. Our customer with the largest receivable balance represented approximately one percent of total receivables at December 31, 2023 and 2022. We manage credit risk through credit approvals, credit limits and other monitoring procedures.
Our allowance for credit losses reflects our estimate of the amount of our receivables that we will be unable to collect based on historical write-off experience and, as applicable, current conditions and reasonable and supportable forecasts that affect collectibility. Our estimate could require change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase or decrease our allowance. Trade receivables that have contractual maturities of one year or less are written-off when they are determined to be uncollectible based on the criteria necessary to qualify as a deduction for federal tax purposes. Write-offs of such receivables require management approval based on specified dollar thresholds. See the table below for a rollforward of our allowance for credit losses.
The measurement of expected credit losses is based on relevant information from past events, including historical experiences, current conditions and reasonable and supportable forecasts that affect collectibility. Trade receivables are the only material financial asset we have that is subject to the requirement to measure expected credit losses as noted above, as this requirement does not apply to receivables arising from operating lease revenues. Substantially all of our non-lease trade receivables are due in one year or less. As discussed above, most of our equipment rental revenue is accounted for as lease revenue (such revenue represented 76 percent of our total revenues for the year ended December 31, 2023), and these revenues account for corresponding portions of the $2.230 billion of net accounts receivable and the associated allowance for credit losses of $169 as of December 31, 2023.
As discussed above, most of our equipment rental revenue is accounted for under Topic 842. The customers that are responsible for the remaining revenue that is accounted for under Topic 606 are generally the same customers that rent our equipment. We manage credit risk associated with our accounts receivables at the customer level. The rollforward of our allowance for credit losses (in total, and associated with revenues arising from both Topic 606 and Topic 842) is shown below. | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, |
| | | 2023 | | 2022 | | 2021 |
| Beginning balance | | | $ | 134 | | | $ | 112 | | | $ | 108 | |
| | | | | | | |
| Charged to costs and expenses (1) | | | 14 | | | 11 | | | 5 | |
| Charged to revenue (2) | | | 60 | | | 49 | | | 31 | |
| Deductions and other (3) | | | (39) | | | (38) | | | (32) | |
| Ending balance | | | $ | 169 | | | $ | 134 | | | $ | 112 | |
_________________
(1) Reflects bad debt expenses recognized within selling, general and administrative expenses (associated with Topic 606 revenues).
(2) Primarily reflects credit losses associated with lease revenues that were recognized as a reduction to equipment rentals revenue (primarily associated with Topic 842 revenues).
(3) Primarily represents write-offs of accounts, net of immaterial recoveries and other activity.
We do not have material contract assets, or impairment losses associated therewith, or material contract liabilities, associated with contracts with customers. Our contracts with customers do not generally result in material amounts billed to customers in excess of recognizable revenue. We did not recognize material revenue during the years ended December 31, 2023 and December 31, 2022 that was included in the contract liability balance as of the beginning of such periods.
Performance obligations
Most of our Topic 606 revenue is recognized at a point-in-time, rather than over time. Accordingly, in any particular period, we do not generally recognize a significant amount of revenue from performance obligations satisfied (or partially satisfied) in previous periods, and the amounts of such revenue recognized during the years ended December 31, 2023 and December 31, 2022 were not material. We also do not expect to recognize material revenue in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of December 31, 2023.
Payment terms
Our Topic 606 revenues do not include material amounts of variable consideration. Our payment terms vary by the type and location of our customer and the products or services offered. The time between invoicing and when payment is due is not significant. Our contracts do not generally include a significant financing component. For certain products or services and customer types, we require payment before the products or services are delivered to the customer. Our contracts with customers do not generally result in significant obligations associated with returns, refunds or warranties. See above for a discussion of how we manage credit risk.
Revenue is recognized net of taxes collected from customers, which are subsequently remitted to governmental authorities.
Contract costs
We do not recognize any assets associated with the incremental costs of obtaining a contract with a customer (for example, a sales commission) that we expect to recover. Most of our revenue is recognized at a point-in-time or over a period of one year or less, and we use the practical expedient that allows us to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that we otherwise would have recognized is one year or less.
Contract estimates and judgments
Our revenues accounted for under Topic 606 generally do not require significant estimates or judgments, primarily for the following reasons:
•The transaction price is generally fixed and stated in our contracts;
•As noted above, our contracts generally do not include multiple performance obligations, and accordingly do not generally require estimates of the standalone selling price for each performance obligation;
•Our revenues do not include material amounts of variable consideration, or result in significant obligations associated with returns, refunds or warranties; and
•Most of our revenue is recognized as of a point-in-time and the timing of the satisfaction of the applicable performance obligations is readily determinable. As noted above, our Topic 606 revenue is generally recognized at the time of delivery to, or pick-up by, the customer.
Our revenues accounted for under Topic 842 also generally do not require significant estimates or judgments. We monitor and review our estimated standalone selling prices on a regular basis.
4. Acquisitions
On December 7, 2022, we completed the acquisition of assets of Ahern Rentals, Inc. ("Ahern Rentals"), which was accounted for as a business combination. Ahern Rentals was the eighth largest equipment rental company in North America and served customers primarily in the construction and industrial sectors across 30 states. The acquisition:
• Increased capacity in key geographies, with concentrations on both U.S. coasts and in the Gulf region;
• Increased availability of high-demand aerial and material handling equipment for our customers; and
• Created immediate cross-sell opportunities to an expanded customer base.
The aggregate consideration paid to acquire Ahern Rentals was $1.988 billion. The acquisition and related fees and expenses were funded through the issuance of $1.5 billion principal amount of 6 percent Senior Secured Notes and drawings on our senior secured asset-based revolving credit facility (“ABL facility”).
During the year ended December 31, 2023, we recognized measurement period adjustments primarily to establish the fair values for intangible assets and lease assets and liabilities. These adjustments resulted in a substantial reduction to goodwill versus the previously reported amount (see note 9 to the consolidated financial statements for further discussion of goodwill changes). Non-rental depreciation and amortization for the year ended December 31, 2023 includes $7 of intangible asset amortization that would have been recognized in 2022 if the intangible asset values had been established as of December 31, 2022. The following table summarizes the fair values of the assets acquired and liabilities assumed.
| | | | | |
| |
| |
| Inventory | $ | 20 | |
| |
| Rental equipment | 1,232 | |
| Property and equipment | 186 | |
| Intangible assets (1) | 428 | |
| Operating lease right-of-use assets | 211 | |
| Other assets | 10 | |
| Total identifiable assets acquired | 2,087 | |
| |
| Accounts payable, accrued expenses and other liabilities | (24) | |
| |
| Operating lease liabilities | (199) | |
| Debt (finance leases) | (38) | |
| Total liabilities assumed | (261) | |
| Net identifiable assets acquired | 1,826 | |
| Goodwill (2) | 162 | |
| Net assets acquired | $ | 1,988 | |
(1)The following table reflects the fair values and useful lives of the acquired intangible assets identified based on our purchase accounting assessments:
. | | | | | | | | |
| | |
| Fair value | Life (years) |
| | |
| | |
| | |
| | |
| Customer relationships | $ | 330 | | 9 |
| | |
| Non-compete agreements | 98 | | 5 |
| Total | $ | 428 | | |
(2)All of the goodwill was assigned to our general rentals segment. The level of goodwill that resulted from the acquisition is primarily reflective of Ahern Rentals' going-concern value, the value of Ahern Rentals' assembled workforce and new customer relationships expected to arise from the acquisition. All of the goodwill is expected to be deductible for income tax purposes (because the acquisition is a purchase of assets, the goodwill that is deductible for income tax purposes equals the total acquired goodwill).
The debt issuance costs associated with the issuance of debt to partially fund the acquisition are reflected, net of amortization subsequent to the acquisition date, in long-term debt in our consolidated balance sheets. Additionally, in the first quarter of 2023, we initiated a restructuring program following the closing of the Ahern Rentals acquisition, and the costs under this program are included in “Restructuring charge” in our consolidated statements of income. The restructuring charges generally involve the closure of a large number of branches over a short period of time, often in periods following a major acquisition.
It is not practicable to reasonably estimate the amounts of revenue and earnings of Ahern Rentals since the acquisition date, primarily due to the movement of fleet between URI locations and the acquired Ahern Rentals locations, as well as our corporate structure and the allocation of corporate costs.
Pro forma financial information
The pro forma information below gives effect to the Ahern Rentals acquisition as if it had been completed on January 1, 2021. The pro forma information is not necessarily indicative of our results had the acquisition been completed on the above date, nor is it necessarily indicative of our future results. The pro forma information reflects Ahern Rentals’ historic revenue presented in accordance with our revenue mapping, 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 table below presents unaudited pro forma consolidated income statement information as if Ahern Rentals had been included in our consolidated results for the entire period reflected:
| | | | | | | | | | | |
| | | | | Year Ended |
| | | | | | December 31, |
| | | | | | | | 2022 |
| United Rentals historic revenues | | | | | | | $ | 11,642 | |
| Ahern Rentals historic revenues | | | | | | | 827 | |
| Pro forma revenues | | | | | | | 12,469 | |
| United Rentals historic pretax income | | | | | | | $ | 2,802 | |
| Ahern Rentals historic pretax income | | | | | | | 2 | |
| Combined pretax income | | | | | | | 2,804 | |
| Pro forma adjustments to combined pretax income: | | | | | | | |
| Impact of fair value mark-ups/useful life changes on depreciation (1) | | | | | | | (94) | |
| Impact of the fair value mark-up of acquired fleet on cost of rental equipment sales (2) | | | | | | | (28) | |
| Intangible asset amortization (3) | | | | | | | (78) | |
| | | | | | | |
| Interest expense (4) | | | | | | | (96) | |
| Elimination of historic interest (5) | | | | | | | 53 | |
| | | | | | | |
| | | | | | | |
| Elimination of historic legal and financing costs (6) | | | | | | | 11 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Pro forma pretax income | | | | | | | $ | 2,572 | |
________________
(1) Depreciation of rental equipment and non-rental depreciation were adjusted for the fair value mark-ups, and the changes in useful lives and salvage values, of the equipment acquired in the Ahern Rentals acquisition.
(2) Cost of rental equipment sales was adjusted for the fair value mark-ups, and the changes in useful lives and salvage values, of rental equipment acquired in the Ahern Rentals acquisition.
(3) Intangible asset amortization was adjusted to include amortization of the acquired intangible assets.
