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United Rentals 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-12.1
  3. Ex-31.A
  4. Ex-31.B
  5. Ex-32.A
  6. Ex-32.B
  7. Ex-32.B
Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 1-14387

Commission File Number 1-13663

 

 

United Rentals, Inc.

United Rentals (North America), Inc.

(Exact Names of Registrants as Specified in Their Charters)

 

 

 

Delaware

Delaware

 

06-1522496

06-1493538

(States of Incorporation)   (I.R.S. Employer Identification Nos.)

Five Greenwich Office Park,

Greenwich, Connecticut

  06831
(Address of Principal Executive Offices)   (Zip Code)

Registrants’ Telephone Number, Including Area Code: (203) 622-3131

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer   ¨    Accelerated Filer   x

 

 

Non-Accelerated Filer

  ¨    Smaller Reporting Company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No

        As of October 14, 2011, there were 62,648,356 shares of United Rentals, Inc. common stock, $0.01 par value, outstanding. There is no market for the common stock of United Rentals (North America), Inc., all outstanding shares of which are owned by United Rentals, Inc.

This combined Form 10-Q is separately filed by (i) United Rentals, Inc. and (ii) United Rentals (North America), Inc. (which is a wholly owned subsidiary of United Rentals, Inc.). United Rentals (North America), Inc. meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this report with the reduced disclosure format permitted by such instruction.

 

 


Table of Contents

UNITED RENTALS, INC.

UNITED RENTALS (NORTH AMERICA), INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011

INDEX

 

         Page  
PART I   FINANCIAL INFORMATION   
Item 1   Unaudited Condensed Consolidated Financial Statements      4   
 

United Rentals, Inc. Condensed Consolidated Balance Sheets as of September 30, 2011 (unaudited) and December 31, 2010

     4   
 

United Rentals, Inc. Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2011 and 2010 (unaudited)

     5   
 

United Rentals, Inc. Condensed Consolidated Statement of Stockholders’ Equity (Deficit) for the Nine Months Ended September 30, 2011 (unaudited)

     6   
 

United Rentals, Inc. Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010 (unaudited)

     7   
  Notes to Unaudited Condensed Consolidated Financial Statements      8   
Item 2   Management’s Discussion and Analysis of Financial Condition and Results of Operations      24   
Item 3   Quantitative and Qualitative Disclosures About Market Risk      34   
Item 4   Controls and Procedures      35   
PART II   OTHER INFORMATION   
Item 1   Legal Proceedings      36   
Item 1A   Risk Factors      36   
Item 2   Unregistered Sales of Equity Securities and Use of Proceeds      36   
Item 6   Exhibits      36   
  Signatures      37   

 

2


Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report on Form 10-Q contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements can generally be identified by words such as “believes,” “expects,” “plans,” “intends,” “projects,” “forecasts,” “may,” “will,” “should,” “on track” or “anticipates,” or by discussions of vision, strategy or outlook. Our businesses and operations are subject to a variety of risks and uncertainties, many of which are beyond our control and, consequently, actual results may differ materially from those projected by any forward looking statements. Factors that could cause actual results to differ materially from those projected include, but are not limited to, the following: (1) a slowdown in the recovery of North American construction and industrial activities, which decreased during the economic downturn and significantly affected our revenues and profitability, may further reduce demand for equipment and prices that we can charge; (2) a decrease in levels of infrastructure spending, including lower than expected government funding for stimulus-related construction projects; (3) our highly leveraged capital structure, which can constrain our response to unanticipated or adverse business conditions; (4) restrictive covenants in our debt agreements, which could limit our financial and operation flexibility; (5) noncompliance with covenants in our debt agreements, which could result in termination of our credit facilities and acceleration of outstanding borrowings; (6) inability to access the capital that our business may require; (7) inability to collect on contracts with customers; (8) incurrence of impairment charges; (9) the potential consequences of litigation and other claims relating to our business, including certain claims that our insurance may not cover; (10) an increase in our loss reserves to address business operations or other claims and any claims that exceed our established levels of reserves; (11) incurrence of additional costs and expenses in connection with litigation, regulatory or investigatory matters; (12) increases in our maintenance and replacement costs as we age our fleet, and decreases in our equipment’s residual value; (13) inability to sell used fleet; (14) challenges associated with past or future acquisitions, such as undiscovered liabilities and integration issues; (15) management turnover and inability to attract and retain key personnel; (16) our rates and time utilization being less than anticipated; (17) our costs being more than anticipated, the inability to realize expected savings and the inability to obtain key equipment and supplies; (18) disruptions in our information technology systems; (19) competition from existing and new competitors; and (20) labor difficulties and potential enactment of new legislation affecting our labor relations and operations generally. For a more complete description of these and other possible risks and uncertainties, please refer to our Annual Report on Form 10-K for the year ended December 31, 2010, as well as to our subsequent filings with the SEC. Our forward-looking statements contained herein speak only as of the date hereof, and we make no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations.

 

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Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

UNITED RENTALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share data)

 

     September 30,
2011
(unaudited)
    December 31,
2010
 

ASSETS

    

Cash and cash equivalents

   $ 26      $ 203   

Accounts receivable, net of allowance for doubtful accounts of $29 at September 30, 2011 and December 31, 2010

     453        377   

Inventory

     56        39   

Prepaid expenses and other assets

     68        37   

Deferred taxes

     55        69   
  

 

 

   

 

 

 

Total current assets

     658        725   

Rental equipment, net

     2,587        2,280   

Property and equipment, net

     371        393   

Goodwill and other intangible assets, net

     332        227   

Other long-term assets

     57        68   
  

 

 

   

 

 

 

Total assets

   $ 4,005      $ 3,693   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

    

Short-term debt and current maturities of long-term debt

   $ 401      $ 229   

Accounts payable

     233        132   

Accrued expenses and other liabilities

     245        208   
  

 

 

   

 

 

 

Total current liabilities

     879        569   

Long-term debt

     2,529        2,576   

Subordinated convertible debentures

     87        124   

Deferred taxes

     397        385   

Other long-term liabilities

     58        59   
  

 

 

   

 

 

 

Total liabilities

     3,950        3,713   
  

 

 

   

 

 

 

Temporary equity (note 6)

     41        —     

Common stock—$0.01 par value, 500,000,000 shares authorized, 62,648,356 and 60,621,338 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively

     1        1   

Additional paid-in capital

     478        492   

Accumulated deficit

     (528     (600

Accumulated other comprehensive income

     63        87   
  

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     14        (20
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity (deficit)

   $ 4,005      $ 3,693   
  

 

 

   

 

 

 

See accompanying notes.

