UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

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

For the quarterly period ended March 31,June 30, 2009

 

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

For the transition period fromto

Commission File Number 1-14387

Commission File Number 1-13663

 

 

United Rentals, Inc.

Commission File Number 1-13663

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)

(203) 622-3131

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

 

 

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  ¨    No  ¨x (registrant is not yet required to provide financial disclosure in an Interactive Data File format)

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filerx Accelerated Filer  ¨x  Non-AcceleratedAccelerated Filer¨ ¨
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 April 28,July 27, 2009, there were 60,125,20060,128,333 shares of United Rentals, Inc. common stock, $.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 MARCH 31,JUNE 30, 2009

INDEX

 

      Page

PART I

  

FINANCIAL INFORMATION

  4

Item 1

  

Unaudited Condensed Consolidated Financial Statements

  4
  

United Rentals, Inc. Condensed Consolidated Balance Sheets as of March 31,June 30, 2009 and December 31, 2008 (unaudited)

  4
  

United Rentals, Inc. Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31,June 30, 2009 and 2008 (unaudited)

  5
  

United Rentals, Inc. Condensed Consolidated Statement of Stockholders’ Deficit for the ThreeSix Months Ended March 31,June 30, 2009 (unaudited)

  6
  

United Rentals, Inc. Condensed Consolidated Statements of Cash Flows for the ThreeSix Months Ended March 31,June 30, 2009 and 2008 (unaudited)

  7
  

Notes to Unaudited Condensed Consolidated Financial Statements

  8

Item 2

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  2021

Item 3

  

Quantitative and Qualitative Disclosures About Market Risk

  2629

Item 4

  

Controls and Procedures

  2729

PART II

 ��

OTHER INFORMATION

  28

Item 1

  

Legal Proceedings

  2829

Item 1A

  

Risk Factors

  2829

Item 2

  

Unregistered Sales of Equity Securities and Use of Proceeds

30

Item 4

  28Submission of Matters to a Vote of Security Holders30

Item 6

  

Exhibits

  2931
  

Signatures

  3032

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the “safe harbor”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 by any forward-looking statements. Certaininclude, but are not limited to, the following: (1) the depth and duration of such risksthe current economic downturn and uncertaintiesaccompanying decreases in North American construction and industrial activities, which have significantly affected revenues and, because many of our costs are describedfixed, our profitability, and which may further reduce demand and prices for our products and services; (2) inability to benefit from government spending associated with stimulus-related construction projects; (3) our highly leveraged capital structure, which 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; (4) noncompliance with financial or other covenants in our annual reportdebt agreements, which could result in our lenders terminating our credit facilities and requiring us to repay outstanding borrowings; (5) inability to access the capital that our businesses or growth plans may require; (6) increases in our maintenance and replacement costs as we age our fleet, and decreases in the residual value of our equipment; (7) inability to sell our new or used fleet in the amounts, or at the prices, we expect; (8) rates we can charge and time utilization we can achieve being less than anticipated; and (9) costs we incur being more than anticipated, and the inability to realize expected savings in the amounts or time frames planned. For a fuller description of these and other possible uncertainties, please refer to our Annual Report on Form 10-K for the year ended December 31, 2008.2008, as well as to our subsequent filings with the SEC. Our forward-looking statements contained herein speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. Wehereof, and we make no commitment to reviseupdate or updatepublicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or circumstances after the date any such statement is made.changes in expectations.

PART I. FINANCIAL INFORMATION

 

Item 1.Financial Statements

UNITED RENTALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In millions, except per share data)

 

  March 31,
2009
 December 31,
2008
   June 30,
2009
 December 31,
2008
 

ASSETS

      

Cash and cash equivalents

  $96  $77   $125   $77  

Accounts receivable, net of allowance for doubtful accounts of $25 and $23 at March 31, 2009 and December 31, 2008, respectively

   359   454 

Accounts receivable, net of allowance for doubtful accounts of $23 at June 30, 2009 and December 31, 2008

   375    454  

Inventory

   59   59    55    59  

Prepaid expenses and other assets

   33   37    36    37  

Deferred taxes

   75   76    74    76  
              

Total current assets

   622   703    665    703  

Rental equipment, net

   2,620   2,746    2,522    2,746  

Property and equipment, net

   444   447    434    447  

Goodwill and other intangible assets, net

   229   229    230    229  

Other long-term assets

   62   66    67    66  
              

Total assets

  $3,977  $4,191   $3,918   $4,191  
       
       

LIABILITIES AND STOCKHOLDERS’ DEFICIT

      

