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Leases

3 Months Ended

Mar. 31, 2020

As discussed in note 2 to the condensed consolidated financial statements, most of our equipment rental revenue is accounted for as lease revenue under Topic 842 (such lease revenue represented 77 percent of our total revenues for the three months ended March 31, 2020). See note 2 to the condensed consolidated financial statements for a discussion of our revenue accounting (such discussion includes lessor disclosures required under Topic 842).

We determine if an arrangement is a lease at inception. Our material lease contracts are generally for real estate or vehicles, and the determination of whether such contracts contain leases generally does not require significant estimates or judgments. We lease real estate and equipment under operating leases. We lease a significant portion of our branch locations, and also lease other premises used for purposes such as district and regional offices and service centers. Our finance lease obligations consist primarily of rental equipment (primarily vehicles) and building leases.

Operating leases result in the recognition of right-of-use ("ROU") assets and lease liabilities on the balance sheet. ROU assets represent our right to use the leased asset for the lease term and lease liabilities represent our obligation to make lease payments. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate at the commencement date to determine the present value of lease payments. The operating lease ROU assets also include any lease payments made and exclude lease incentives. Our lease terms may include options, at our sole discretion, to extend or terminate the lease that we are reasonably certain to exercise. The amount of payments associated with such options reflected in the “Maturity of lease liabilities” table below is not material. Most real estate leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 5 years or more. Lease expense is recognized on a straight-line basis over the lease term.

Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense on such leases is recognized on a straight-line basis over the lease term. The primary leases we enter into with initial terms of 12 months or less are for equipment that we rent from vendors and then rent to our customers. We generate sublease revenue from such leases that we refer to as "re-rent revenue" as discussed in note 2 to the condensed consolidated financial statements. Apart from this re-rent revenue, we do not generate material sublease income.

We have lease agreements with lease and non-lease components, and, for our real estate operating leases, we use the practical expedient that allows us to account for the lease and non-lease components as a single lease component. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The tables below present financial information associated with our leases as of March 31, 2020 and December 31, 2019, and for the three months ended March 31, 2020 and 2019.



	Classification	March 31, 2020			December 31, 2019
Assets
Operating lease assets	Operating lease right-of-use assets	$	666		$	669
Finance lease assets	Rental equipment	296			286
	Less accumulated depreciation	(87		)	(89		)
	Rental equipment, net	209			197
	Property and equipment, net:
	Non-rental vehicles	8			8
	Buildings	18			18
	Less accumulated depreciation and amortization	(9		)	(15		)
	Property and equipment, net	17			11
Total leased assets		892			877
Liabilities
Current
Operating	Accrued expenses and other liabilities	177			178
Finance	Short-term debt and current maturities of long-term debt	49			58
Long-term
Operating	Operating lease liabilities	530			533
Finance	Long-term debt	97			69
Total lease liabilities		$	853		$	838



Lease cost	Classification	Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
Operating lease cost (1)	Cost of equipment rentals, excluding depreciation (1)	$	92		$	89
	Selling, general and administrative expenses	3			3
	Restructuring charge	1			6
Finance lease cost
Amortization of leased assets	Depreciation of rental equipment	7			7
	Non-rental depreciation and amortization	—			1
Interest on lease liabilities	Interest expense, net	3			2
Sublease income (2)		(34		)	(38		)
Net lease cost		$	72		$	70

_________________

(1) Includes variable lease costs, which are immaterial. Cost of equipment rentals, excluding depreciation for the three months ended, March 31, 2020 and 2019 includes $31 and $34, respectively, of short-term lease costs associated with equipment that we rent from vendors and then rent to our customers, as discussed further above. Apart from these costs, short-term lease costs are immaterial.

(2) Primarily reflects re-rent revenue as discussed further above.



Maturity of lease liabilities (as of March 31, 2020)	Operating leases (1)			Finance leases (2)
2020	$	157		$	45
2021	186			55
2022	149			31
2023	115			18
2024	81			2
Thereafter	103			6
Total	791			157
Less amount representing interest	(84		)	(11		)
Present value of lease liabilities	$	707		$	146

_________________

(1) Reflects payments for non-cancelable operating leases with initial or remaining terms of one year or more as of March 31, 2020. The table above does not include any legally binding minimum lease payments for leases signed but not yet commenced, and such leases are not material in the aggregate.

(2) The table above does not include any legally binding minimum lease payments for leases signed but not yet commenced, and such leases are not material in the aggregate.



Lease term and discount rate	March 31, 2020		December 31, 2019
Weighted-average remaining lease term (years)
Operating leases	4.8		4.8
Finance leases	3.2		3.2
Weighted-average discount rate
Operating leases	4.6	%	4.7	%
Finance leases	3.7	%	4.0	%



Other information	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	52	$	50
Operating cash flows from finance leases	3		2
Financing cash flows from finance leases	12		10
Leased assets obtained in exchange for new operating lease liabilities	48		75
Leased assets obtained in exchange for new finance lease liabilities	$	34	$	8

Leases

The tables below present financial information associated with our leases as of March 31, 2020 and December 31, 2019, and for the three months ended March 31, 2020 and 2019.



	Classification	March 31, 2020			December 31, 2019
Assets
Operating lease assets	Operating lease right-of-use assets	$	666		$	669
Finance lease assets	Rental equipment	296			286
	Less accumulated depreciation	(87		)	(89		)
	Rental equipment, net	209			197
	Property and equipment, net:
	Non-rental vehicles	8			8
	Buildings	18			18
	Less accumulated depreciation and amortization	(9		)	(15		)
	Property and equipment, net	17			11
Total leased assets		892			877
Liabilities
Current
Operating	Accrued expenses and other liabilities	177			178
Finance	Short-term debt and current maturities of long-term debt	49			58
Long-term
Operating	Operating lease liabilities	530			533
Finance	Long-term debt	97			69
Total lease liabilities		$	853		$	838



Lease cost	Classification	Three Months Ended March 31, 2020			Three Months Ended March 31, 2019
Operating lease cost (1)	Cost of equipment rentals, excluding depreciation (1)	$	92		$	89
	Selling, general and administrative expenses	3			3
	Restructuring charge	1			6
Finance lease cost
Amortization of leased assets	Depreciation of rental equipment	7			7
	Non-rental depreciation and amortization	—			1
Interest on lease liabilities	Interest expense, net	3			2
Sublease income (2)		(34		)	(38		)
Net lease cost		$	72		$	70

_________________

(2) Primarily reflects re-rent revenue as discussed further above.



Maturity of lease liabilities (as of March 31, 2020)	Operating leases (1)			Finance leases (2)
2020	$	157		$	45
2021	186			55
2022	149			31
2023	115			18
2024	81			2
Thereafter	103			6
Total	791			157
Less amount representing interest	(84		)	(11		)
Present value of lease liabilities	$	707		$	146

_________________

(2) The table above does not include any legally binding minimum lease payments for leases signed but not yet commenced, and such leases are not material in the aggregate.



Lease term and discount rate	March 31, 2020		December 31, 2019
Weighted-average remaining lease term (years)
Operating leases	4.8		4.8
Finance leases	3.2		3.2
Weighted-average discount rate
Operating leases	4.6	%	4.7	%
Finance leases	3.7	%	4.0	%



Other information	Three Months Ended March 31, 2020		Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	52	$	50
Operating cash flows from finance leases	3		2
Financing cash flows from finance leases	12		10
Leased assets obtained in exchange for new operating lease liabilities	48		75
Leased assets obtained in exchange for new finance lease liabilities	$	34	$	8