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United Rentals 10-Q 2014
URI-9.30.2014-10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 ___________________________________
FORM 10-Q
___________________________________
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 1-14387
Commission File Number 1-13663
___________________________________ 
United Rentals, Inc.
United Rentals (North America), Inc.
(Exact Names of Registrants as Specified in Their Charters)
 ___________________________________
Delaware
Delaware
 
06-1522496
86-0933835
(States of Incorporation)
 
(I.R.S. Employer Identification Nos.)
 
 
100 First Stamford Place, Suite 700
Stamford, Connecticut
 
06902
(Address of Principal Executive Offices)
 
(Zip Code)
Registrants’ Telephone Number, Including Area Code: (203) 622-3131 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    o  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
 
x
Accelerated Filer
 
o
 
 
Non-Accelerated Filer
 
o
Smaller Reporting Company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    o  Yes    x   No
As of October 13, 2014, there were 99,808,171 shares of United Rentals, Inc. common stock, $0.01 par value, outstanding. There is no market for the common stock of United Rentals (North America), Inc., all outstanding shares of which are owned by United Rentals, Inc.
This combined Form 10-Q is separately filed by (i) United Rentals, Inc. and (ii) United Rentals (North America), Inc. (which is a wholly owned subsidiary of United Rentals, Inc.). United Rentals (North America), Inc. meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this report with the reduced disclosure format permitted by such instruction.




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

2



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

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

the possibility that RSC Holdings Inc. ("RSC"), National Pump1 or other companies that we have acquired or may acquire, in our specialty business or otherwise, could have undiscovered liabilities or involve other unexpected costs, may strain our management capabilities or may be difficult to integrate;
a change in the pace of the recovery in our end markets; our business is cyclical and highly sensitive to North American construction and industrial activities as well as the energy sector, in general; although we have experienced an upturn in rental activity, there is no certainty this trend will continue; if the pace of the recovery slows or construction activity declines, our revenues and, because many of our costs are fixed, our profitability may be adversely affected;
our significant indebtedness (which totaled $8.1 billion at September 30, 2014) requires us to use a substantial portion of our cash flow for debt service and can constrain our flexibility in responding to unanticipated or adverse business conditions;
inability to refinance our indebtedness at terms that are favorable to us, or at all;
incurrence of additional debt, which could exacerbate the risks associated with our current level of indebtedness;
noncompliance with financial or other covenants in our debt agreements, which could result in our lenders terminating our credit facilities and requiring us to repay outstanding borrowings;
restrictive covenants and amount of borrowings permitted in our debt instruments, which can limit our financial and operational flexibility;
inability to benefit from government spending, including spending associated with infrastructure projects;
fluctuations in the price of our common stock and inability to complete stock repurchases in the time frame and/or on the terms anticipated;
rates we charge and time utilization we achieve being less than anticipated;
inability to manage credit risk adequately or to collect on contracts with a large number of customers;
inability to access the capital that our businesses or growth plans may require;
incurrence of impairment charges;
the fact that our holding company structure requires us to depend in part on distributions from subsidiaries and such distributions could be limited by contractual or legal restrictions;
increases in our loss reserves to address business operations or other claims and any claims that exceed our established levels of reserves;
incurrence of additional expenses (including indemnification obligations) and other costs in connection with litigation, regulatory and investigatory matters;
the outcome or other potential consequences of regulatory matters and commercial litigation;
shortfalls in our insurance coverage;
our charter provisions as well as provisions of certain debt agreements and our significant indebtedness may have the effect of making more difficult or otherwise discouraging, delaying or deterring a takeover or other change of control of us;
turnover in our management team and inability to attract and retain key personnel;
costs we incur being more than anticipated, and the inability to realize expected savings in the amounts or time frames planned;
dependence on key suppliers to obtain equipment and other supplies for our business on acceptable terms;
inability to sell our new or used fleet in the amounts, or at the prices, we expect;
competition from existing and new competitors;