Current maturities of long-term debt

  $11  $13   $9   $13  

Accounts payable

   154   157    144    157  

Accrued expenses and other liabilities

   191   257    196    257  
              

Total current liabilities

   356   427    349    427  

Long-term debt

   3,075   3,186    3,042    3,186  

Subordinated convertible debentures

   146   146    124    146  

Deferred taxes

   410   414    407    414  

Other long-term liabilities

   46   47    42    47  
              

Total liabilities

   4,033   4,220    3,964    4,220  
              

Common stock—$0.01 par value, 500,000,000 shares authorized, 60,123,487 and 59,890,226 shares issued and outstanding at March 31, 2009 and December 31, 2008, respectively

   1   1 

Common stock—$0.01 par value, 500,000,000 shares authorized, 60,128,333 and 59,890,226 shares issued and outstanding at June 30, 2009 and December 31, 2008, respectively

   1    1  

Additional paid-in capital

   467   466    468    466  

Accumulated deficit

   (531)  (512)   (548  (512

Accumulated other comprehensive income

   7   16    33    16  
              

Total stockholders’ deficit

   (56)  (29)   (46  (29
              

Total liabilities and stockholders’ deficit

  $3,977  $4,191   $3,918   $4,191  
              

See accompanying notes.

UNITED RENTALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In millions, except per share amounts)

 

  Three Months Ended
March 31,
  Three Months Ended
June 30,
 Six Months Ended
June 30,
 
      2009         2008      2009 2008 2009 2008 

Revenues:

        

Equipment rentals

  $448  $578  $454   $628   $902   $1,206  

Sales of rental equipment

   67   66   84    68    151    134  

New equipment sales

   23   42   20    46    43    88  

Contractor supplies sales

   32   56   33    59    65    115  

Service and other revenues

   24   30   24    30    48    60  
                   

Total revenues

   594   772   615    831    1,209    1,603  
                   

Cost of revenues:

        

Cost of equipment rentals, excluding depreciation

   233   276   221    290    454    566  

Depreciation of rental equipment

   106   108   110    111    216    219  

Cost of rental equipment sales

   59   49   92    48    151    97  

Cost of new equipment sales

   20   34   17    39    37    73  

Cost of contractor supplies sales

   23   44   25    45    48    89  

Cost of service and other revenues

   9   12   9    12    18    24  
                   

Total cost of revenues

   450   523   474    545    924    1,068  
                   

Gross profit

   144   249   141    286    285    535  

Selling, general and administrative expenses

   108   129   101    128    209    257  

Restructuring charge

   4   3   20    1    24    4  

Charge related to settlement of SEC inquiry

   —      14    —      14  

Non-rental depreciation and amortization

   14   15   15    15    29    30  
                   

Operating income

   18   102   5    128    23    230  

Interest expense, net

   50   41   42    48    92    89  

Interest expense—subordinated convertible debentures

   2   2

Other income, net

   (1)  —  

Interest expense—subordinated convertible debentures, net

   (10  3    (8  5  

Other expense, net

   2    1    1    1  
                   

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

   (33)  59   (29  76    (62  135  

(Benefit) provision for income taxes

   (14)  21   (12  39    (26  60  
                   

Net (loss) income

  $(19) $38  $(17 $37   $(36 $75  
                   

(Loss) earnings per share:

   

Basic (loss) earnings per share

  $(0.32) $0.37

Diluted (loss) earnings per share

  $(0.32) $0.34

Preferred stock redemption charge

   —      (239  —      (239

Net loss available to common stockholders

  $(17 $(202 $(36 $(164

Loss per share:

     

Basic and diluted loss per share (inclusive of preferred stock redemption charge)

  $(0.28 $(2.33 $(0.60 $(1.89

See accompanying notes.

UNITED RENTALS, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT (UNAUDITED)

(InDollars in millions)

 

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

Balance at December 31, 2008

 60 $1 $466 $(512)  $16   60  $1  $466  $(512  $16

Comprehensive loss:

                

Net loss

     (19) $(19)          (36 $(36 

Other comprehensive loss:

                

Foreign currency translation adjustments

      (9)  (9)          17    17
                    

Comprehensive loss

     $(28)          $(19 
                    

Other, net

    1          2    
                             

Balance at March 31, 2009

 60 $1 $467 $(531)  $7 

Balance at June 30, 2009

  60  $1  $468  $(548  $33
                             

See accompanying notes.