(4) As discussed above, the acquisition and related fees and expenses were funded through the issuance of senior notes and drawings on our ABL facility. Interest expense was adjusted to reflect interest on the debt used to finance the acquisition.
(5) Historic interest on debt that is not part of the combined entity was eliminated.
(6) Reflects legal and financing costs incurred by Ahern Rentals that do not relate to the combined entity (specifically, legal costs related to a particular lawsuit and costs related to an attempted financing). In addition to the Ahern Rentals acquisition, during 2023 and 2022, we completed a series of acquisitions which were not significant individually or in the aggregate. See the consolidated statements of cash flows for the total cash outflow for purchases of other companies, net of cash acquired, which includes Ahern Rentals and the other completed acquisitions, and see note 9 to our consolidated financial statements for rollforwards showing the goodwill acquired associated with these acquisitions.
5. Segment Information
Our reportable segments are i) general rentals and ii) specialty. In the fourth quarter of 2021, following a realignment of certain of our divisions and regions, and changes in leadership roles and responsibilities, we updated our analysis of operating segments and concluded that our divisions represent our operating segments. Prior to the fourth quarter of 2021, our regions were our operating segments. While this update reflects a change in operating segments, it did not result in any changes to the rental locations in each reportable segment, and, as a result, there were no changes to the historically reported segment financial information. Our determination of the operating segments is primarily based on geography, but also includes consideration of the offered products and services.
As noted below, we evaluate segment performance primarily based on segment equipment rentals gross profit. The primary change resulting from the change in segment presentation is to our ongoing review of segment equipment rentals margins, which we monitor on a quarterly basis to assess margin similarity between operating segments. Because of the change in operating segments, this margin analysis is now conducted at the division level, while it was historically (prior to the realignment in the fourth quarter of 2021) performed at the region level. As discussed further in note 2 to our consolidated financial statements ("Evaluation of Goodwill Impairment"), we test for goodwill impairment at the reporting unit (the region, which is one level below the operating segment (division)) level, and the change in the segment structure did not impact our goodwill impairment testing.
For general rentals, the divisions discussed below, which are our operating segments, are aggregated into the reportable segment. The specialty segment is a single division that is both an operating segment and a reportable segment. We believe that the divisions that are aggregated into our reportable segments have similar economic characteristics, as each division is capital intensive, offers similar products to similar customers, uses similar methods to distribute its products, and is subject to similar competitive risks. The aggregation of our divisions also reflects the management structure that we use for making operating decisions and assessing performance. We evaluate segment performance primarily based on segment equipment rentals gross profit.
The general rentals segment includes the rental of i) general construction and industrial equipment, such as backhoes, skid-steer loaders, forklifts, earthmoving equipment and material handling equipment, ii) aerial work platforms, such as boom lifts and scissor lifts and iii) general tools and light equipment, such as pressure washers, water pumps and power tools. The general rentals segment reflects the aggregation of four geographic divisions—Central, Northeast, Southeast and West—and operates throughout the United States and Canada.
The specialty segment, which, as noted above, is a single division that is both an operating segment and a reportable segment, rents products (and provides setup and other services on such rented equipment) including i) trench safety equipment, such as trench shields, aluminum hydraulic shoring systems, slide rails, crossing plates, construction lasers and line testing equipment for underground work, ii) power and HVAC equipment, such as portable diesel generators, electrical distribution equipment, and temperature control equipment, iii) fluid solutions equipment primarily used for fluid containment, transfer and treatment, and iv) mobile storage equipment and modular office space. The specialty segment’s customers include construction companies involved in infrastructure projects, municipalities and industrial companies. This segment primarily operates in the United States and Canada, and has a limited presence in Europe, Australia and New Zealand.
The following table presents the percentage of equipment rental revenue by equipment type for the years ended December 31, 2023, 2022 and 2021:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Primarily rented by our general rentals segment: | | | | | |
General construction and industrial equipment | 42 | % | | 42 | % | | 42 | % |
Aerial work platforms | 25 | % | | 24 | % | | 26 | % |
General tools and light equipment | 8 | % | | 8 | % | | 8 | % |
| Primarily rented by our specialty segment: | | | | | |
Power and HVAC equipment | 10 | % | | 10 | % | | 9 | % |
Trench safety equipment | 5 | % | | 6 | % | | 6 | % |
Fluid solutions equipment | 7 | % | | 7 | % | | 7 | % |
Mobile storage equipment and modular office space | 3 | % | | 3 | % | | 2 | % |
| | | | | |
The accounting policies for our segments are the same as those described in the summary of significant accounting policies in note 2. Certain corporate costs, including those related to selling, finance, legal, risk management, human resources, corporate management and information technology systems, are deemed to be of an operating nature and are allocated to our segments based primarily on rental fleet size.
The following table sets forth financial information by segment as of, and for the years ended, December 31, 2023, 2022 and 2021:
| | | | | | | | | | | | | | | | | |
| General
rentals | | Specialty | | Total |
| 2023 | | | | | |
| Equipment rentals | $ | 8,803 | | $ | 3,261 | | $ | 12,064 |
| Sales of rental equipment | 1,411 | | 163 | | 1,574 |
| Sales of new equipment | 95 | | 123 | | 218 |
| Contractor supplies sales | 89 | | 57 | | 146 |
| Service and other revenues | 299 | | 31 | | 330 |
| Total revenue | 10,697 | | | 3,635 | | | 14,332 | |
| Depreciation and amortization expense | 2,316 | | 465 | | 2,781 |
| Equipment rentals gross profit | 3,219 | | 1,595 | | 4,814 |
| Capital expenditures | 3,051 | | 813 | | 3,864 |
| Total assets | $ | 20,411 | | $ | 5,178 | | $ | 25,589 |
| 2022 | | | | | |
| Equipment rentals | $ | 7,345 | | $ | 2,771 | | $ | 10,116 |
| Sales of rental equipment | 835 | | 130 | | 965 |
| Sales of new equipment | 73 | | 81 | | 154 |
| Contractor supplies sales | 81 | | 45 | | 126 |
| Service and other revenues | 250 | | 31 | | 281 |
| Total revenue | 8,584 | | | 3,058 | | | 11,642 | |
| Depreciation and amortization expense | 1,765 | | 452 | | 2,217 |
| Equipment rentals gross profit | 2,905 | | 1,340 | | 4,245 |
| Capital expenditures | 2,868 | | 822 | | 3,690 |
| Total assets | $ | 19,604 | | $ | 4,579 | | $ | 24,183 |
| 2021 | | | | | |
| Equipment rentals | $ | 6,074 | | $ | 2,133 | | $ | 8,207 |
| Sales of rental equipment | 862 | | 106 | | 968 |
| Sales of new equipment | 142 | | 61 | | 203 |
| Contractor supplies sales | 71 | | 38 | | 109 |
| Service and other revenues | 202 | | 27 | | 229 |
| Total revenue | 7,351 | | | 2,365 | | | 9,716 | |
| Depreciation and amortization expense | 1,611 | | 372 | | 1,983 |
| Equipment rentals gross profit | 2,269 | | 998 | | 3,267 |
| Capital expenditures | 2,719 | | 479 | | 3,198 |
| Total assets | $ | 16,087 | | $ | 4,205 | | $ | 20,292 |
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:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Total equipment rentals gross profit | $ | 4,814 | | | $ | 4,245 | | | $ | 3,267 | |
Gross profit from other lines of business | 999 | | | 751 | | | 586 | |
Selling, general and administrative expenses | (1,527) | | | (1,400) | | | (1,199) | |
| Merger related costs (1) | — | | | — | | | (3) | |
| Restructuring charge (2) | (28) | | | — | | | (2) | |
Non-rental depreciation and amortization | (431) | | | (364) | | | (372) | |
Interest expense, net | (635) | | | (445) | | | (424) | |
| | | | | |
| Other income (expense), net | 19 | | | 15 | | | (7) | |
| Income before provision for income taxes | $ | 3,211 | | | $ | 2,802 | | | $ | 1,846 | |
___________________
(1)Reflects transaction costs associated with the General Finance acquisition that was completed in May 2021. Merger related costs only include costs associated with major acquisitions that significantly impact our operations.
(2)Primarily relates to branch closure charges and severance costs associated with our restructuring programs. As of December 31, 2023, there were no open restructuring programs.
We primarily operate in the United States and Canada, and have a limited presence in Europe, Australia and New Zealand. The foreign information in the table below primarily reflects Canada. The following table presents geographic area information for the years ended December 31, 2023, 2022 and 2021, except for balance sheet information, which is presented as of December 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | |
| Domestic | | Foreign | | Total |
| 2023 | | | | | |
| Equipment rentals | $ | 11,045 | | | $ | 1,019 | | | $ | 12,064 | |
| Sales of rental equipment | 1,427 | | 147 | | 1,574 |
| Sales of new equipment | 168 | | 50 | | 218 |
| Contractor supplies sales | 130 | | 16 | | 146 |
| Service and other revenues | 293 | | 37 | | 330 |
| Total revenue | 13,063 | | 1,269 | | 14,332 |
| Rental equipment, net | 12,679 | | 1,322 | | 14,001 |
| Property and equipment, net | 842 | | 61 | | 903 |
| Goodwill and other intangible assets, net | $ | 6,031 | | $ | 579 | | $ | 6,610 |
| 2022 | | | | | |
| Equipment rentals | $ | 9,139 | | | $ | 977 | | | $ | 10,116 | |
| Sales of rental equipment | 870 | | 95 | | 965 |
| Sales of new equipment | 122 | | 32 | | 154 |
| Contractor supplies sales | 109 | | 17 | | 126 |
| Service and other revenues | 248 | | 33 | | 281 |
| Total revenue | 10,488 | | 1,154 | | 11,642 |
| Rental equipment, net | 12,047 | | 1,230 | | 13,277 |
| Property and equipment, net | 789 | | 50 | | 839 |
| Goodwill and other intangible assets, net | $ | 6,024 | | $ | 454 | | $ | 6,478 |
| 2021 | | | | | |
| Equipment rentals | $ | 7,430 | | | $ | 777 | | | $ | 8,207 | |
| Sales of rental equipment | 873 | | 95 | | 968 |
| Sales of new equipment | 162 | | 41 | | 203 |
| Contractor supplies sales | 95 | | 14 | | 109 |
| Service and other revenues | 201 | | 28 | | 229 |
| Total revenue | $ | 8,761 | | | $ | 955 | | | $ | 9,716 | |
6. Prepaid Expenses and Other Assets
Prepaid expenses and other assets consist of the following:
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| Equipment (1) | $ | 17 | | | $ | 17 | |
| Insurance | 29 | | 31 |
| Advertising reimbursements (2) | 22 | | 25 |
| Income taxes (3) | 5 | | 235 |
| Other (4) | 62 | | 73 |
| | | |
| | | |
| | | |
| | | |
| Prepaid expenses and other assets | $ | 135 | | | $ | 381 | |
_________________
(1) Reflects refundable deposits on expected purchases, primarily of rental equipment, pursuant to advance purchase agreements. Such deposits are presented as a component of cash flows from operations when paid.