_______________

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

3



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

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


4


PART I. FINANCIAL INFORMATION
 
Item 1.
Financial Statements

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

 
$
175

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

 
804

Inventory
112

 
70

Prepaid expenses and other assets
64

 
53

Deferred taxes
93

 
260

Total current assets
1,378

 
1,362

Rental equipment, net
6,146

 
5,374

Property and equipment, net
423

 
421

Goodwill
3,270

 
2,953

Other intangible assets, net
1,165

 
1,018

Other long-term assets
101

 
103

Total assets
$
12,483

 
$
11,231

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

 
$
604

Accounts payable
505

 
292

Accrued expenses and other liabilities
572

 
390

Total current liabilities
1,695

 
1,286

Long-term debt
7,477

 
6,569

Deferred taxes
1,412

 
1,459

Other long-term liabilities
83

 
69

Total liabilities
10,667

 
9,383

Temporary equity (note 8)
3

 
20

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

 
1

Additional paid-in capital
2,127

 
2,054

Retained earnings (accumulated deficit)
309

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

Total stockholders’ equity
1,813

 
1,828

Total liabilities and stockholders’ equity
$
12,483

 
$
11,231

See accompanying notes.

5


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

2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Equipment rentals
$
1,315

 
$
1,138

 
$
3,499

 
$
3,063

Sales of rental equipment
140

 
102

 
388

 
356

Sales of new equipment
42

 
29

 
105

 
74

Contractor supplies sales
23

 
23

 
64

 
66

Service and other revenues
24

 
19

 
65

 
58

Total revenues
1,544

 
1,311

 
4,121

 
3,617

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

 
422

 
1,336

 
1,214

Depreciation of rental equipment
236

 
219

 
682

 
629

Cost of rental equipment sales
82

 
62

 
227

 
232

Cost of new equipment sales
33

 
23

 
84

 
59

Cost of contractor supplies sales
16

 
15

 
44

 
44

Cost of service and other revenues
9

 
6

 
23

 
19

Total cost of revenues
856

 
747

 
2,396

 
2,197

Gross profit
688

 
564

 
1,725

 
1,420

Selling, general and administrative expenses
194

 
167

 
549

 
479

Merger related costs
4

 

 
13

 
8

Restructuring charge
(2
)
 
1

 
(2
)
 
12

Non-rental depreciation and amortization
70

 
59

 
200

 
185

Operating income
422

 
337

 
965

 
736

Interest expense, net
124

 
121

 
436

 
357

Interest expense—subordinated convertible debentures

 

 

 
3

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

 
218

 
539

 
379

Provision for income taxes
111

 
75

 
193

 
132

Net income
$
192

 
$
143

 
$
346

 
$
247

Basic earnings per share
$
1.95

 
$
1.53

 
$
3.57

 
$
2.65

Diluted earnings per share
$
1.84

 
$
1.35

 
$
3.29

 
$
2.33

See accompanying notes.

6



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


$
143

 
$
346

 
$
247

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

21

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

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

 
$
164

 
$
292

 
$
216


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


See accompanying notes.


7


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

 
$
1

 
$
2,054

 
$
(37
)
 
5

 
$
(209
)
 
$
19

Net income
 
 
 
 
 
 
346

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

 
 
 
 
 
 
 
 
Exercise of common stock options
 
 
 
 
2

 
 
 
 
 
 
 
 
4 percent Convertible Senior Notes (2)
10

 
 
 
42

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

 
(380
)
 
 
Balance at September 30, 2014
100

 
$
1

 
$
2,127

 
$
309

 
$
8

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



See accompanying notes.

8


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

 
$
247

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

 
814

Amortization of deferred financing costs and original issue discounts
14

 
16

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

 
1

Stock compensation expense, net
48

 
34

Merger related costs
13

 
8

Restructuring charge
(2
)
 
12

Loss on extinguishment of debt securities
80

 
1

Loss on retirement of subordinated convertible debentures

 
2

Increase in deferred taxes
134

 
97

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

 
(7
)
Increase in accounts payable
197

 
82

Increase (decrease) in accrued expenses and other liabilities
34

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

 
1,115

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

 
356

Proceeds from sales of non-rental equipment
26

 
15

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

 
2,931

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

 
5

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

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

 
(40
)
Net cash provided by financing activities
441

 
116

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

Cash and cash equivalents at beginning of period
175

 
106

Cash and cash equivalents at end of period
$
168

 
$
125

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

 
$
44

Cash paid for interest, including subordinated convertible debentures
315

 
322

See accompanying notes.