 

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Table of Contents

UNITED RENTALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In millions, except per share amounts)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2011      2010     2011     2010  

Revenues:

         

Equipment rentals

   $ 604       $ 507      $ 1,562      $ 1,337   

Sales of rental equipment

     42         32        115        104   

Sales of new equipment

     24         19        60        59   

Contractor supplies sales

     23         24        66        73   

Service and other revenues

     20         23        62        67   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     713         605        1,865        1,640   
  

 

 

    

 

 

   

 

 

   

 

 

 

Cost of revenues:

         

Cost of equipment rentals, excluding depreciation

     261         237        740        668   

Depreciation of rental equipment

     110         98        312        289   

Cost of rental equipment sales

     27         22        73        74   

Cost of new equipment sales

     19         15        48        49   

Cost of contractor supplies sales

     15         16        45        51   

Cost of service and other revenues

     7         8        24        26   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total cost of revenues

     439         396        1,242        1,157   
  

 

 

    

 

 

   

 

 

   

 

 

 

Gross profit

     274         209        623        483   

Selling, general and administrative expenses

     103         95        298        271   

Restructuring charge

     2         7        5        19   

Non-rental depreciation and amortization

     13         14        39        43   
  

 

 

    

 

 

   

 

 

   

 

 

 

Operating income

     156         93        281        150   

Interest expense, net

     57         55        170        170   

Interest expense—subordinated convertible debentures

     1         2        5        6   

Other expense (income), net

     2         (2     (2     (3
  

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before provision (benefit) for income taxes

     96         38        108        (23

Provision (benefit) for income taxes

     31         15        35        (18
  

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     65         23        73        (5

Loss from discontinued operation, net of taxes

     —           —          (1     —     
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 65       $ 23      $ 72      $ (5

Basic earnings (loss) per share:

         

Income (loss) from continuing operations

   $ 1.04       $ 0.37      $ 1.18      $ (0.09

Loss from discontinued operation

     —           —          (0.01     —     
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 1.04       $ 0.37      $ 1.17      $ (0.09
  

 

 

    

 

 

   

 

 

   

 

 

 

Diluted earnings (loss) per share:

         

Income (loss) from continuing operations

   $ 0.91       $ 0.33      $ 1.00      $ (0.09

Loss from discontinued operation

     —           —          (0.01     —     
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 0.91       $ 0.33      $ 0.99      $ (0.09
  

 

 

    

 

 

   

 

 

   

 

 

 

See accompanying notes.

 

5


Table of Contents

UNITED RENTALS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT) (UNAUDITED)

(In millions)

 

     Common Stock      Additional                 Accumulated
Other
 
     Number of
Shares
     Amount      Paid-in
Capital
    Accumulated
Deficit
    Comprehensive
Income(Loss)
    Comprehensive
Income (Loss)
 

Balance at December 31, 2010

     61       $ 1       $ 492      $ (600     $ 87   

Comprehensive income:

              

Net income

             72      $ 72     

Other comprehensive loss:

              

Foreign currency translation adjustments

               (23     (23

Fixed price diesel swaps

               (1     (1
            

 

 

   

Comprehensive income

             $ 48     
            

 

 

   

Stock compensation expense, net

           9         

Exercise of common stock options

     2            31         

4 percent Convertible Senior Notes (1)

           (47      

Shares repurchased and retired

           (7      
  

 

 

    

 

 

    

 

 

   

 

 

     

 

 

 

Balance at September 30, 2011

     63       $ 1       $ 478      $ (528     $ 63   
  

 

 

    

 

 

    

 

 

   

 

 

     

 

 

 

 

(1) Reflects a reduction due to our 4 percent Convertible Senior Notes being convertible at September 30, 2011 (an amount equal to the unamortized portion of the original issue discount was reclassified out of stockholders’ equity (deficit) and is reflected as “temporary equity” in our condensed consolidated balance sheets as of September 30, 2011), and a reduction reflecting the excess of the cash transferred upon conversion of a portion of the 4 percent Convertible Senior Notes during the nine months ended September 30, 2011 over the principal amount of the converted notes, net of cash received from the option counterparties to our convertible note hedges upon the conversion. See note 6 to our condensed consolidated financial statements for additional detail.

See accompanying notes.

 

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Table of Contents

UNITED RENTALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In millions)

 

     Nine Months Ended
September 30,
 
     2011     2010  

Cash Flows From Operating Activities:

    

Net income (loss)

   $ 72      $ (5

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Depreciation and amortization

     351        332   

Amortization of deferred financing costs and original issue discounts

     17        17   

Gain on sales of rental equipment

     (42     (30

Gain on sales of non-rental equipment

     (2     (1

Stock compensation expense, net

     9        6   

Restructuring charge

     5        19   

Loss on repurchase/redemption of debt securities

     —          3   

Loss on retirement of subordinated convertible debentures

     1        —     

Increase (decrease) in deferred taxes

     16        (35

Changes in operating assets and liabilities:

    

Increase in accounts receivable

     (60     (62

Increase in inventory

     (17     (4

Increase (decrease) in prepaid expenses and other assets

     (11     62   

Increase in accounts payable

     101        39   

Increase in accrued expenses and other liabilities

     13        2   
  

 

 

   

 

 

 

Net cash provided by operating activities

     453        343   

Cash Flows From Investing Activities:

    

Purchases of rental equipment

     (631     (287

Purchases of non-rental equipment

     (24     (20

Proceeds from sales of rental equipment

     115        104   

Proceeds from sales of non-rental equipment

     11        6   

Purchases of other companies

     (198     —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (727     (197

Cash Flows From Financing Activities:

    

Proceeds from debt

     1,462        1,481   

Payments of debt, including subordinated convertible debentures

     (1,383     (1,625

Proceeds from the exercise of common stock options

     31        —     

Shares repurchased and retired

     (7     (1

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

     (11     —     

Excess tax benefits from share-based payment arrangements, net

     —          (2
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     92        (147

Effect of foreign exchange rates

     5        2   
  

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

     (177     1   

Cash and cash equivalents at beginning of period

     203        169   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 26      $ 170   
  

 

 

   

 

 

 

Supplemental disclosure of cash flow information:

    

Cash paid (received) for income taxes, net

   $ 20      $ (49

Cash paid for interest, including subordinated convertible debentures

     141        140   

See accompanying notes

 

7


Table of Contents

UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share data, unless otherwise indicated)

1. Organization, Description of Business and Basis of Presentation

United Rentals, Inc. (“Holdings,” “United Rentals” or the “Company”) is principally a holding company and conducts its operations primarily through its wholly owned subsidiary, United Rentals (North America), Inc. (“URNA”), and subsidiaries of URNA. Holdings’ primary asset is its sole ownership of all issued and outstanding shares of common stock of URNA. URNA’s various credit agreements and debt instruments place restrictions on its ability to transfer funds to its shareholder.