(2) Reflects reimbursements due for advertising that promotes a vendor’s products or services. See note 2 ("Advertising Expense") for further detail.
(3) Primarily relates to tax depreciation benefits associated with the Ahern Rentals acquisition discussed in note 4 to the consolidated financial statements. The tax depreciation deductions generated by the Ahern Rentals acquisition resulted in an income tax receivable associated with U.S. federal and state tax payments made prior to the acquisition. The decrease reflected above from December 31, 2022 to December 31, 2023 reflects the use of a portion of the receivable to reduce cash paid for income taxes.
(4) Includes multiple items, none of which are individually significant.
7. Rental Equipment
Rental equipment consists of the following:
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
Rental equipment | $ | 21,689 | | | $ | 20,074 | |
Less accumulated depreciation | (7,688) | | | (6,797) | |
| Rental equipment, net | $ | 14,001 | | | $ | 13,277 | |
8. Property and Equipment
Property and equipment consist of the following:
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
Land | $ | 157 | | | $ | 131 | |
Buildings | 296 | | | 230 | |
Non-rental vehicles | 268 | | | 317 | |
Machinery and equipment | 265 | | | 223 | |
Furniture and fixtures | 435 | | | 402 | |
Leasehold improvements | 567 | | | 516 | |
| 1,988 | | | 1,819 | |
Less accumulated depreciation and amortization | (1,085) | | | (980) | |
Property and equipment, net | $ | 903 | | | $ | 839 | |
9. Goodwill and Other Intangible Assets
The following table presents the changes in the carrying amount of goodwill for each of the three years in the period ended December 31, 2023:
| | | | | | | | | | | | | | | | | |
| General rentals | | Specialty | | Total |
| Balance at January 1, 2021 (1) | $ | 4,368 | | | $ | 800 | | | $ | 5,168 | |
| Goodwill related to acquisitions (2) | 76 | | | 295 | | | 371 | |
| Foreign currency translation and other adjustments | 1 | | | (12) | | | (11) | |
| Balance at December 31, 2021 (1) | 4,445 | | | 1,083 | | | 5,528 | |
| Goodwill related to acquisitions (2) (3) | 549 | | | (20) | | | 529 | |
| Foreign currency translation and other adjustments | (14) | | | (17) | | | (31) | |
| Balance at December 31, 2022 (1) | 4,980 | | | 1,046 | | | 6,026 | |
| Goodwill related to acquisitions (2) (3) | (209) | | | 111 | | | (98) | |
| Foreign currency translation and other adjustments | 4 | | | 8 | | | 12 | |
| Balance at December 31, 2023 (1) | $ | 4,775 | | $ | 1,165 | | $ | 5,940 |
_________________
(1) The total carrying amount of goodwill for all periods in the table above is reflected net of $1.557 billion 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. Decreases in goodwill related to acquisitions above primarily reflect such measurement period adjustments.
(3) For additional detail on the December 2022 acquisition of Ahern Rentals, which was assigned to our general rentals segment and accounted for most of the goodwill related to acquisitions in 2022, see note 4 to our consolidated financial statements. The decrease in goodwill related to acquisitions for the general rentals segment in 2023 primarily reflects measurement period adjustments associated with the Ahern Rentals acquisition, partially offset by other acquisition activity.
Other intangible assets were comprised of the following at December 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Weighted-Average Remaining
Amortization Period | | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Amount |
| Non-compete agreements | 4 years | | $ | 176 | | | $ | 58 | | | $ | 118 | |
| Customer relationships | 6 years | | $ | 2,468 | | | $ | 1,919 | | | $ | 549 | |
| Trade names and associated trademarks | 2 years | | $ | 9 | | | $ | 6 | | | $ | 3 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Weighted-Average Remaining
Amortization Period | | Gross
Carrying
Amount | | Accumulated
Amortization | | Net
Amount |
| Non-compete agreements | 3 years | | $ | 69 | | | $ | 22 | | | $ | 47 | |
| Customer relationships | 5 years | | $ | 2,349 | | | $ | 1,949 | | | $ | 400 | |
| Trade names and associated trademarks | 3 years | | $ | 14 | | | $ | 9 | | | $ | 5 | |
Our other intangibles assets, net at December 31, 2023 include the assets set forth in the table below associated with the acquisition of Ahern Rentals that is discussed in note 4 to our consolidated financial statements. No residual value has been assigned to these 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, and we believe that such methods best reflect the estimated pattern in which the economic benefits will be consumed.
| | | | | | | | | | | | | | |
| | | | |
| December 31, 2023 |
| Weighted-Average Remaining
Amortization Period | | | Net Carrying
Amount |
| | | | |
| Non-compete agreements | 4 years | | | 77 | |
| Customer relationships | 8 years | | | 259 | |
| | | | |
| | | | |
| | | | |
Amortization expense for other intangible assets was $271, $219 and $233 for the years ended December 31, 2023, 2022 and 2021, respectively.
As of December 31, 2023, estimated amortization expense for other intangible assets for each of the next five years and thereafter was as follows:
| | | | | |
| 2024 | $ | 208 | |
| 2025 | 167 | |
| 2026 | 124 | |
| 2027 | 81 | |
| 2028 | 39 | |
Thereafter | 51 | |
Total | $ | 670 | |
10. Accrued Expenses and Other Liabilities and Other Long-Term Liabilities
Accrued expenses and other liabilities consist of the following:
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
Self-insurance accruals | $ | 78 | | $ | 68 |
| Accrued compensation and benefit costs | 149 | | 207 |
Property and income taxes payable | 139 | | 113 |
| Restructuring reserves (1) | 21 | | 6 |
Interest payable | 152 | | 152 |
| Deferred revenue (2) | 138 | | 131 |
National accounts accrual | 173 | | 120 |
| Operating lease liability | 249 | | 211 |
| Other (3) | 168 | | 137 |
Accrued expenses and other liabilities | $ | 1,267 | | | $ | 1,145 | |
_________________
(1) Primarily relates to branch closure charges and severance costs associated with our closed restructuring programs. As of December 31, 2023, there were no open restructuring programs.
(2) Reflects amounts billed to customers in excess of recognizable revenue. See note 3 for additional detail.
(3) Other includes multiple items, none of which are individually significant.
Other long-term liabilities consist of the following:
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
Self-insurance accruals | $ | 121 | | | $ | 109 | |
Income taxes payable | 11 | | 11 |
Accrued compensation and benefit costs | 41 | | 34 |
Other long-term liabilities | $ | 173 | | | $ | 154 | |
11. Fair Value Measurements
As of December 31, 2023 and 2022, the amounts of our assets and liabilities that were accounted for at fair value were immaterial.
Fair value measurements are categorized 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 or liabilities.
Level 2—Observable inputs other than quoted prices in active markets for identical assets or liabilities include:
a) quoted prices for similar assets or liabilities in active markets;
b) quoted prices for identical or similar assets or liabilities in inactive markets;
c) inputs other than quoted prices that are observable for the asset or liability;
d) inputs that are derived principally from or corroborated by observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
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.
Fair Value of Financial Instruments
The carrying amounts reported in our 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 variable rate debt facilities and finance leases approximated their book values as of December 31, 2023
and 2022. The estimated fair values of our other financial instruments, all of which are categorized in Level 1 of the fair value hierarchy, as of December 31, 2023 and 2022 have been calculated based upon available market information, and were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| Carrying
Amount | | Fair
Value | | Carrying
Amount | | Fair
Value |
| | | | | | | |
| | | | | | | |
| Senior notes | $ | 7,720 | | | $ | 7,442 | | | $ | 7,712 | | | $ | 7,143 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
12. Debt
Debt, net of unamortized original issue premiums and unamortized debt issuance costs, consists of the following:
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
| | | |
| Repurchase facility expiring 2024 (1) | $ | 100 | | | $ | 100 | |
| Accounts receivable securitization facility expiring 2024 (1) | 1,300 | | 959 |
| Term loan facility expiring 2025 (1) | 945 | | 953 |
$4.25 billion ABL facility expiring 2027 (1) | 1,261 | | 1,523 |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
5 1/2 percent Senior Notes due 2027 | 498 | | 498 |
3 7/8 percent Senior Secured Notes due 2027 | 745 | | 744 |
4 7/8 percent Senior Notes due 2028 (2) | 1,665 | | 1,663 |
| | | |
6 percent Senior Secured Notes due 2029 | 1,488 | | 1,486 |
5 1/4 percent Senior Notes due 2030 | 745 | | 744 |
4 percent Senior Notes due 2030 | 744 | | 743 |
3 7/8 percent Senior Notes due 2031 | 1,091 | | 1,090 |
3 3/4 percent Senior Notes due 2032 | 744 | | 744 |
| Finance leases | 192 | | 123 |
| | | |
| | | |
| | | |
| | | |
| Total debt | 11,518 | | 11,370 |
| Less short-term portion (3) | (1,465) | | | (161) | |
| Total long-term debt | $ | 10,053 | | | $ | 11,209 | |
(1) The table below presents financial information associated with our variable rate indebtedness as of and for the year ended December 31, 2023. There is no borrowing capacity under the repurchase facility because it is an uncommitted facility. We have borrowed the full available amount under the term loan facility. The principal obligation under the term loan facility is required to be repaid in quarterly installments in an aggregate amount equal to 1.0 percent per annum, with the balance due at the maturity of the facility. The average amount of debt outstanding under the term loan facility decreases slightly each quarter due to the requirement to repay a portion of the principal obligation.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| ABL facility | | Accounts receivable securitization facility | | Term loan facility | | Repurchase facility |
Borrowing capacity, net of letters of credit | $ | 2,967 | | | $ | — | | | $ | — | | | |
Letters of credit | 14 | | | | | | | |
| Interest rate at December 31, 2023 | 6.5 | % | | 6.4 | % | | 7.1 | % | | 6.5 | % |
Average month-end debt outstanding | 1,694 | | | 1,171 | | | 953 | | | 50 | |
| Weighted-average interest rate on average debt outstanding | 6.2 | % | | 6.1 | % | | 6.9 | % | | 6.0 | % |
Maximum month-end debt outstanding | 1,848 | | | 1,300 | | | 958 | | | 100 | |
(2) URNA separately issued 4 7/8 percent Senior Notes in August 2017 and in September 2017. Following the issuances, URNA consummated an exchange offer pursuant to which most of the 4 7/8 percent Senior Notes issued in September
2017 were exchanged for additional notes fungible with the 4 7/8 percent Senior Notes issued in August 2017. As of December 31, 2023, the total above is comprised of two separate 4 7/8 percent Senior Notes, one with a book value of $1.661 billion and one with a book value of $4.