9


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

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

 Contingent consideration (2)
76

 Total purchase consideration (3)
$
849

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

10

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


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

 Inventory
19

 Deferred taxes
11

 Rental equipment
178

 Property and equipment
10

 Intangibles (2)
289

 Other assets
1

 Total identifiable assets acquired
552

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

 Goodwill (3)
322

 Net assets acquired
$
849

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

10
 Non-compete agreements
15

6
 Total
$
289

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

11

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


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

 
2013

United Rentals historic revenues
$
1,311

 
$
4,121

 
$
3,617

National Pump historic revenues
55

 
62

 
149

Pro forma revenues
1,366

 
4,183

 
3,766

United Rentals historic pretax income
218

 
539

 
379

National Pump historic pretax income
18

 
20

 
44

Combined pretax income
236

 
559

 
423

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

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

 

 
1

Elimination of merger costs (5)

 
8

 

Pro forma pretax income
$
214

 
$
612

 
$
296

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

12

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


3. Segment Information
Our reportable segments are general rentals and trench safety, power and HVAC, and pump solutions. The general rentals segment includes the rental of construction, infrastructure, industrial and homeowner equipment and related services and activities. The general rentals segment’s customers include construction and industrial companies, manufacturers, utilities, municipalities, homeowners and government entities. The general rentals segment comprises 12 geographic regions—Eastern Canada, Gulf South, Industrial (which serves the geographic Gulf region and has a strong industrial presence), Mid-Atlantic, Mid-Central, Midwest, Mountain West, Northeast, Pacific West, South, Southeast and Western Canada—and operates throughout the United States and Canada. The trench safety, power and HVAC, and pump solutions segment includes the rental of specialty construction products and related services. The trench safety, power and HVAC, and pump solutions segment is comprised of the Trench Safety region, which rents trench safety equipment such as trench shields, aluminum hydraulic shoring systems, slide rails, crossing plates, construction lasers and line testing equipment for underground work, the Power and HVAC region, which rents power and HVAC equipment such as portable diesel generators, electrical distribution equipment, and temperature control equipment including heating and cooling equipment, and the Pump Solutions region, which rents pumps primarily used by energy and petrochemical customers. The trench safety, power and HVAC, and pump solutions segment’s customers include construction companies involved in infrastructure projects, municipalities and industrial companies. This segment operates throughout the United States and in Canada. These segments align our external segment reporting with how management evaluates and allocates resources. We evaluate segment performance based on segment equipment rentals gross profit.
 
The following tables set forth financial information by segment.  