UNITED RENTALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(InDollars in millions)

 

  Three Months Ended
March 31,
   Six Months Ended
June 30,
 
      2009         2008       2009 2008 

Cash Flows From Operating Activities:

      

Net (loss) income

  $(19) $38   $(36 $75  

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

      

Depreciation and amortization

   120   123    245    249  

Amortization and write-off of deferred financing and related costs

   4   2    8    7  

Gain on sales of rental equipment

   (8)  (17)   —      (37

Gain on sales of non-rental equipment

   (1)  —   

Loss (gain) on sales of non-rental equipment

   1    (1

Non-cash adjustments to equipment

   4   1    8    2  

Stock compensation expense, net

   2   1    4    2  

Gain on repurchase of high yield notes

   (4)  —   

Restructuring charge

   24    4 

Gain on repurchase of debt securities

   (17  —    

Gain on retirement of subordinated convertible debentures

   (13  —    

(Decrease) increase in deferred taxes

   (3)  18    (7  52  

Changes in operating assets and liabilities:

      

Decrease in accounts receivable

   93   65    83    39  

Increase in inventory

   —     (4)

Decrease in prepaid expenses and other assets

   4   2 

Decrease (increase) in inventory

   4    (3

Decrease (increase) in prepaid expenses and other assets

   1    (12

(Decrease) increase in accounts payable

   (3)  81    (14  117  

Decrease in accrued expenses and other liabilities

   (65)  (84)   (86  (47
              

Net cash provided by operating activities

   124   226    205    447  

Cash Flows From Investing Activities:

      

Purchases of rental equipment

   (52)  (136)   (138  (437

Purchases of non-rental equipment

   (12)  (15)   (26  (32

Proceeds from sales of rental equipment

   67   66    151    134  

Proceeds from sales of non-rental equipment

   3   2    8    5  

Purchases of other companies

   (2)  —      (1  —    
              

Net cash provided by (used in) investing activities

   4   (83)

Net cash used in investing activities

   (6  (330

Cash Flows From Financing Activities:

      

Proceeds from debt

   2,564   —      5,572    353  

Payments of debt

   (2,670)  (7)   (5,713  (486

Other

   (1)  —   

Cash paid in connection with preferred stock redemption

   —      (254

Payments of financing costs

   (14  (30

Excess tax benefits from share-based payment arrangements

   (1  —    
              

Net cash used in financing activities

   (107)  (7)   (156  (417

Effect of foreign exchange rates

   (2)  (2)   5    (1
              

Net increase in cash and cash equivalents

   19   134 

Net increase (decrease) in cash and cash equivalents

   48    (301

Cash and cash equivalents at beginning of period

   77   381    77    381  
              

Cash and cash equivalents at end of period

  $96  $515   $125   $80  
              

See accompanying notes.notes

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

General

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 holder.shareholder.

We rent equipment to a diverse customer base that includes construction and industrial companies, manufacturers, utilities, municipalities, homeowners and others in the United States, Canada and Mexico. 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, 2008 (the “2008 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 2008 Form 10-K. Certain reclassifications have been made to prior year financial information to conform to the current year presentation.

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

In 2006, the Financial Accounting Standards Board (“FASB”) issued Statement No. 157, “Fair Value Measurements” (“

(“Statement 157”). We adopted the provisions of Statement 157 on January 1, 2008. Statement 157 defines fair value, establishes a market-based framework or hierarchy for measuring fair value and expands disclosures about fair value measurements. Statement 157 is applicable whenever another accounting pronouncement requires or permits assets and liabilities to be measured at fair value. Statement 157 does not expand or require any new fair value measures; however, the application of this statement may change current practice. In February 2008, the FASB decided that an entity need not apply this standard to nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis until 2009. Accordingly, our adoption of this standard in 2008 was limited to financial assets and liabilities. The partial adoption of Statement 157 in 2008 for financial assets and liabilities did not have a material effect on our financial condition or results of operations. In the first quarter of 2009, we adopted the provisions of Statement 157 for our nonfinancial assets and liabilities, including those measured at fair value in impairment testing and those initially measured at fair value in a business combination. The full adoption of Statement 157 did not have a material effect on our financial condition or results of operations.