(3) As of December 31, 2023, short-term debt primarily reflected borrowings under the accounts receivable securitization and repurchase facilities and the short-term portion of our finance leases. As of December 31, 2022, short-term debt primarily reflected borrowings under the repurchase facility and the short-term portion of our finance leases. The accounts receivable securitization facility, which expires on June 24, 2024 and may be extended on a 364-day basis by mutual agreement with the purchasers under the facility, was not a short-term debt instrument as of December 31, 2022. The weighted average interest rates on our short-term debt, excluding finance leases, were 6.4 percent and 5.4 percent as of December 31, 2023 and 2022, respectively. See note 13 to the consolidated financial statements for further discussion on our finance leases.
Short-term debt
As of December 31, 2023, our short-term debt primarily reflects borrowings under the repurchase and accounts receivable securitization facilities and the short-term portion of our finance leases.
Repurchase facility. In June 2022, URNA entered into an uncommitted repurchase facility pursuant to which it may obtain short-term financing in an amount up to $100, secured by a subordinated note issued to URNA by our U.S. special purpose vehicle which holds receivable assets relating to our accounts receivable securitization facility. In 2023, the repurchase facility was amended, primarily to extend the maturity date to June 14, 2024, which may be further extended by the mutual consent of the parties to the repurchase facility agreement. Additionally, the repurchase facility was amended to replace an interest rate based on SOFR with an interest rate based on the Bloomberg Short Term Bank Yield Index ("BSBY"). Any repurchase transaction will have a one-month maturity unless terminated earlier as a result of a termination event under the accounts receivable securitization facility or the occurrence of any other event of default under the repurchase facility. The Company will guarantee the obligations of URNA under the repurchase facility. See the table above for financial information associated with the repurchase facility.
Accounts receivable securitization facility. The accounts receivable securitization facility expires on June 24, 2024 and may be extended on a 364-day basis by mutual agreement with the purchasers under the facility. Borrowings under the accounts receivable securitization facility bear interest based on SOFR. In 2023, the accounts receivable securitization facility was amended, primarily to increase the facility size to $1.3 billion. Key provisions of the facility include the following:
•borrowings 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 by a specified amount. As of December 31, 2023, there were $1.545 billion of receivables, net of applicable reserves, in the collateral pool;
•the receivables in the collateral pool are the lenders’ only source of repayment;
•upon early termination of the facility, no new amounts will be advanced under the facility and collections on the receivables securing the facility will be used to repay the outstanding borrowings; and
•standard termination events including, without limitation, a change of control of Holdings, URNA or certain of its subsidiaries, a failure to make payments, a failure to comply with standard default, delinquency, dilution and days sales outstanding covenants, or breach of the fixed charge coverage ratio covenant under the ABL facility (if applicable).
See the table above for financial information associated with the accounts receivable securitization facility.
Long-term debt
ABL facility. In June 2008, Holdings, URNA, and certain of our subsidiaries entered into a credit agreement providing for a five-year $1.25 billion ABL facility, a portion of which is available for borrowing in Canadian dollars. The ABL facility was subsequently upsized and extended, and a portion of the facility is also now available for borrowing in British pounds, Euros, Australian dollars and New Zealand dollars by certain subsidiaries of URNA in Europe, Australia and New Zealand. The size of the ABL facility was $4.25 billion as of December 31, 2023. See the table above for financial information associated with the ABL facility.
The ABL facility is subject to, among other things, the terms of a borrowing base derived from the value of eligible rental equipment and eligible inventory. The borrowing base is subject to certain reserves and caps customary for financings of this type. All amounts borrowed under the credit agreement must be repaid on or before June 2027. Loans under the credit agreement bear interest, at URNA’s option: (i) in the case of loans in U.S. dollars, at a rate equal to the term SOFR or daily SOFR (in each case plus a 0.10 percent credit margin adjustment) or an alternate base rate, in each case plus a spread, (ii) in the case of loans in Canadian dollars, at a rate equal to the Canadian prime rate or an alternate rate (Bankers' Acceptance Rate), in each case plus a spread, (iii) in the case of loans in Euros, at a rate equal to the Euro interbank offered rate or an alternate base
rate, in each case plus a spread, (iv) in the case of loans in British pounds, at a rate equal to the daily simple Sterling Overnight Interbank Average or an alternate base rate, in each case plus a spread or (v) in the case of loans in Australian Dollars or New Zealand Dollars, at a rate equal to the applicable bank bill rate or an alternate base rate, in each case plus a spread. The interest rates under the credit agreement are subject to change based on the availability in the facility. A commitment fee accrues on any unused portion of the commitments under the credit agreement at a fixed rate per annum. Ongoing extensions of credit under the credit agreement are subject to customary conditions, including sufficient availability under the borrowing base. As discussed below (see “Loan Covenants and Compliance”), the only financial covenant that currently exists in the ABL facility is the fixed charge coverage ratio. As of December 31, 2023, availability under the ABL facility has exceeded the required threshold and, as a result, this financial covenant was inapplicable. In addition, the credit agreement contains customary negative covenants applicable to Holdings, URNA and our subsidiaries, including negative covenants that restrict the ability of such entities to, among other things, (i) incur additional indebtedness or engage in certain other types of financing transactions, (ii) allow certain liens to attach to assets, (iii) repurchase, or pay dividends or make certain other restricted payments on, capital stock and certain other securities, (iv) prepay certain indebtedness and (v) make acquisitions and investments. The borrowings under the credit agreement by URNA are secured by substantially all of our assets and substantially all of the assets of certain of our U.S. subsidiaries (other than real property and certain accounts receivable). The borrowings under the credit agreement by URNA are guaranteed by Holdings and, subject to certain exceptions, our domestic subsidiaries. Borrowings under the credit agreement by URNA’s Canadian subsidiaries are also secured by substantially all the assets of URNA’s Canadian subsidiaries and supported by guarantees from the Canadian subsidiaries and from Holdings and URNA, and, subject to certain exceptions, our domestic subsidiaries. Borrowings under the credit agreement by URNA’s subsidiaries in Europe, Puerto Rico, Australia and New Zealand are guaranteed by Holdings, URNA, URNA’s Canadian subsidiaries and, subject to certain exceptions, our domestic subsidiaries and secured by substantially all the assets of our U.S. subsidiaries (other than real property and certain accounts receivable) and substantially all the assets of URNA’s Canadian subsidiaries. Under the ABL facility, a change of control (as defined in the credit agreement) constitutes an event of default, entitling our lenders, among other things, to terminate our ABL facility and to require us to repay outstanding borrowings.
Term loan facility. In October 2018, Holdings, URNA, and certain of our subsidiaries entered into a $1 billion senior secured term loan facility. See the table above for financial information associated with the term loan facility. The term loan facility is guaranteed by Holdings and the same domestic subsidiaries that guarantee the borrowings of URNA under the ABL facility. In addition, the obligations under the term loan facility are secured by first priority security interests in the same collateral that secures the borrowings of URNA under the ABL facility, on a pari passu basis with the ABL facility.
The principal obligations under the term loan facility are to be repaid in quarterly installments in an aggregate amount equal to 1.0 percent per annum, with the balance due at the maturity of the term loan facility. The term loan facility matures on October 31, 2025. In 2023, the term loan facility was amended to transition to an interest rate based on SOFR. Prior to the amendment, interest on the term loan facility reflected LIBOR plus a margin (or an alternative base rate plus a margin). LIBOR has been discontinued as a reference rate as a result of reference rate reform, and the amendment of the term loan facility did not have a material impact on our financial statements.
The term loan facility contains customary negative covenants applicable to URNA and its subsidiaries, including negative covenants that restrict the ability of such entities to, among other things, (i) incur additional indebtedness; (ii) incur additional liens; (iii) make dividends and other restricted payments; and (iv) engage in mergers, acquisitions and dispositions. The term loan facility does not include any financial covenants. Under the term loan facility, a change of control (as defined in the credit agreement) constitutes an event of default, entitling our lenders to, among other things, terminate the term loan facility and require us to repay outstanding loans.
5 1/2 percent Senior Notes due 2027. In November 2016, URNA issued $750 aggregate principal amount of 5 1/2 percent Senior Notes which are due May 15, 2027 (the “5 1/2 percent Notes”). In February 2017, URNA issued $250 aggregate principal amount of 5 1/2 percent Notes as an add-on to the existing 5 1/2 percent Notes. In May 2022, URNA redeemed $500 principal amount of the 5 1/2 percent Notes, and the aggregate principal amount of outstanding 5 1/2 percent Notes was $500 as of December 31, 2023. The notes issued in February 2017 have identical terms, and are fungible, with the existing 5 1/2 percent Notes. The 5 1/2 percent Notes are unsecured and are guaranteed by Holdings and certain domestic subsidiaries of URNA. The 5 1/2 percent Notes may be redeemed on or after May 15, 2022, at specified redemption prices that range from 102.75 percent in 2022, to 100 percent in 2025 and thereafter, plus accrued and unpaid interest, if any. The indenture governing the 5 1/2 percent Notes contains certain restrictive covenants, including, among others, limitations on (i) liens; (ii) additional indebtedness; (iii) mergers, consolidations and acquisitions; (iv) sales, transfers and other dispositions of assets; (v) loans and other investments; (vi) dividends and other distributions, stock repurchases and redemptions and other restricted payments; (vii) restrictions affecting subsidiaries; (viii) transactions with affiliates; and (ix) designations of unrestricted subsidiaries, as well as a requirement to timely file periodic reports with the SEC. Each of the restrictive covenants is subject to important exceptions and qualifications that would allow URNA and its subsidiaries 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), URNA must make an offer to purchase all of
the then-outstanding 5 1/2 percent 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. The carrying value of the 5 1/2 percent Notes includes the $1 unamortized portion of the original issue premium recognized in conjunction with the February 2017 issuance, which is being amortized through the maturity date in 2027. The effective interest rate on the 5 1/2 percent Notes, which includes the impact of the original issue premium, is 5.5 percent.