13

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


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

 
$
188

 
$
1,315

Sales of rental equipment
133

 
7

 
140

Sales of new equipment
31

 
11

 
42

Contractor supplies sales
19

 
4

 
23

Service and other revenues
21

 
3

 
24

Total revenue
1,331

 
213

 
1,544

Depreciation and amortization expense
267

 
39

 
306

Equipment rentals gross profit
496

 
103

 
599

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

 
$
100

 
$
1,138

Sales of rental equipment
98

 
4

 
102

Sales of new equipment
27

 
2

 
29

Contractor supplies sales
21

 
2

 
23

Service and other revenues
18

 
1

 
19

Total revenue
1,202

 
109

 
1,311

Depreciation and amortization expense
261

 
17

 
278

Equipment rentals gross profit
445

 
52

 
497

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

 
$
420

 
$
3,499

Sales of rental equipment
371

 
17

 
388

Sales of new equipment
80

 
25

 
105

Contractor supplies sales
55

 
9

 
64

Service and other revenues
55

 
10

 
65

Total revenue
3,640

 
481

 
4,121

Depreciation and amortization expense
789

 
93

 
882

Equipment rentals gross profit
1,266

 
215

 
1,481

Capital expenditures
1,391

 
177

 
1,568

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

 
$
239

 
$
3,063

Sales of rental equipment
343

 
13

 
356

Sales of new equipment
69

 
5

 
74

Contractor supplies sales
60

 
6

 
66

Service and other revenues
54

 
4

 
58

Total revenue
3,350

 
267

 
3,617

Depreciation and amortization expense
771

 
43

 
814

Equipment rentals gross profit
1,106

 
114

 
1,220

Capital expenditures
1,461

 
109

 
1,570


14

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


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

 
$
10,677

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

 
554

Total assets
$
12,483

 
$
11,231

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

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

Three Months Ended

Nine Months Ended
 
September 30,

September 30,
 
2014

2013

2014

2013
Total equipment rentals gross profit
$
599

 
$
497

 
$
1,481

 
$
1,220

Gross profit from other lines of business
89

 
67

 
244

 
200

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

 
(13
)

(8
)
Restructuring charge
2

 
(1
)
 
2

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

 

 

 
(3
)
Other income, net
5

 
2

 
10

 
3

Income before provision for income taxes
$
303

 
$
218


$
539


$
379

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

15

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


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

 
$
(1
)
 
$
(3
)
 
$
9

Severance costs
 

 

 

 

Total
 
$
13

 
$
(1
)
 
$
(3
)
 
$
9

RSC Merger Related Restructuring Program
 
 
 
 
 
 
 
 
Branch closure charges
 
$
20

 
$
(1
)
 
$
(6
)
 
$
13

Severance costs
 
2

 

 
(2
)
 

Total
 
$
22

 
$
(1
)
 
$
(8
)
 
$
13

Total
 
 
 
 
 
 
 
 
Branch closure charges
 
$
33

 
$
(2
)
 
$
(9
)
 
$
22

Severance costs
 
2

 

 
(2
)
 

Total
 
$
35

 
$
(2
)
 
$
(11
)
 
$
22

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

 
$
141

 
$
2,953

Goodwill related to acquisitions (2)
12

 
319

 
331

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

 
$
459

 
$
3,270

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

 
$
27

 
$
43

Customer relationships
12 years
 
$
1,505

 
$
409

 
$
1,096

Trade names and associated trademarks
31 months
 
$
81

 
$
55

 
$
26


 

16

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


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

 
$
18

 
$
36

Customer relationships
13 years
 
$
1,227

 
$
285

 
$
942

Trade names and associated trademarks
40 months
 
$
81

 
$
41

 
$
40


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

Customer relationships
10 years
 
 
$
249

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

2015
196

2016
175

2017
147

2018
126

Thereafter
469

Total
$
1,165


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

17

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


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

18

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


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

 
 
 
 $ *

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

 
$
(10
)
 
*

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

 
2

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

 
 
 
 $ *

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

 
$
(32
)
 
 *

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

 
(2
)
 
2

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

19

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


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

 
$
6,348

 
$
5,381

 
$
5,848

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

 
32

 
136

 
149

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

20

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


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

 
$
430

$2.3 billion ABL Facility (2)
1,336

 
1,106

3/4 percent Senior Secured Notes
750

 
750

10 1/4 percent Senior Notes (3)

 
220

9 1/4 percent Senior Notes (4)

 
494

3/8 percent Senior Notes
750

 
750

8 3/8 percent Senior Subordinated Notes
750

 
750

8 1/4 percent Senior Notes
688

 
692

7 5/8 percent Senior Notes
1,325

 
1,325

6 1/8 percent Senior Notes (5)
951

 
400

3/4 percent Senior Notes (6)
850

 

Capital leases
114

 
120

Total URNA and subsidiaries debt
8,064

 
7,037

Holdings:
 
 
 
4 percent Convertible Senior Notes (7)
31

 
136

Total debt
8,095

 
7,173

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

 
$
6,569

 ___________________

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

21

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


expense upon redemption. The loss represented the difference between the net carrying amount and the total purchase price of the notes.
(5)
In connection with the National Pump acquisition described above, in March 2014, URNA issued $525 principal amount of 6 1/8 percent Senior Notes as an add on to our existing 6 1/8 percent Senior Notes. The net proceeds from the issuance were $546 (after deducting offering expe