We rent equipment to a diverse customer base that includes construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government entities in the United States and Canada. In addition to renting equipment, we sell new and used rental equipment, as well as related contractor supplies, parts and service.

During the nine months ended September 30, 2011, we completed the acquisitions of Venetor Group (“Venetor”), a seven location equipment rental company in Canada located in the province of Ontario, GulfStar Rental Solutions, LP (“GulfStar”), a three location power and HVAC (“heating, ventilating and air conditioning”) equipment rental company located in Texas and Louisiana, and Ontario Laser Rentals Ltd. (“Ontario Laser”), a two location trench safety equipment rental company in Canada located in the province of Ontario. Venetor, GulfStar and Ontario Laser had annual revenues of approximately $50, $15 and $20, respectively. Our cash flows for the nine months ended September 30, 2011 reflect an aggregate of $198 paid to purchase these companies. The purchase price allocations for these acquisitions are based on preliminary valuations and are subject to change as we obtain additional information during each acquisition’s measurement period.

We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with the accounting policies described in our annual report on Form 10-K for the year ended December 31, 2010 (the “2010 Form 10-K”) and the interim reporting requirements of Form 10-Q. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the 2010 Form 10-K.

In our opinion, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of financial condition, operating results and cash flows for the interim periods presented have been made. Interim results of operations are not necessarily indicative of the results of the full year.

New Accounting Pronouncements

Comprehensive Income. In June 2011, the Financial Accounting Standards Board (“FASB”) issued guidance on the presentation of comprehensive income. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity, which is our current presentation, and also requires presentation of reclassification adjustments from other comprehensive income to net income on the face of the financial statements. This guidance is effective for fiscal years and interim periods beginning after December 15, 2011, and is not expected to have a material effect on our financial condition or results of operations, though it will change our financial statement presentation.

Goodwill Impairment Testing. In September 2011, the FASB issued guidance that simplified how entities test for goodwill impairment. This 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 as a basis for determining whether it is necessary to perform a two-step goodwill impairment test. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, and early adoption is permitted. We plan to early adopt this guidance for our annual goodwill impairment test that will be conducted as of October 1, 2011. This guidance is not expected to have a material effect on our financial condition or results of operations.

2. Segment Information

Our reportable segments are general rentals and trench safety, power and HVAC. The general rentals segment includes the rental of construction, infrastructure, industrial and homeowner equipment and related services and activities. The general rentals segment’s customers include construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government entities. The general rentals segment comprises seven geographic regions—the Southwest, Gulf, Northwest, Southeast, Midwest, East, and Northeast Canada—and operates throughout the United States and Canada. The trench safety, power and HVAC segment includes the rental of specialty construction products and related services. The trench safety, power and HVAC segment’s customers include construction companies involved in infrastructure projects, municipalities and industrial companies. This segment operates throughout the United States and in Canada. These segments align our external segment reporting with how management evaluates and allocates resources. We evaluate segment performance based on segment operating results.

 

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Table of Contents

UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in millions, except per share data, unless otherwise indicated)

 

The following tables set forth financial information by segment. Information related to our condensed consolidated balance sheets is presented as of September 30, 2011 and December 31, 2010.

 

Trench safety, Trench safety, Trench safety,
     General
rentals
     Trench safety,
power and  HVAC
     Total  

Three Months Ended September 30, 2011

        

Equipment rentals

   $ 540       $ 64       $ 604   

Sales of rental equipment

     40         2         42   

Sales of new equipment

     22         2         24   

Contractor supplies sales

     21         2         23   

Service and other revenues

     20         —           20   
  

 

 

    

 

 

    

 

 

 

Total revenue

     643         70         713   

Depreciation and amortization expense

     116         7         123   

Segment operating income

     132         26         158   

Three Months Ended September 30, 2010

        

Equipment rentals

   $ 466       $ 41       $ 507   

Sales of rental equipment

     30         2         32   

Sales of new equipment

     17         2         19   

Contractor supplies sales

     22         2         24   

Service and other revenues

     23         —           23   
  

 

 

    

 

 

    

 

 

 

Total revenue

     558         47         605   

Depreciation and amortization expense

     105         7         112   

Segment operating income

     87         13         100   

Nine Months Ended September 30, 2011

        

Equipment rentals

   $ 1,419       $ 143       $ 1,562   

Sales of rental equipment

     110         5         115   

Sales of new equipment

     54         6         60   

Contractor supplies sales

     61         5         66   

Service and other revenues

     60         2         62   
  

 

 

    

 

 

    

 

 

 

Total revenue

     1,704         161         1,865   

Depreciation and amortization expense

     330         21         351   

Segment operating income

     242         44         286   

Capital expenditures

     595         60         655   

Nine Months Ended September 30, 2010

        

Equipment rentals

   $ 1,233       $ 104       $ 1,337   

Sales of rental equipment

     96         8         104   

Sales of new equipment

     54         5         59   

Contractor supplies sales

     68         5         73   

Service and other revenues

     65         2         67   
  

 

 

    

 

 

    

 

 

 

Total revenue

     1,516         124         1,640   

Depreciation and amortization expense

     314         18         332   

Segment operating income

     144         25         169   

Capital expenditures

     288         19         307   

 

     September 30,
2011
     December 31,
2010
 

Total reportable segment assets

     

General rentals

   $ 3,627       $ 3,458   

Trench safety, power and HVAC

     378         235   
  

 

 

    

 

 

 

Total assets

   $ 4,005       $ 3,693   
  

 

 

    

 

 

 

 

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Table of Contents

UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in millions, except per share data, unless otherwise indicated)

 

The following is a reconciliation of segment operating income to total Company operating income:

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2011     2010     2011     2010  

Total reportable segment operating income

   $ 158      $ 100      $ 286      $ 169   

Unallocated restructuring charge

     (2     (7     (5     (19
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

   $ 156      $ 93      $ 281      $ 150   
  

 

 

   

 

 

   

 

 

   

 

 

 

3. Restructuring and Asset Impairment Charges

Over the past several years, we have been focused on reducing our operating costs. In connection with this strategy, and in recognition of the challenging economic environment, we reduced our employee headcount from approximately 10,900 at December 31, 2007 to approximately 7,500 at September 30, 2011. Additionally, we reduced our branch network from 697 at December 31, 2007 to 541 at September 30, 2011. The restructuring charges for the three and nine months ended September 30, 2011 and 2010 include severance costs associated with our headcount reductions, as well as branch closure charges which principally relate to continuing lease obligations at vacant facilities.