3 7/8 percent Senior Secured Notes due 2027. In November 2019, URNA issued $750 aggregate principal amount of 3 7/8 percent Senior Secured Notes (the “3 7/8 percent Notes”) which are due November 15, 2027. The 3 7/8 percent Notes are guaranteed by Holdings and certain domestic subsidiaries of URNA and are secured on a second-priority basis by liens on substantially all of URNA’s and the guarantors’ assets that secure the ABL facility and the term loan facility, subject to certain exceptions. The 3 7/8 percent Notes may be redeemed on or after November 15, 2022, at specified redemption prices that range from 101.938 percent in 2022, to 100 percent in 2025 and thereafter, in each case, plus accrued and unpaid interest, if any. In addition, at any time on or prior to November 15, 2022, up to 40 percent of the aggregate principal amount of the 3 7/8 percent Notes may be redeemed with the net cash proceeds of certain equity offerings at a redemption price equal to 103.875 percent of the aggregate principal amount of the notes plus accrued and unpaid interest, if any. The indenture governing the 3 7/8 percent Notes contains certain restrictive covenants, including, among others, limitations on (i) liens and (ii) mergers and consolidations, as well as a requirement to timely file periodic reports with the SEC. Each of the restrictive covenants is subject to important exceptions and qualifications that would allow URNA and its subsidiaries to engage in these activities under certain conditions. In addition, the requirements to provide subsidiary guarantees, to give further assurances and to make an offer to repurchase the notes upon the occurrence of a change of control will not apply to URNA and its restricted subsidiaries during any period when the 3 7/8 percent Notes are rated investment grade by both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc., or, in certain circumstances, another rating agency selected by URNA, provided at such time no default under the indenture has occurred and is continuing. The indenture also requires that, in the event of a change of control (as defined in the indenture), URNA must make an offer to purchase all of the then-outstanding 3 7/8 percent 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.
4 7/8 percent Senior Notes due 2028. In August 2017, URNA issued $925 principal amount of 4 7/8 percent Senior Notes (the “Initial 4 7/8 percent Notes”) which are due January 15, 2028. The Initial 4 7/8 percent Notes are unsecured and are guaranteed by Holdings and certain domestic subsidiaries of URNA. The Initial 4 7/8 percent Notes may be redeemed on or after January 15, 2023, at specified redemption prices that range from 102.438 percent in 2023, to 100 percent in 2026 and thereafter, in each case, plus accrued and unpaid interest, if any. The indenture governing the Initial 4 7/8 percent Notes contains certain restrictive covenants, including, among others, limitations on (i) liens; (ii) mergers and consolidations; (iii) sales, transfers and other dispositions of assets; (iv) dividends and other distributions, stock repurchases and redemptions and other restricted payments; and (v) designations of unrestricted subsidiaries, as well as a requirement to timely file periodic reports with the SEC. Each of the restrictive covenants is subject to important exceptions and qualifications that would allow URNA and its subsidiaries to engage in these activities under certain conditions. In addition, the covenant relating to dividends and other distributions, stock repurchases and redemptions and other restricted payments and the requirements relating to additional subsidiary guarantors will not apply to URNA and its restricted subsidiaries during any period when the Initial 4 7/8 percent Notes are rated investment grade by both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc., or, in certain circumstances, another rating agency selected by URNA, provided at such time no default under the indenture has occurred and is continuing. The indenture also requires that, in the event of a change of control (as defined in the indenture), URNA must make an offer to purchase all of the then-outstanding Initial 4 7/8 percent 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.
In September 2017, URNA issued $750 principal amount of 4 7/8 percent Senior Notes (the “Subsequent 4 7/8 percent Notes”) which are due January 15, 2028. The Subsequent 4 7/8 percent Notes represent a separate a distinct series of notes from the Initial 4 7/8 percent Notes. The Subsequent 4 7/8 percent Notes are unsecured and are guaranteed by Holdings and certain domestic subsidiaries of URNA. The Subsequent 4 7/8 percent Notes may be redeemed on or after January 15, 2023, at specified redemption prices that range from 102.438 percent in 2023, to 100 percent in 2026 and thereafter, in each case, plus accrued and unpaid interest, if any. The indenture governing the Subsequent 4 7/8 percent Notes contains certain restrictive covenants, including, among others, limitations on (i) liens; (ii) mergers and consolidations; (iii) sales, transfers and other dispositions of assets; (iv) dividends and other distributions, stock repurchases and redemptions and other restricted payments; and (v) designations of unrestricted subsidiaries, as well as a requirement to timely file periodic reports with the SEC. Each of the restrictive covenants is subject to important exceptions and qualifications that would allow URNA and its subsidiaries to engage in these activities under certain conditions. In addition, the covenant relating to dividends and other distributions, stock repurchases and redemptions and other restricted payments and the requirements relating to additional subsidiary guarantors will not apply to URNA and its restricted subsidiaries during any period when the Subsequent 4 7/8 percent Notes are rated investment grade by both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc., or, in certain circumstances,
another rating agency selected by URNA, provided at such time no default under the indenture has occurred and is continuing. The indenture also requires that, in the event of a change of control (as defined in the indenture), URNA must make an offer to purchase all of the then-outstanding Subsequent 4 7/8 percent 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. The effective interest rate on the Subsequent 4 7/8 percent Notes, which includes the impact of the original issue premium, is 4.84 percent.
In December 2017, we consummated an exchange offer pursuant to which approximately $744 principal amount of Subsequent 4 7/8 percent Notes were exchanged for additional Initial 4 7/8 percent Notes issued under the indenture governing the Initial 4 7/8 percent Notes and fungible with the Initial 4 7/8 percent Notes. As of December 31, 2023, the principal amounts outstanding were $1.669 billion for the Initial 4 7/8 percent Notes and $4 for the Subsequent 4 7/8 percent Notes. The carrying value of the Initial 4 7/8 percent Notes includes $1 of the unamortized original issue premium, which is being amortized through the maturity date in 2028. The effective interest rate on the Initial 4 7/8 percent Notes, which includes the impact of the original issue premium, is 4.86 percent.
6 percent Senior Secured Notes due 2029. In November 2022, URNA issued $1.500 billion aggregate principal amount of 6 percent Senior Secured Notes (the “6 percent Notes”) which are due December 15, 2029. The 6 percent Notes are guaranteed by Holdings and certain domestic subsidiaries of URNA and are secured on a first-priority basis by liens on substantially all of URNA’s and the guarantors’ assets that secure the ABL facility and the term loan facility, subject to certain exceptions. The 6 percent Notes may be redeemed on or after December 15, 2025, at specified redemption prices that range from 103.000 percent in 2025, to 100 percent in 2027 and thereafter, in each case, plus accrued and unpaid interest, if any. Up to 10 percent of the aggregate principal amount of the 6 percent Notes may also be redeemed during each period from (i) the issue date to, but excluding, December 15, 2023, (ii) December 15, 2023 to, but excluding, December 15, 2024 and (iii) December 15, 2024 to, but excluding, December 15, 2025, at a redemption price equal to 103.000 percent plus accrued and unpaid interest, if any. In addition, at any time on or prior to December 15, 2025, up to 40 percent of the aggregate principal amount of the 6 percent Notes may be redeemed with the net cash proceeds of certain equity offerings at a redemption price equal to 106.000 percent of the aggregate principal amount of the notes plus accrued and unpaid interest, if any. The indenture governing the 6 percent Notes contains certain restrictive covenants, including, among others, limitations on (i) liens and (ii) mergers and consolidations, as well as a requirement to timely file periodic reports with the SEC. Each of the restrictive covenants is subject to important exceptions and qualifications that would allow URNA and its subsidiaries to engage in these activities under certain conditions. In addition, the requirements to provide subsidiary guarantees, to give further assurances and to make an offer to repurchase the notes upon the occurrence of a change of control will not apply to URNA and its restricted subsidiaries during any period when the 6 percent Notes are rated investment grade by both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc., or, in certain circumstances, another rating agency selected by URNA, provided at such time no default under the indenture has occurred and is continuing. The indenture also requires that, in the event of a change of control (as defined in the indenture), URNA must make an offer to purchase all of the then-outstanding 6 percent 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.
5 1/4 percent Senior Notes due 2030. In May 2019, URNA issued $750 aggregate principal amount of 5 1/4 percent Senior Notes (the “5 1/4 percent Notes”) which are due January 15, 2030. The 5 1/4 percent Notes are unsecured and are guaranteed by Holdings and certain domestic subsidiaries of URNA. The 5 1/4 percent Notes may be redeemed on or after January 15, 2025, at specified redemption prices that range from 102.625 percent in 2025, to 100 percent in 2028 and thereafter, in each case, plus accrued and unpaid interest, if any. In addition, at any time on or prior to January 15, 2023, up to 40 percent of the aggregate principal amount of the 5 1/4 percent Notes may be redeemed with the net cash proceeds of certain equity offerings at a redemption price equal to 105.250 percent of the aggregate principal amount of the notes plus accrued and unpaid interest, if any. The indenture governing the 5 1/4 percent Notes contains certain restrictive covenants, including, among others, limitations on (i) liens; (ii) mergers and consolidations; and (iii) dividends and other distributions, stock repurchases and redemptions and other restricted payments, as well as a requirement to timely file periodic reports with the SEC. Each of the restrictive covenants is subject to important exceptions and qualifications that would allow URNA and its subsidiaries to engage in these activities under certain conditions. In addition, the covenant relating to dividends and other distributions, stock repurchases and redemptions and other restricted payments and the requirements relating to additional subsidiary guarantors will not apply to URNA and its restricted subsidiaries during any period when the 5 1/4 percent Notes are rated investment grade by both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc., or, in certain circumstances, another rating agency selected by URNA, provided at such time no default under the indenture has occurred and is continuing. The indenture also requires that, in the event of a change of control (as defined in the indenture), URNA must make an offer to purchase all of the then-outstanding 5 1/4 percent 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.