The table below provides certain information concerning our restructuring charges:

 

Reserve Balance at Reserve Balance at Reserve Balance at Reserve Balance at

Description

   Reserve Balance  at
December 31, 2010
     Charged to
Costs  and
Expenses(1)
     Payments
and Other
    Reserve Balance  at
September 30, 2011
 

Branch closure charges

   $ 26       $ 4       $ (11   $ 19   

Severance costs

     2         1         (3     —     
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 28       $ 5       $ (14   $ 19   
  

 

 

    

 

 

    

 

 

   

 

 

 

 

(1) Reflected in our condensed consolidated statements of operations as “Restructuring charge.”

We have incurred total restructuring charges between January 1, 2008 and September 30, 2011 of $89, comprised of $70 of branch closure charges and $19 of severance costs. We expect that the restructuring activity will be substantially complete by the end of 2011.

In addition to the restructuring charges discussed above, the Company recorded asset impairment charges of $1 during the nine months ended September 30, 2011, and $1 and $3 during the three and nine months ended September 30, 2010, respectively. The asset impairment charges primarily relate to write-offs of leasehold improvements and other fixed assets which were recognized in connection with the consolidation of our branch network discussed above, and are reflected in non-rental depreciation and amortization in the accompanying condensed consolidated statements of operations.

4. Derivatives

We recognize all derivative instruments as either assets or liabilities at fair value, and recognize changes in the fair value of the derivative instruments based on the designation of the derivative. For derivative instruments that are designated and qualify as hedging instruments, we designate the hedging instrument, based upon the exposure being hedged, as either a fair value hedge or a cash flow hedge. As of September 30, 2011, we do not have any outstanding derivative instruments designated as fair value hedges. The effective portion of the changes in fair value of derivatives that are designated as cash flow hedges is recorded as a component of accumulated other comprehensive income. Amounts included in accumulated other comprehensive income for cash flow hedges are reclassified into earnings in the same period that the hedged item is recognized in earnings. The ineffective portion of changes in the fair value of derivatives designated as cash flow hedges is recorded currently in earnings. For derivative instruments that do not qualify for hedge accounting, we recognize gains or losses due to changes in fair value in our condensed consolidated statements of operations during the period in which the changes in fair value occur.

We are exposed to certain risks relating to our ongoing business operations. During the three and nine months ended September 30, 2011, the primary risks we managed using derivative instruments were diesel price risk and foreign currency exchange rate risk. At September 30, 2011, we had outstanding fixed price swap contracts on diesel purchases which were entered into to mitigate the price risk associated with forecasted purchases of diesel. During the nine months ended September 30, 2011, we entered into forward contracts to purchase Canadian dollars to mitigate the foreign currency exchange rate risk associated with certain Canadian dollar denominated intercompany loans. At September 30, 2011, there were no outstanding forward contracts to purchase Canadian dollars. The outstanding forward contracts on diesel purchases were designated and qualify as cash flow hedges and the forward contracts to

 

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UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in millions, except per share data, unless otherwise indicated)

 

purchase Canadian dollars, which were all settled as of September 30, 2011, represented derivative instruments not designated as hedging instruments.

Fixed Price Diesel Swaps

The fixed price swap contracts on diesel purchases that were outstanding at September 30, 2011 were designated and qualify as cash flow hedges and the effective portion of the gain or loss on these contracts is reported as a component of accumulated other comprehensive income and is reclassified into earnings in the period during which the hedged transaction affects earnings (i.e., when the hedged gallons of diesel are used). The remaining gain or loss on the fixed price swap contracts in excess of the cumulative change in the present value of future cash flows of the hedged item, if any (i.e., the ineffective portion), is recognized in our condensed consolidated statements of operations during the current period. As of September 30, 2011, we had outstanding fixed price swap contracts covering 5.9 million gallons of diesel which will be purchased throughout 2011 and 2012.

Foreign Currency Forward Contracts

The forward contracts to purchase Canadian dollars, which were all settled as of September 30, 2011, represented derivative instruments not designated as hedging instruments and gains or losses due to changes in the fair value of the forward contracts were recognized in our condensed consolidated statements of operations during the period in which the changes in fair value occurred. During the nine months ended September 30, 2011, forward contracts were used to purchase $221 Canadian dollars, representing the total amount due at maturity for certain Canadian dollar denominated intercompany loans that were settled during the nine months ended September 30, 2011. Upon maturity, the proceeds from the forward contracts were used to pay down the Canadian dollar denominated intercompany loans.

Financial Statement Presentation

As of September 30, 2011 and December 31, 2010, less than $1 was reflected in prepaid expenses and other assets, $2 and $0, respectively, were reflected in accrued expenses and other liabilities, and $1 and less than $1, respectively, were reflected in accumulated other comprehensive income in our condensed consolidated balance sheets associated with the outstanding fixed price swap contracts that were designated and qualify as cash flow hedges.

The effect of our derivative instruments on our condensed consolidated statements of operations for the three and nine months ended September 30, 2011 and 2010 was as follows:

 

         Three Months Ended September 30, 2011     Three Months Ended September 30, 2010  
     Location of  income
(expense)
recognized  on
derivative/hedged item
  Amount of  income
(expense)
recognized
on  derivative
     Amount of  income
(expense)
recognized
on hedged item
    Amount of  income
(expense)
recognized
on  derivative
     Amount of  income
(expense)

recognized
on hedged item
 

Derivatives designated as hedging instruments:

            

Fixed price diesel swaps

   Other income
(expense), net (1)
  $ *         $ *      
   Cost of equipment
rentals, excluding
depreciation (2),
(3)
    *       $ (7     *       $ (3

Derivatives not designated as hedging instruments:

            

Foreign currency forward contracts

   Other income
(expense), net
    —           —          5         (5

 

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UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in millions, except per share data, unless otherwise indicated)

 

         Nine Months Ended September 30, 2011     Nine Months Ended September 30, 2010  
     Location of income
(expense)
recognized on
derivative/hedged item
  Amount of  income
(expense)
recognized
on  derivative
     Amount of  income
(expense)
recognized
on hedged item
    Amount of  income
(expense)
recognized
on  derivative
     Amount of  income
(expense)
recognized
on hedged item
 

Derivatives designated as hedging instruments:

            

Fixed price diesel swaps

   Other income
(expense), net (1)
  $ *         $ *      
   Cost of equipment
rentals, excluding
depreciation (2),
(3)
    1       $ (17     *       $ (8

Derivatives not designated as hedging instruments:

            

Foreign currency forward contracts

   Other income
(expense), net
    4         (4     12         (12

 

* Amounts are insignificant (less than $1).
(1) Represents the ineffective portion of the fixed price diesel swaps.
(2) Amounts recognized on derivative represent the effective portion of the fixed price diesel swaps.
(3) Amounts recognized on hedged item reflect purchases of 1.7 million and 1.1 million gallons of diesel covered by the fixed price swaps during the three months ended September 30, 2011 and 2010, respectively, and purchases of 4.3 million and 2.7 million gallons of diesel covered by the fixed price swaps during the nine months ended September 30, 2011 and 2010, respectively.

5. Fair Value Measurements

We account for certain assets and liabilities at fair value. We categorize each of our fair value measurements in one of the following three levels based on the lowest level input that is significant to the fair value measurement in its entirety:

Level 1- Inputs to the valuation methodology are unadjusted quoted prices in active markets for identical assets.

Level 2- Observable inputs other than quoted prices in active markets for identical assets and liabilities include:

 

  a) quoted prices for similar assets in active markets;

 

  b) quoted prices for identical or similar assets in inactive markets;

 

  c) inputs other than quoted prices that are observable for the asset;

 

  d) inputs that are derived principally from or corroborated by observable market data by correlation or other means.

If the asset has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset.

Level 3- Inputs to the valuation methodology are unobservable (i.e., supported by little or no market activity) and significant to the fair value measure.

Assets and Liabilities Measured at Fair Value

As of September 30, 2011 and December 31, 2010, our only assets and liabilities measured at fair value were our fixed price diesel swaps contracts, which are Level 2 derivatives measured at fair value on a recurring basis. As of September 30, 2011, less than $1 and $2 were reflected in prepaid expenses and other assets, and accrued expenses and other liabilities, respectively, in our condensed consolidated balance sheets, reflecting the fair values of the fixed price diesel swaps contracts. As of December 31, 2010, less than $1 was reflected in prepaid expenses and other assets in our condensed consolidated balance sheets reflecting the fair value of the fixed price diesel swaps contracts. As discussed in note 4 to the condensed consolidated financial statements, we entered into the fixed price swap contracts on diesel purchases to mitigate the price risk associated with forecasted purchases of diesel. Fair value is determined based on observable market data. As of September 30, 2011, we have fixed price swap contracts that mature throughout 2011 and 2012 covering 5.9 million gallons of diesel which we will buy at the average contract price of $3.91 per gallon, while the average forward price for the hedged gallons was $3.64 per gallon as of September 30, 2011.

 

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UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in millions, except per share data, unless otherwise indicated)

 

Fair Value of Financial Instruments

The carrying amounts reported in our condensed consolidated balance sheets for accounts receivable, accounts payable and accrued expenses and other liabilities approximate fair value due to the immediate to short-term maturity of these financial instruments. The fair values of our senior secured asset-based revolving credit facility (“ABL facility”), accounts receivable securitization facility and 1 7/8 percent Convertible Senior Subordinated Notes approximate their book values as of September 30, 2011 and December 31, 2010. The estimated fair values of our other financial instruments as of September 30, 2011 and December 31, 2010 have been calculated based upon available market information or an appropriate valuation technique, and are as follows:

 

     September 30, 2011      December 31, 2010  
     Carrying
Amount
     Fair
Value
     Carrying
Amount
     Fair
Value
 

Subordinated convertible debentures

   $ 87       $ 64       $ 124       $ 92   

Senior and senior subordinated notes

     1,859         1,881         1,854         2,020   

Other debt, including capital leases (1)

     24         21         25         20   

 

(1) Primarily comprised of capital leases, the fair value of which is determined using the expected present value of the leases.

6. Debt and Subordinated Convertible Debentures

Debt consists of the following:

 

     September 30,
2011
    December 31,
2010
 

URNA and subsidiaries debt:

    

Accounts Receivable Securitization Facility (1)

   $ 269      $ 221   

$1.360 billion ABL Facility (2)

     756        683   

10  7/8 percent Senior Notes

     489        488   

9 1/4 percent Senior Notes

     493        492   

8 3/8 percent Senior Subordinated Notes

     750        750   

1 7/8 percent Convertible Senior Subordinated Notes

     22        22   

Other debt, including capital leases

     24        25   
  

 

 

   

 

 

 

Total URNA and subsidiaries debt

     2,803        2,681   
  

 

 

   

 

 

 

Holdings:

    

4 percent Convertible Senior Notes (3)

     127        124   
  

 

 

   

 

 

 

Total debt (4)

     2,930        2,805   

Less short-term portion (5)

     (401     (229
  

 

 

   

 

 

 

Total long-term debt

   $ 2,529      $ 2,576   
  

 

 

   

 

 

 

 

(1) In September 2011, we amended our accounts receivable securitization facility. The amended facility became effective on September 28, 2011 and expires on September 26, 2012. The amended facility may be extended on a 364-day basis by mutual agreement of the Company and the purchasers under the facility. The amended facility provides for , among other things, (i) a decrease in the facility size from $325 to $300, (ii) adjustments to the receivables subject to purchase, (iii) generally lower borrowing costs, which are based on commercial paper rates plus a specified spread, and (iv) a commitment fee based on the utilization of the facility. Borrowings under the amended facility will continue to be reflected as short-term debt on our condensed consolidated balance sheets. Key provisions of the amended 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 September 30, 2011, there were $399 of receivables 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;

 

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 certain financial ratio covenants under the ABL facility.

 

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UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in millions, except per share data, unless otherwise indicated)

 

At September 30, 2011, $5 was available under our accounts receivable securitization facility. The interest rate applicable to the accounts receivable securitization facility was 1.1 percent at September 30, 2011. During the nine months ended September 30, 2011, the monthly average amount outstanding under the accounts receivable securitization facility, including the former facility and the amended facility, was $218, and the weighted-average interest rate thereon was 1.5 percent. The maximum month-end amount outstanding under the accounts receivable securitization facility, including the former facility and the amended facility, during the nine months ended September 30, 2011 was $269.