4 percent Senior Notes due 2030. In February 2020, URNA issued $750 aggregate principal amount of 4 percent Notes which are due July 15, 2030. The 4 percent Notes are unsecured and are guaranteed by Holdings and certain domestic
subsidiaries of URNA. The 4 percent Notes may be redeemed on or after July 15, 2025, at specified redemption prices that range from 102.000 percent in 2025, to 100 percent in 2028 and thereafter, in each case, plus accrued and unpaid interest, if any. In addition, at any time on or prior to July 15, 2023, up to 40 percent of the aggregate principal amount of the 4 percent Notes may be redeemed with the net cash proceeds of certain equity offerings at a redemption price equal to 104.000 percent of the aggregate principal amount of the notes plus accrued and unpaid interest, if any. The indenture governing the 4 percent Notes contains certain restrictive covenants, including, among others, limitations on (i) liens and (ii) mergers and consolidations, as well as a requirement to timely file periodic reports with the SEC. Each of the restrictive covenants is subject to important exceptions and qualifications that would allow URNA and its subsidiaries to engage in these activities under certain conditions. In addition, the requirements to provide subsidiary guarantees and to make an offer to repurchase the notes upon the occurrence of a change of control will not apply to URNA and its restricted subsidiaries during any period when the 4 percent Notes are rated investment grade by both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc., or, in certain circumstances, another rating agency selected by URNA, provided at such time no default under the indenture has occurred and is continuing. The indenture also requires that, in the event of a change of control (as defined in the indenture), URNA must make an offer to purchase all of the then-outstanding 4 percent 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.
3 7/8 percent Senior Notes due 2031. In August 2020, URNA issued $1.100 billion aggregate principal amount of 3 7/8 percent Senior Notes (the “3 7/8 percent Notes”) which are due February 15, 2031. The 3 7/8 percent Notes are unsecured and are guaranteed by Holdings and certain domestic subsidiaries of URNA. The 3 7/8 percent Notes may be redeemed on or after August 15, 2025, at specified redemption prices that range from 101.938 percent in 2025, to 100 percent in 2028 and thereafter, in each case, plus accrued and unpaid interest, if any. In addition, at any time on or prior to August 15, 2023, up to 40 percent of the aggregate principal amount of the 3 7/8 percent Notes may be redeemed with the net cash proceeds of certain equity offerings at a redemption price equal to 103.875 percent of the aggregate principal amount of the notes plus accrued and unpaid interest, if any. The indenture governing the 3 7/8 percent Notes contains certain restrictive covenants, including, among others, limitations on (i) liens and (ii) mergers and consolidations, as well as a requirement to timely file periodic reports with the SEC. Each of the restrictive covenants is subject to important exceptions and qualifications that would allow URNA and its subsidiaries to engage in these activities under certain conditions. In addition, the requirements to provide subsidiary guarantees and to make an offer to repurchase the notes upon the occurrence of a change of control will not apply to URNA and its restricted subsidiaries during any period when the 3 7/8 percent Notes are rated investment grade by both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc., or, in certain circumstances, another rating agency selected by URNA, provided at such time no default under the indenture has occurred and is continuing. The indenture also requires that, in the event of a change of control (as defined in the indenture), URNA must make an offer to purchase all of the then-outstanding 3 7/8 percent 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.
3 3/4 percent Senior Notes due 2032. In August 2021, URNA issued $750 aggregate principal amount of 3 3/4 percent Senior Notes (the “3 3/4 percent Notes”) which are due January 15, 2032. The 3 3/4 percent Notes are unsecured and are guaranteed by Holdings and certain domestic subsidiaries of URNA. The 3 3/4 percent Notes may be redeemed on or after July 15, 2026, at specified redemption prices that range from 101.875 percent in 2026, to 100 percent in 2029 and thereafter, in each case, plus accrued and unpaid interest, if any. In addition, at any time on or prior to July 30, 2024, up to 40 percent of the aggregate principal amount of the 3 3/4 percent Notes may be redeemed with the net cash proceeds of certain equity offerings at a redemption price equal to 103.750 percent of the aggregate principal amount of the notes plus accrued and unpaid interest, if any. The indenture governing the 3 3/4 percent Notes contains certain restrictive covenants, including, among others, limitations on (i) liens and (ii) mergers and consolidations, as well as a requirement to timely file periodic reports with the SEC. Each of the restrictive covenants is subject to important exceptions and qualifications that would allow URNA and its subsidiaries to engage in these activities under certain conditions. In addition, the requirements to provide subsidiary guarantees and to make an offer to repurchase the notes upon the occurrence of a change of control will not apply to URNA and its restricted subsidiaries during any period when the 3 3/4 percent Notes are rated investment grade by both Standard & Poor’s Ratings Services and Moody’s Investors Service, Inc., or, in certain circumstances, another rating agency selected by URNA, provided at such time no default under the indenture has occurred and is continuing. The indenture also requires that, in the event of a change of control (as defined in the indenture), URNA must make an offer to purchase all of the then-outstanding 3 3/4 percent 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.
Loan Covenants and Compliance
As of December 31, 2023, we were in compliance with the covenants and other provisions of the ABL, accounts receivable securitization, term loan and repurchase facilities and the senior notes. Any failure to be in compliance with any material provision or covenant of these agreements could have a material adverse effect on our liquidity and operations.
The only financial covenant that currently exists under the ABL facility is the fixed charge coverage ratio. Subject to certain limited exceptions specified in the ABL facility, the fixed charge coverage ratio covenant under the ABL facility will only apply in the future if specified availability under the ABL facility falls below 10 percent of the maximum revolver amount under the ABL facility. When certain conditions are met, cash and cash equivalents and borrowing base collateral in excess of the ABL facility size may be included when calculating specified availability under the ABL facility. As of December 31, 2023, specified availability under the ABL facility exceeded the required threshold and, as a result, this financial covenant was inapplicable. Under our accounts receivable securitization facility, we are required, among other things, to maintain certain financial tests relating to: (i) the default ratio, (ii) the delinquency ratio, (iii) the dilution ratio and (iv) days sales outstanding. The accounts receivable securitization facility also requires us to comply with the fixed charge coverage ratio under the ABL facility, to the extent the ratio is applicable under the ABL facility.
Covenants in the agreements governing our ABL facility, term loan facility and certain other debt instruments impose limitations on our ability to make share repurchases and dividend payments, subject to important exceptions that would allow us to make such repurchases or payments under certain conditions. Based on our current total indebtedness leverage ratio (as defined in the applicable debt agreements) and usage of the ABL facility as of December 31, 2023, we met the criteria under the applicable debt agreements for these exceptions, and as a result we were not restricted in our ability to make share repurchases and dividend payments.
Maturities
Debt maturities (exclusive of any unamortized original issue premiums and unamortized debt issuance costs) for each of the next five years and thereafter at December 31, 2023 are as follows:
| | | | | |
| 2024 | $ | 1,465 | |
| 2025 | 985 | |
| 2026 | 34 | |
| 2027 | 2,539 | |
| 2028 | 1,677 | |
| Thereafter | 4,882 | |
| Total | $ | 11,582 | |
13. Leases
As discussed in note 3 to the consolidated financial statements, most of our equipment rental revenue is accounted for as lease revenue under Topic 842 (such revenue represented 76 percent of our total revenues for the year ended December 31, 2023). See note 3 for a discussion of our revenue accounting (such discussion includes lessor disclosures required under Topic 842).
We determine if an arrangement is a lease at inception. Our material lease contracts are generally for real estate or vehicles, and the determination of whether such contracts contain leases generally does not require significant estimates or judgments. We lease real estate and equipment under operating leases. We lease a significant portion of our branch locations, and also lease other premises used for purposes such as district and regional offices and service centers. Our finance lease obligations consist primarily of rental equipment (primarily vehicles) and building leases.
Operating leases result in the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. ROU assets represent our right to use the leased asset for the lease term and lease liabilities represent our obligation to make lease payments. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate at the commencement date to determine the present value of lease payments. The operating lease ROU assets also include any lease payments made and exclude lease incentives. Our lease terms may include options, at our sole discretion, to extend or terminate the lease that we are reasonably certain to exercise. The amount of payments associated with such options reflected in the “Maturity of lease liabilities” table below is not material. Most real estate leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 5 years or more. Lease expense is recognized on a straight-line basis over the lease term.
Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense on such leases is recognized on a straight-line basis over the lease term. The primary leases we enter into with initial terms of 12 months or less are for equipment that we rent from vendors and then rent to our customers. We generate sublease revenue from such leases that we refer to as "re-rent revenue" as discussed in note 3 to the consolidated financial statements. Apart from the re-rent revenue discussed in note 3, we do not generate material sublease income.
We have lease agreements with lease and non-lease components, and, for our real estate operating leases, we account for the lease and non-lease components as a single lease component. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The tables below present financial information associated with our leases as of December 31, 2023 and 2022, and for the years ended December 31, 2023, 2022 and 2021.
| | | | | | | | | | | | | | |
| Classification | December 31, 2023 | | December 31, 2022 |
| Assets | | | | |
| Operating lease assets | Operating lease right-of-use assets (1) | $ | 1,099 | | | $ | 819 | |
| Finance lease assets | Rental equipment | 395 | | | 321 | |
| Less accumulated depreciation | (126) | | | (104) | |
| Rental equipment, net | 269 | | | 217 | |
| Property and equipment, net: | | | |
| Non-rental vehicles | 8 | | | 8 | |
| Buildings | 66 | | | 25 | |
| Less accumulated depreciation and amortization | (27) | | | (20) | |
| Property and equipment, net | 47 | | | 13 | |
| Total leased assets | | 1,415 | | | 1,049 | |
| Liabilities | | | | |
| Current | | | | |
| Operating | Accrued expenses and other liabilities | 249 | | | 211 | |
| Finance | Short-term debt and current maturities of long-term debt | 55 | | | 51 | |
| Long-term | | | | |
| Operating | Operating lease liabilities (1) | 895 | | | 642 | |
| Finance | Long-term debt | 137 | | | 72 | |
| Total lease liabilities | | $ | 1,336 | | | $ | 976 | |
_________________
(1) The increases in 2023 include the impact of the Ahern Rentals acquisition discussed in note 4 to the consolidated financial statements.
| | | | | | | | | | | | | | | | | | | | | | |
| Lease cost | Classification | | | Year Ended December 31, 2023 | | Year Ended December 31, 2022 | | Year Ended December 31, 2021 |
| Operating lease cost (1) | Cost of equipment rentals, excluding depreciation (1) | | | $ | 582 | | | $ | 494 | | | $ | 432 | |
| Selling, general and administrative expenses | | | 12 | | | 11 | | | 11 | |
| Restructuring charge (2) | | | 27 | | | — | | | 1 | |
| Finance lease cost | | | | | | | | |
| Amortization of leased assets | Depreciation of rental equipment | | | 36 | | | 31 | | | 36 | |
| Non-rental depreciation and amortization | | | 2 | | | 2 | | | 2 | |
| Interest on lease liabilities | Interest expense, net | | | 8 | | | 5 | | | 4 | |
| Sublease income (3) | | | | (233) | | | (235) | | | (194) | |
| Net lease cost | | | | $ | 434 | | | $ | 308 | | | $ | 292 | |
_________________
(1) Includes variable lease costs, which are immaterial. Cost of equipment rentals, excluding depreciation for the years ended December 31, 2023, 2022 and 2021 includes $209, $195 and $163, respectively, of short-term lease costs associated with equipment that we rent from vendors and then rent to our customers, as discussed further above. Apart from these costs, short-term lease costs are immaterial.