(2) At September 30, 2011, $553 was available under our ABL facility, net of $51 of letters of credit. The interest rate applicable to the ABL facility was 3.4 percent at September 30, 2011. During the nine months ended September 30, 2011, the monthly average amount outstanding under the ABL facility was $689, and the weighted-average interest rate thereon was 3.4 percent. The maximum month-end amount outstanding under the ABL facility during the nine months ended September 30, 2011 was $768. As discussed in note 10 to the condensed consolidated financial statements, in October 2011, we amended the ABL facility. The amended facility, which expires on October 13, 2016, provides for, among other things, an increase in the facility size from $1.36 billion to $1.80 billion, an uncommitted incremental increase in the size of the facility of up to $500, and generally lower borrowing costs.
(3) The difference between the September 30, 2011 carrying value of the 4 percent Convertible Senior Notes and the $168 principal amount reflects the $41 unamortized portion of the original issue discount recognized upon issuance of the notes, which is being amortized through the maturity date of November 15, 2015. Because the 4 percent Convertible Senior Notes were convertible at September 30, 2011, an amount equal to the $41 unamortized portion of the original issue discount is separately classified in our condensed consolidated balance sheets and referred to as “temporary equity.” Based on the price of our common stock during the first and second quarters of 2011, holders of the 4 percent Convertible Senior Notes had the right to convert the notes during the second and third quarters of 2011 at a conversion price of $11.11 per share of common stock, and $5 of the 4 percent Convertible Senior Notes were converted during the nine months ended September 30, 2011. Based on the price of our common stock during the third quarter of 2011, holders of the 4 percent Convertible Senior Notes have the right to convert the notes during the fourth quarter of 2011 at the initial conversion price of $11.11 per share of common stock. Between October 1, 2011 (the beginning of the fourth quarter) and October 14, 2011, none of the 4 percent Convertible Senior Notes were converted.
(4)

In August 1998, a subsidiary trust of Holdings (the “Trust”) issued and sold $300 of 6  1/2 percent Convertible Quarterly Income Preferred Securities (“QUIPS”) in a private offering. The Trust used the proceeds from the offering to purchase 6  1/2 percent subordinated convertible debentures due 2028 (the “Debentures”), which resulted in Holdings receiving all of the net proceeds of the offering. The QUIPS are non-voting securities, carry a liquidation value of $50 (fifty dollars) per security and are convertible into Holdings’ common stock. Total debt at September 30, 2011 and December 31, 2010 excludes $87 and $124, respectively, of these Debentures, which are separately classified in our condensed consolidated balance sheets and referred to as “subordinated convertible debentures.” The subordinated convertible debentures reflect the obligation to our subsidiary that has issued the QUIPS. This subsidiary is not consolidated in our financial statements because we are not the primary beneficiary of the Trust. During the nine months ended September 30, 2011, we purchased an aggregate of $37 of QUIPS for $36. In connection with this transaction, we retired $37 principal amount of our subordinated convertible debentures and recognized a loss of $1, inclusive of the write-off of capitalized debt issuance costs. This loss is reflected in interest expense-subordinated convertible debentures in our condensed consolidated statements of operations. As discussed in note 10 to the condensed consolidated financial statements, we have provided notice to holders of the QUIPS that we will redeem $32 of the QUIPS in October 2011. In connection with this redemption, we will retire $32 principal amount of our subordinated convertible debentures.

(5) As of September 30, 2011, our short-term debt primarily reflects $269 of borrowings under our accounts receivable securitization facility and $127 of 4 percent Convertible Senior Notes. The 4 percent Convertible Senior Notes mature in 2015, but are reflected as short-term debt because they are convertible at September 30, 2011.

Convertible Note Hedge Transactions

        In connection with the November 2009 issuance of $173 aggregate principal amount of 4 percent Convertible Senior Notes, Holdings entered into convertible note hedge transactions with option counterparties. The convertible note hedge transactions cost $26, and decreased additional paid-in capital by $17, net of taxes, in our accompanying condensed consolidated statements of stockholders’ equity (deficit). The convertible note hedge transactions cover, subject to anti-dilution adjustments, 15.1 million shares of our common stock. The convertible note hedge transactions are intended to reduce, subject to a limit, the potential dilution with respect to our common stock upon conversion of the 4 percent Convertible Senior Notes. The effect of the convertible note hedge transactions is to increase the effective conversion price to $15.56 per share, equal to an approximately 75 percent premium over the $8.89 closing price of our common stock at issuance. The effective conversion price is subject to change in certain circumstances, such as if the 4 percent Convertible Senior Notes are converted prior to May 15, 2015. In the event the market value of our common stock exceeds the effective conversion price per share, the settlement amount received from such transactions will only partially offset the potential dilution. For example, if, at the time of exercise of the conversion right, the price of our common stock was $20.00 or $25.00 per share, assuming an effective conversion price of $15.56 per share, on a net basis, we would issue 3.4 million or 5.7 million shares, respectively. During the nine months ended September 30, 2011, $5 of the 4 percent Convertible Senior Notes were converted at an effective conversion price of $13.70. Upon the conversion of the $5 of the notes, we received $1 from the hedge counterparties, and recognized a $1 increase in additional paid-in capital. Additionally, upon the conversion of the $5 of the 4 percent Convertible

 

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UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in millions, except per share data, unless otherwise indicated)

 

Senior Notes, additional paid-in capital was reduced by $7 reflecting the excess of the cash transferred upon settlement over the $5 principal amount that was settled.

Loan Covenants and Compliance

As of September 30, 2011, we were in compliance with the covenants and other provisions of the ABL facility, the accounts receivable securitization facility, the senior notes and the QUIPS. 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.

As discussed in note 10 to the condensed consolidated financial statements, in October 2011, we amended the ABL facility. The only material financial covenants which currently exist relate to the fixed charge coverage ratio and the senior secured leverage ratio under the amended ABL facility. Both of these covenants were suspended on June 9, 2009 because the availability, as defined in the agreement governing the ABL facility then in effect, had exceeded 20 percent of the maximum revolver amount under the ABL facility. Since the June 9, 2009 suspension date and through September 30, 2011, availability under the ABL facility has exceeded 10 percent of the maximum revolver amount under the ABL facility and, as a result, these maintenance covenants remained inapplicable. Subject to certain limited exceptions specified in the amended ABL facility, the fixed charge coverage ratio and the senior secured leverage ratio under the amended ABL facility will only apply in the future if availability under the amended ABL facility falls below the greater of 10 percent of the maximum revolver amount under the amended ABL facility and $150. Under our amended 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.