(2) The increase in 2023 reflects the impact of a restructuring program initiated following the closing of the Ahern Rentals acquisition.
(3) Primarily reflects re-rent revenue as discussed further above.
| | | | | | | | | | | |
| Maturity of lease liabilities (as of December 31, 2023) | Operating leases (1) | | Finance leases (2) |
| 2024 | $ | 295 | | | $ | 61 | |
| 2025 | 259 | | | 54 | |
| 2026 | 219 | | | 40 | |
| 2027 | 168 | | | 24 | |
| 2028 | 115 | | | 6 | |
| Thereafter | 275 | | | 44 | |
| Total | 1,331 | | | 229 | |
| Less amount representing interest | (187) | | | (37) | |
| Present value of lease liabilities | $ | 1,144 | | | $ | 192 | |
_________________
(1) Reflects payments for non-cancelable operating leases with initial or remaining terms of one year or more as of December 31, 2023. The table above does not include any legally binding minimum lease payments for leases signed but not yet commenced, and such leases are not material in the aggregate.
(2) The table above does not include any legally binding minimum lease payments for leases signed but not yet commenced, and such leases are not material in the aggregate.
| | | | | | | | | | | |
| Lease term and discount rate | December 31, 2023 | | December 31, 2022 |
| Weighted-average remaining lease term (years) | | | |
| Operating leases | 6.2 | | 4.8 |
| Finance leases | 6.5 | | 2.8 |
| Weighted-average discount rate | | | |
| Operating leases | 4.5 | % | | 3.7 | % |
| Finance leases | 4.8 | % | | 3.5 | % |
| | | | | | | | | | | | | | | | | |
| Other information | Year Ended December 31, 2023 | | Year Ended December 31, 2022 | | Year Ended December 31, 2021 |
| Cash paid for amounts included in the measurement of lease liabilities | | | | | |
| Operating cash flows from operating leases | $ | 304 | | | $ | 244 | | | $ | 221 | |
| Operating cash flows from finance leases | 8 | | | 5 | | | 4 | |
| Financing cash flows from finance leases | 64 | | | 57 | | | 69 | |
| Leased assets obtained in exchange for new operating lease liabilities (1) | 538 | | | 237 | | | 299 | |
| Leased assets obtained in exchange for new finance lease liabilities (1) | $ | 132 | | | $ | 47 | | | $ | 66 | |
_________________
(1) The increases in 2023 include the impact of the Ahern Rentals acquisition discussed in note 4 to the consolidated financial statements.
The components of the provision (benefit) for income taxes for each of the three years in the period ended December 31, 2023 are as follows: | | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2023 | | 2022 | | 2021 |
| Current | | | | | |
| Federal | $ | 561 | | | $ | (34) | | | $ | 78 | |
| Foreign | 66 | | 100 | | 26 | |
| State and local | 125 | | 94 | | 88 | |
| 752 | | 160 | | 192 | |
| Deferred | | | | | |
| Federal | 5 | | | 525 | | | 260 | |
| Foreign | 13 | | | (16) | | | 14 | |
| State and local | 17 | | | 28 | | | (6) | |
| 35 | | | 537 | | | 268 | |
| Total | $ | 787 | | | $ | 697 | | | $ | 460 | |
A reconciliation of the provision (benefit) for income taxes and the amount computed by applying the statutory federal income tax rate of 21 percent to the income before provision (benefit) for income taxes for each of the three years in the period ended December 31, 2023 is as follows:
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2023 | | 2022 | | 2021 |
| Computed tax at statutory tax rate | $ | 674 | | | $ | 588 | | | $ | 388 | |
| State income taxes, net of federal tax benefit | 116 | | | 102 | | | 64 | |
| Other permanent items | (3) | | | 18 | | | 1 | |
| Change in federal valuation allowance | (15) | | | 15 | | | — | |
| Foreign restructuring (1) | — | | | (37) | | | — | |
| Foreign tax rate differential | 15 | | | 11 | | | 7 | |
| Total | $ | 787 | | | $ | 697 | | | $ | 460 | |
_________________
(1) Reflects the impact of aligning the legal entity structure in Australia and New Zealand with our other foreign operations, which resulted in a tax depreciation benefit.
The components of deferred income tax assets (liabilities) are as follows:
| | | | | | | | | | | | | | | | | | | |
| | | | | December 31, 2023 | | | | | | December 31, 2022 |
| Reserves and allowances | | | | | $ | 193 | | | | | | | $ | 186 | |
| | | | | | | | | | | |
| Debt cancellation and other | | | | | 17 | | | | | | 18 |
| Net operating loss and credit carryforwards | | | | | 97 | | | | | | 171 |
| Interest carryforward (1) | | | | | — | | | | | | 84 |
| Operating lease assets | | | | | 287 | | | | | | 216 |
| Total deferred tax assets | | | | | 594 | | | | | | 675 |
| Less: valuation allowance (2) | | | | | (4) | | | | | | | (19) | |
| Total net deferred tax assets | | | | | 590 | | | | | | 656 |
| Property and equipment, including rental equipment | | | | | (2,921) | | | | | | | (2,986) | |
| Operating lease liabilities | | | | | (285) | | | | | | | (216) | |
| Intangibles | | | | | (85) | | | | | | | (125) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total deferred tax liability | | | | | (3,291) | | | | | | | (3,327) | |
| Total net deferred tax liability | | | | | $ | (2,701) | | | | | | | $ | (2,671) | |
_________________
(1) Relates to the limitation of deductible interest, and is primarily due to tax depreciation benefits associated with the Ahern Rentals acquisition (see note 6 to the consolidated financial statements for further discussion of the tax depreciation benefits).
(2) Relates to federal foreign tax credits, state net operating loss carryforwards and state tax credits that may not be realized.
The following table summarizes the activity related to unrecognized tax benefits, some of which would impact our effective tax rate if recognized:
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Balance at January 1 | $ | 16 | | | $ | 13 | | | $ | 12 | |
| Additions for tax positions related to the current year | 3 | | 1 | | 2 |
| Additions for tax positions of prior years | 8 | | 7 | | — | |
| | | | | |
| Settlements | (1) | | (5) | | (1) | |
| Balance at December 31 | $ | 26 | | $ | 16 | | $ | 13 |
We include interest accrued on the underpayment of income taxes in interest expense, net, and penalties, if any, related to unrecognized tax benefits in selling, general and administrative expense. The amounts of such interest or penalties were not material (approximately $1 or less) in each of the years ended December 31, 2023, 2022 and 2021. We believe that it is reasonably possible that a decrease of up to $10 in federal and state unrecognized tax benefits may be necessary within the next year, as a result of settlements.
We file income tax returns in the U.S., Canada and Europe. Without exception, we have completed our domestic and international income tax examinations, or the statute of limitations has expired in the respective jurisdictions, for years prior to 2012.
For financial reporting purposes, income before provision for income taxes for our foreign subsidiaries was $285, $233 and $134 for the years ended December 31, 2023, 2022 and 2021, respectively.
We have historically considered the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested, and, accordingly, no taxes were provided on such earnings prior to the fourth quarter of 2020. In 2021, we remitted the cumulative amount of identified cash in our foreign operations in excess of near-term working capital needs. The taxes recorded associated with the remitted cash were immaterial. We continue to expect that the remaining balance of our undistributed foreign earnings will be indefinitely reinvested. If we determine that all or a portion of such foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes and U.S. state income taxes. At December 31, 2023, unremitted earnings of foreign subsidiaries were $1.276 billion. Determination of the amount of unrecognized deferred tax liability on these unremitted earnings is not practicable.
We have net operating loss carryforwards (“NOLs”) of $57 for federal income tax purposes, $10 of which will expire in 2037 (while the remaining federal NOLs have an indefinite life), $15 for foreign income tax purposes (the majority of which has an indefinite life) and $425 for state income tax purposes that expire from 2024 through 2034.
The European Union (“EU”) member states formally adopted the EU’s Pillar Two Directive, which was established by the Organization for Economic Co-operation and Development, and which generally provides for a 15 percent minimum effective tax rate for multinational enterprises, in every jurisdiction in which they operate. While we do not anticipate that this will have a material impact on our tax provision or effective tax rate, we continue to monitor evolving tax legislation in the jurisdictions in which we operate.
15. Commitments and Contingencies
We are 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, product liability, and property and automobile 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 included in our consolidated balance sheets 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 position, results of operations or cash flows.
Indemnification
The Company indemnifies its officers and directors pursuant to indemnification agreements and may in addition indemnify these individuals as permitted by Delaware law.
Employee Benefit Plans
We currently sponsor two defined contribution 401(k) retirement plans, which are subject to the provisions of the Employee Retirement Income Security Act of 1974. We also sponsor a deferred profit sharing plan and a registered retirement savings plan for the benefit of the full-time employees of our Canadian subsidiaries, and also make contributions for employees in Australia and New Zealand. Under these plans, we match a percentage of the participants’ contributions up to a specified amount. Company contributions to the plans were $56, $45 and $36 in the years ended December 31, 2023, 2022 and 2021, respectively.
Environmental Matters
The Company and its operations are subject to various laws and related regulations governing environmental matters. Under such laws, an owner or lessee of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in, or emanating from, such property, as well as investigation of property damage. We incur ongoing expenses associated with the performance of appropriate remediation at certain locations.
16. Common Stock
We have 500 million authorized shares of common stock, $0.01 par value. At December 31, 2023 and 2022, there were 0.0 million shares of common stock reserved for issuance pursuant to options granted under our stock option plans.