7. Legal and Regulatory Matters

In addition to the disclosures provided in note 15 to our consolidated financial statements for the year ended December 31, 2010 filed on Form 10-K on February 1, 2011, we are also subject to a number of claims and proceedings that generally arise in the ordinary conduct of our business. These matters include, but are not limited to, general liability claims (including personal injury, product liability, and property and auto claims), indemnification and guarantee obligations, employee injuries and employment-related claims, self-insurance obligations and contract and real estate matters. Based on advice of counsel and available information, including current status or stage of proceeding, and taking into account accruals for matters where we have established them, we currently believe that any liabilities ultimately resulting from these ordinary course claims and proceedings will not, individually or in the aggregate, have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

 

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UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in millions, except per share data, unless otherwise indicated)

 

8. Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares plus the effect of dilutive potential common shares outstanding during the period. Diluted earnings per share for the three months ended September 30, 2010 excludes the impact of approximately 3.0 million common stock equivalents, since the effect of including these securities would be anti-dilutive. Diluted earnings (loss) per share for the nine months ended September 30, 2011 and 2010 excludes the impact of approximately 2.4 million and 9.2 million common stock equivalents, respectively, since the effect of including these securities would be anti-dilutive. The following table sets forth the computation of basic and diluted earnings (loss) per share (shares in thousands):

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2011      2010      2011     2010  

Numerator:

          

Income (loss) from continuing operations

   $ 65       $ 23       $ 73      $ (5

Convertible debt interest—1 7/8 percent notes

     —           —           —          —     

Subordinated convertible debt interest

     1         —           —          —     
  

 

 

    

 

 

    

 

 

   

 

 

 

Income (loss) from continuing operations available to common stockholders

     66         23         73        (5

Loss from discontinued operation

     —           —           (1     —     
  

 

 

    

 

 

    

 

 

   

 

 

 

Net income (loss) available to common stockholders

   $ 66       $ 23       $ 72      $ (5
  

 

 

    

 

 

    

 

 

   

 

 

 

Denominator:

          

Denominator for basic earnings (loss) per share—weighted-average common shares

     62,640         60,531         61,996        60,417   

Effect of dilutive securities:

          

Employee stock options and warrants

     633         383         1,215        —     

Convertible subordinated notes—1  7/8 percent

     1,015         5,275         1,015        —     

Convertible subordinated notes—4 percent

     6,379         1,592         8,578        —     

Subordinated convertible debentures

     2,122         —           —          —     

Restricted stock units

     545         751         630        —     
  

 

 

    

 

 

    

 

 

   

 

 

 

Denominator for diluted earnings (loss) per share—adjusted weighted-average common shares

     73,334         68,532         73,434        60,417   

Basic earnings (loss) per share:

          

Income (loss) from continuing operations

   $ 1.04       $ 0.37       $ 1.18      $ (0.09

Loss from discontinued operation

     —           —         $ (0.01     —     
  

 

 

    

 

 

    

 

 

   

 

 

 

Net income (loss)

   $ 1.04       $ 0.37       $ 1.17      $ (0.09

Diluted earnings (loss) per share:

          

Income (loss) from continuing operations

   $ 0.91       $ 0.33       $ 1.00      $ (0.09

Loss from discontinued operation

     —           —           (0.01     —     
  

 

 

    

 

 

    

 

 

   

 

 

 

Net income (loss)

   $ 0.91       $ 0.33       $ 0.99      $ (0.09

 

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UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in millions, except per share data, unless otherwise indicated)

 

9. Condensed Consolidating Financial Information of Guarantor Subsidiaries

URNA is 100 percent owned by Holdings (“Parent”) and has outstanding (i) certain indebtedness that is guaranteed by Parent and (ii) certain indebtedness that is guaranteed by both Parent and, with the exception of its U.S. special purpose vehicle (the “SPV”) which holds receivable assets relating to the Company’s accounts receivable securitization, all of URNA’s U.S. subsidiaries (the “guarantor subsidiaries”). However, this indebtedness is not guaranteed by URNA’s foreign subsidiaries and the SPV (together, the “non-guarantor subsidiaries”). The guarantor subsidiaries are all 100 percent-owned and the guarantees are made on a joint and several basis and are full and unconditional (subject to subordination provisions and subject to a standard limitation which provides that the maximum amount guaranteed by each guarantor will not exceed the maximum amount that can be guaranteed without making the guarantee void under fraudulent conveyance laws). Separate consolidated financial statements of the guarantor subsidiaries have not been presented because management believes that such information would not be material to investors. However, condensed consolidating financial information is presented. The condensed consolidating financial information of Parent and its subsidiaries is as follows:

CONDENSED CONSOLIDATING BALANCE SHEET

September 30, 2011

 

     Parent      URNA     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Eliminations     Total  
             Foreign     SPV       

ASSETS

                 

Cash and cash equivalents

   $ —        $ 4      $ —        $ 22      $ —        $ —       $ 26   

Accounts receivable, net

     —          8        9         98        338         —         453   

Intercompany receivable (payable)

     112         (849     747         (149     —          139        —    

Inventory

     —          31        17         8        —          —         56   

Prepaid expenses and other assets

     —          49        2         17        —          —         68   

Deferred taxes

     —          50        4         1        —          —         55   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     112         (707     779         (3     338         139        658   

Rental equipment, net

     —          1,312        849         426        —          —         2,587   

Property and equipment, net

     43         175        126         27        —          —         371   

Investments in subsidiaries

     217         2,077        436         —         —          (2,730     —    

Goodwill and other intangibles, net

     —          97        101         134        —          —         332   

Other long-term assets

     7         50        —          —         —          —         57   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 379       $ 3,004      $ 2,291       $ 584      $ 338       $ (2,591   $ 4,005   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

                 

Short-term debt and current maturities of long-term debt

   $ 127       $ 2      $ —        $ 3      $ 269       $ —       $ 401   

Accounts payable

     —          129        69         35        —          —         233   

Accrued expenses and other liabilities

     39         125        43         38        —          —         245   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total current liabilities

     166         256        112         76        269         —          879   

Long-term debt

     —          2,365        139         25        —          —         2,529   

Subordinated convertible debentures

     87         —         —          —         —          —         87   

Deferred taxes

     16         163        171         47        —          —         397   

Other long-term liabilities

     55         3        —          —         —          —         58   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     324         2,787        422         148        269         —          3,950   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Temporary equity (note 6)

     41         —         —          —         —          —         41   

Total stockholders’ equity (deficit)

     14         217        1,869         436        69         (2,591     14   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ equity (deficit)

   $ 379       $ 3,004      $ 2,291       $ 584      $ 338       $ (2,591   $ 4,005   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

17


Table of Contents

UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in millions, except per share data, unless otherwise indicated)

 

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2010

 

     Parent     URNA     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
     Eliminations     Total  
            Foreign     SPV       

ASSETS

                

Cash and cash equivalents

   $ —        $ 4      $ —         $ 199      $ —         $ —        $ 203   

Accounts receivable, net

     —          5        6         73        293         —          377   

Intercompany receivable (payable)

     115        (837     735         (155     —           142        —     

Inventory

     —          19        13         7        —           —          39   

Prepaid expenses and other assets

     —          31        4         2        —           —          37   

Deferred taxes

     —          65        3         1        —           —          69   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total current assets

     115        (713     761         127        293         142        725   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Rental equipment, net

     —          1,243        742         295        —           —          2,280   

Property and equipment, net

     43        186        136         28        —           —          393   

Investments in subsidiaries

     173        2,018        414         —          —           (2,605     —     

Goodwill and other intangibles, net

     —          99        83         45        —           —          227   

Other long-term assets

     8        60        —           —          —           —          68   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 339      $ 2,893      $ 2,136       $ 495      $ 293       $ (2,463   $ 3,693   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

                

Short-term debt and current maturities of long-term debt

   $ —        $ 8      $ —         $ —        $ 221       $ —        $ 229   

Accounts payable

     —          83        26         23        —           —          132   

Accrued expenses and other liabilities

     37        146        —           25        —           —          208   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total current liabilities

     37        237        26         48        221         —          569   

Long-term debt

     124        2,306        146         —          —           —          2,576   

Subordinated convertible debentures

     124        —          —           —          —           —          124   

Deferred taxes

     17        175        160         33        —           —          385   

Other long-term liabilities

     57        2        —           —          —           —          59   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     359        2,720        332         81        221         —          3,713   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total stockholders’ (deficit) equity

     (20     173        1,804         414        72         (2,463     (20
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and stockholders’ (deficit) equity

   $ 339      $ 2,893      $ 2,136       $ 495      $ 293       $ (2,463   $ 3,693   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

18


Table of Contents

UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in millions, except per share data, unless otherwise indicated)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended September 30, 2011

 

     Parent     URNA     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total  
         Foreign      SPV      

Revenues:

               

Equipment rentals

   $ —        $ 284      $ 213      $ 107       $ —        $ —        $ 604   

Sales of rental equipment

     —          25        11        6         —          —          42   

Sales of new equipment

     —          10        6        8         —          —          24   

Contractor supplies sales

     —          12        6        5         —          —          23   

Service and other revenues

     —          11        5        4         —          —          20   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total revenues

     —          342        241        130         —          —          713   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Cost of revenues:

               

Cost of equipment rentals, excluding depreciation

     —          126        97        38         —          —          261   

Depreciation of rental equipment

     —          57        35        18         —          —          110   

Cost of rental equipment sales

     —          16        7        4         —          —          27   

Cost of new equipment sales

     —          8        5        6         —          —          19   

Cost of contractor supplies sales

     —          7        4        4         —          —          15   

Cost of service and other revenues

     —          6        1        —           —          —          7   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total cost of revenues

     —          220        149        70         —          —          439   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Gross profit

     —          122        92        60         —          —          274   

Selling, general and administrative expenses

     7        40        35        17         4        —          103   

Restructuring charge

     —          1        1        —           —          —          2   

Non-rental depreciation and amortization

     4        4        2        3         —          —          13   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (11     77        54        40         (4     —          156   

Interest expense (income), net

     3        51        (7     2         1        7        57   

Interest expense-subordinated convertible debentures

     1        —          —          —           —          —          1   

Other (income) expense, net

     (19     17        12        2         (10     —          2   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income before provision (benefit) for income taxes

     4        9        49        36         5        (7     96   

Provision (benefit) for income taxes

     2        (20     34        9         6        —          31   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

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

     2        29        15        27         (1     (7     65   

Equity in net earnings (loss) of subsidiaries

     63        34        20        —           —          (117     —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 65      $ 63      $ 35      $ 27       $ (1 )    $ (124 )    $ 65   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

19


Table of Contents

UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in millions, except per share data, unless otherwise indicated)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended September 30, 2010

 

     Parent     URNA     Guarantor
Subsidiaries
     Non-Guarantor
Subsidiaries
    Eliminations     Total  
            Foreign     SPV      

Revenues:

               

Equipment rentals

   $ —        $ 255      $ 180       $ 72      $ —        $ —        $ 507   

Sales of rental equipment

     —          15        12         5        —          —          32   

Sales of new equipment

     —          11        4         4        —          —          19   

Contractor supplies sales

     —          11        8         5        —          —          24   

Service and other revenues

     —          12        5         6        —          —          23   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     —          304        209         92        —          —          605   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenues:

               

Cost of equipment rentals, excluding depreciation

     —          119        87         31        —          —          237   

Depreciation of rental equipment

     —          54        32         12        —          —          98   

Cost of rental equipment sales

     —          9        9         4        —          —          22   

Cost of new equipment sales

     —          9        3         3        —          —          15   

Cost of contractor supplies sales

     —          7        6         3        —          —          16   

Cost of service and other revenues

     —          6        1         1        —          —          8   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of revenues

     —          204        138         54        —          —          396   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     —          100        71         38        —          —          209   

Selling, general and administrative expenses

     12        44        20         14        5        —          95   

Restructuring charge

     —          2        5         —          —          —          7   

Non-rental depreciation and amortization

     4        6        3         1        —          —          14   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (16     48        43         23        (5     —          93   

Interest expense (income), net

     3        49        3         (1     1        —          55   

Interest expense-subordinated convertible debentures

     2        —          —           —          —          —          2   

Other (income) expense, net

     (17     12        7         4        (8     —          (2
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before (benefit) provision for income taxes

     (4     (13     33         20        2        —          38   

(Benefit) provision for income taxes

     (2     (7     19         4        1        —          15   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

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

     (2     (6     14         16        1        —          23   

Equity in net earnings (loss) of subsidiaries

     25        31        —           —          —          (56     —     
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 23      $ 25      $ 14       $ 16      $ 1      $ (56   $ 23   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

20


Table of Contents

UNITED RENTALS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Dollars in millions, except per share data, unless otherwise indicated)

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2011

 

     Parent     URNA     Guarantor
Subsidiaries
    Non-Guarantor
Subsidiaries
    Eliminations     Total  
         Foreign      SPV      

Revenues:

               

Equipment rentals

   $ —        $ 756      $ 540      $ 266       $ —       $ —        $ 1,562   

Sales of rental equipment

     —          66        32        17         —          —          115   

Sales of new equipment

     —          27        15        18         —