As of December 31, 2023, there were an aggregate of 0.4 million outstanding time and performance-based RSUs and 1.2 million shares available for grants of stock and options under our 2019 Long Term Incentive Plan.
A summary of the transactions within the Company’s stock option plans follows (shares in thousands):
| | | | | | | | | | | |
| Shares | | Weighted-Average
Exercise Price |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Outstanding at December 31, 2022 | 5 | | | 80.45 | |
| Granted | — | | | — | |
| Exercised | (2) | | | 80.94 | |
| Canceled | — | | | — | |
| Outstanding at December 31, 2023 | 3 | | | 80.17 | |
| | | |
| | | |
| Exercisable at December 31, 2023 | 3 | | | $ | 80.17 | |
The following table presents information associated with stock options as of December 31, 2023 and 2022, and for the years ended December 31, 2023, 2022 and 2021. No stock options were granted during any of the years presented below.
| | | | | | | | | | | | | | | | | |
| |
| 2023 | | 2022 | | 2021 |
| Intrinsic value of options outstanding as of December 31 | $ | 2 | | | $ | 1 | | | |
| Intrinsic value of options exercisable as of December 31 | 2 | | | 1 | | | |
| Intrinsic value of options exercised | 1 | | | — | | | 1 | |
| | | | | |
In addition to stock options, the Company issues time-based and performance-based RSUs to certain officers and key executives under various equity incentive plans. The RSUs automatically convert to shares of common stock on a one-for-one basis as the awards vest. The time-based RSUs typically vest over a three year vesting period beginning 12 months from the grant date and thereafter annually on the anniversary of the grant date. The performance-based RSUs vest based on the achievement of the performance conditions during the applicable performance periods (currently the calendar year). There were 251 thousand shares of common stock issued upon vesting of RSUs during 2023, net of 161 thousand shares surrendered to satisfy tax obligations. The Company measures the value of RSUs at fair value based on the closing price of the underlying common stock on the grant date. The Company amortizes the fair value of outstanding RSUs as stock-based compensation expense over the requisite service period on a straight-line basis, or sooner if the employee effectively vests upon termination of employment under certain circumstances. For performance-based RSUs, compensation expense is recognized to the extent that the satisfaction of the performance condition is considered probable.
A summary of RSUs granted follows (RSUs in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| RSUs granted | 179 | | | 553 | | | 348 | |
| Weighted-average grant date price per unit | $ | 461.37 | | | $ | 309.39 | | | $ | 297.02 | |
As of December 31, 2023, the total pretax compensation cost not yet recognized by the Company with regard to unvested RSUs was $55. The weighted-average period over which this compensation cost is expected to be recognized is 1.6 years.
A summary of RSU activity for the year ended December 31, 2023 follows (RSUs in thousands):
| | | | | | | | | | | |
| Stock Units | | Weighted-Average
Grant Date Fair Value |
| Nonvested as of December 31, 2022 | 464 | | | $ | 215.23 | |
| Granted | 179 | | | 461.37 | |
| Vested | (319) | | | 297.27 | |
| Forfeited | (36) | | | 353.26 | |
| Nonvested as of December 31, 2023 | 288 | | | $ | 360.41 | |
The total fair value of RSUs vested during the fiscal years ended December 31, 2023, 2022 and 2021 was $95, $120, and $94, respectively.
Dividend Policy. Our Board of Directors approved a quarterly dividend program in January 2023, and the first such dividend under the program was paid in February 2023. The payment of any future dividends or the authorization of stock repurchases or other recapitalizations will be determined by our Board of Directors in light of conditions then existing, including earnings, financial condition and capital requirements, financing agreements, business conditions, stock price and other factors. The terms of certain agreements governing our outstanding indebtedness contain certain limitations on our ability to move operating cash flows to Holdings and/or to pay dividends on, or effect repurchases of, our common stock. In addition, under Delaware law, dividends may only be paid out of surplus or current or prior year’s net profits.
Stockholders’ Rights Plan. Our stockholders' rights plan expired in accordance with its terms in 2011. Our Board of Directors elected not to renew or extend the plan.
17. Quarterly Financial Information (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter | | Full
Year |
| For the year ended December 31, 2023 (1) (2): | | | | | | | | | |
| Total revenues (1) | $ | 3,285 | | | $ | 3,554 | | | $ | 3,765 | | | $ | 3,728 | | | $ | 14,332 | |
| Gross profit | 1,241 | | | 1,425 | | | 1,585 | | | 1,562 | | | 5,813 | |
| Operating income | 740 | | | 925 | | | 1,099 | | | 1,063 | | | 3,827 | |
| Net income (2) | 451 | | | 591 | | | 703 | | | 679 | | | 2,424 | |
| Earnings per share—basic | 6.50 | | | 8.60 | | | 10.30 | | | 10.04 | | | 35.40 | |
| Earnings per share—diluted (3) | 6.47 | | | 8.58 | | | 10.29 | | | 10.01 | | | 35.28 | |
| | | | | | | | | |
| For the year ended December 31, 2022 (1) (2): | | | | | | | | | |
| Total revenues (1) | $ | 2,524 | | | $ | 2,771 | | | $ | 3,051 | | | $ | 3,296 | | | $ | 11,642 | |
| Gross profit | 992 | | | 1,150 | | | 1,366 | | | 1,488 | | | 4,996 | |
| Operating income | 572 | | | 715 | | | 921 | | | 1,024 | | | 3,232 | |
| Net income (2) | 367 | | | 493 | | | 606 | | | 639 | | | 2,105 | |
| Earnings per share—basic | 5.07 | | | 6.91 | | | 8.69 | | | 9.20 | | | 29.77 | |
| Earnings per share—diluted (3) | 5.05 | | | 6.90 | | | 8.66 | | | 9.15 | | | 29.65 | |
| | | | | | | | | |
(1) Beginning in 2021 and continuing through 2023, we have experienced broad-based strength of demand across our end-markets. The revenue increases above reflect this strong demand, as well as the impact of the December 2022 Ahern Rentals acquisition that is discussed in note 4 to the consolidated financial statements.
(2) There were no unusual or infrequently occurring items recognized in the fourth quarter of 2023 that had a material impact on our financial statements. In the fourth quarter of 2022, we issued $1.5 billion principal amount of 6 percent Senior Secured Notes due 2029. The issued debt, together with drawings on our ABL facility, was used to fund the December 2022 Ahern Rentals acquisition that is discussed in note 4 to the consolidated financial statements.
(3) Diluted earnings per share includes the after-tax impacts of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| First
Quarter | | Second
Quarter | | Third
Quarter | | Fourth
Quarter | | Full
Year |
| For the year ended December 31, 2023: | | | | | | | | | |
| | | | | | | | | |
| Merger related intangible asset amortization (4) | $ | (0.70) | | | $ | (0.55) | | | $ | (0.57) | | | $ | (0.52) | | | $ | (2.33) | |
| Impact on depreciation related to acquired fleet and property and equipment (5) | (0.32) | | | (0.30) | | | (0.59) | | | (0.44) | | | (1.65) | |
| Impact of the fair value mark-up of acquired fleet (6) | (0.44) | | | (0.25) | | | (0.23) | | | (0.25) | | | (1.17) | |
| | | | | | | | | |
| | | | | | | | | |
| Restructuring charge (7) | (0.02) | | | (0.20) | | | (0.05) | | | (0.04) | | | (0.31) | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| For the year ended December 31, 2022: | | | | | | | | | |
| | | | | | | | | |
| Merger related intangible asset amortization (4) | $ | (0.52) | | | $ | (0.45) | | | $ | (0.44) | | | $ | (0.39) | | | $ | (1.79) | |
| Impact on depreciation related to acquired fleet and property and equipment (5) | (0.10) | | | (0.26) | | | (0.12) | | | (0.08) | | | (0.56) | |
| Impact of the fair value mark-up of acquired fleet (6) | (0.06) | | | (0.05) | | | (0.05) | | | (0.12) | | | (0.29) | |
| | | | | | | | | |
| | | | | | | | | |
| Restructuring charge (7) | — | | | — | | | 0.01 | | | — | | | — | |
| Asset impairment charge (8) | — | | | (0.02) | | | (0.01) | | | — | | | (0.03) | |
| Loss on repurchase/redemption of debt securities (9) | — | | | (0.18) | | | — | | | — | | | (0.18) | |
| | | | | | | | | |
(4)This reflects the amortization of the intangible assets acquired in the major acquisitions that significantly impact our operations (the "major acquisitions," each of which had annual revenues of over $200 prior to acquisition). The increases in 2023 primarily reflect the impact of the Ahern Rentals acquisition.
(5)This reflects the impact of extending the useful lives of equipment acquired in certain major acquisitions, net of the impact of additional depreciation associated with the fair value mark-up of such equipment. The increases in 2023 primarily reflect the impact of the Ahern Rentals acquisition.
(6)This reflects additional costs recorded in cost of rental equipment sales associated with the fair value mark-up of rental equipment acquired in certain major acquisitions that was subsequently sold. The increases in 2023 primarily reflect the impact of the Ahern Rentals acquisition.
(7)This primarily reflects severance costs and branch closure charges associated with our restructuring programs. The increases in 2023 reflect charges associated with a restructuring program initiated following the closing of the Ahern Rentals acquisition. As of December 31, 2023, there were no open restructuring programs.
(8)This reflects write-offs of leasehold improvements and other fixed assets.
(9)Reflects the difference between the net carrying amount and the total purchase price of the redeemed notes.
18. 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. The following table sets forth the computation of basic and diluted earnings per share (shares in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
| Numerator: | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Net income available to common stockholders | $ | 2,424 | | | $ | 2,105 | | | $ | 1,386 | |
| Denominator: | | | | | |
| Denominator for basic earnings per share—weighted-average common shares | 68,470 | | 70,703 | | 72,432 |
| Effect of dilutive securities: | | | | | |
| Employee stock options | 4 | | 4 | | 4 |
| | | | | |
| | | | | |
| Restricted stock units | 236 | | | 266 | | | 381 | |
| Denominator for diluted earnings per share—adjusted weighted-average common shares | 68,710 | | 70,973 | | 72,817 |
| | | | | |
| | | | | |
| | | | | |
| Basic earnings per share | $ | 35.40 | | | $ | 29.77 | | | $ | 19.14 | |
| | | | | |
| | | | | |
| | | | | |
| Diluted earnings per share | $ | 35.28 | | | $ | 29.65 | | | $ | 19.04 | |