In April 2009, the FASB issued FASB Staff Position (“FSP”) FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (“FSP FAS 141(R)-1”). FSP FAS 141 (R)-1 amends and clarifies Statement No. 141(R), “Business Combinations,” to address application issues on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. Under FSP FAS 141 (R)-1, an acquirer is required to recognize at fair value an asset acquired or liability assumed in a business

combination that arises from a contingency if the acquisition date fair value can be determined during the measurement period. If the acquisition date fair value cannot be determined, the acquirer applies the recognition criteria in Statement No. 5, “Accounting for Contingencies,” and Interpretation No. 14, “Reasonable Estimation of the Amount of a Loss,” to determine whether the contingency should be recognized as of the acquisition date or after it. While there is no expected impact on our unaudited condensed consolidated financial statements with respect to the accounting for acquisitions completed prior to December 31, 2008, the adoption of FSP FAS 141 (R)-1 could materially change the accounting for business combinations consummated subsequent to that date.

In April 2009, the FASB announced that the proposed FSP FAS 107-b and APB 28-a, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-b and APB 28-a”), would be effective for interim and annual periods ending after June 15, 2009. FSP FAS 107-b and APB 28-a requires disclosure of the fair value of all financial assets and financial liabilities within the scope of Statement No. 107, “Disclosures about Fair Value of Financial Instruments,” for which it is practicable to estimate fair value, for interim and annual periods. We will includeSee note 5 to our unaudited condensed consolidated financial statements (“Fair Value of Financial Instruments”) for the additional disclosures required by FSP FAS 107-b and APB 28-a disclosures.

        In May 2009, the FASB issued Statement No. 165, “Subsequent Events” (“Statement 165”). Statement 165 is effective for interim and annual periods ending after the effective date of June 15, 2009. Statement 165 establishes general standards of accounting for, and disclosure of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, Statement 165 establishes (i) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and (iii) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The adoption of Statement 165 did not have a material effect on our financial condition or results of operations. See note 9 to our unaudited condensed consolidated financial statements for the required Statement 165 disclosures.

In June 2009, the FASB issued Statement No. 167, “Amendments to FASB Interpretation No. 46(R)” (“Statement 167”). Statement 167 is effective for fiscal years beginning after November 15, 2009, and for interim and annual reporting periods thereafter. Statement 167 amends FASB Interpretation No. 46 (R) (“FIN 46 (R)”), “Consolidation of Variable Interest Entities,” to require an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a variable interest entity. This analysis identifies the primary beneficiary of a variable interest entity as the enterprise that has both of the following characteristics: (i) the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. Additionally, Statement 167 amends FIN 46 (R) to, among other things, require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity, eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. The adoption of Statement 167 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, pump and power. The general rentals segment includes the rental of construction, infrastructure,aerial, industrial and homeowner equipment and related services and activities. The general rentals segment’s customers include construction and industrial companies, manufacturers, utilities, municipalities and homeowners. The general rentals segment which reflects the aggregation of several geographic general rentals regions, operates throughout the United States and Canada and has one location in Mexico. The trench safety, pump and power segment includes the rental of specialty construction products and related services. The trench safety, pump and power segment’s customers include construction companies involved in infrastructure projects, municipalities and industrial companies. This segment operates in the United States and has one location 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.

Operating segment revenues and profitability for the three and six months ended March 31,June 30, 2009 and 2008 were as follows:

 

  Three Months Ended
March 31,
  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2009  2008  2009 2008  2009  2008

Total reportable segment revenues

           

General rentals

  $558  $727  $576   $781  $1,134  $1,508

Trench safety, pump and power

   36   45   39    50   75   95
                  

Total revenues

  $594  $772  $615   $831  $1,209  $1,603
                  

Total reportable segment depreciation and amortization expense

           

General rentals

  $114  $117  $120   $120  $234  $237

Trench safety, pump and power

   6   6   5    6   11   12
                  

Total depreciation and amortization expense

  $120  $123  $125   $126  $245  $249
                  

Total reportable segment operating income

    

Total reportable segment operating (loss) income

       

General rentals

  $15  $93  $(2 $115  $13  $208

Trench safety, pump and power

   3   9   7    13   10   22
                  

Total operating income

  $18  $102  $5   $128  $23  $230
                  

Total reportable segment capital expenditures

           

General rentals

  $61  $149     $156  $462

Trench safety, pump and power

   3   2      8   7
               

Total capital expenditures

  $64  $151     $164  $469
               

  March 31,
2009
  December 31,
2008
  June 30,
2009
  December 31,
2008

Total reportable segment assets

        

General rentals

  $3,850  $4,054  $3,795  $4,054

Trench safety, pump and power

   127   137   123   137
            

Total assets

  $3,977  $4,191  $3,918  $4,191
            

3. Income TaxesRestructuring and Asset Impairment Charges

In 2008, our strategy was designed to grow our earnings at higher margins, and a key element of this strategy was 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 9,900 at December 31, 2008. Additionally, we reduced our branch network from 697 at December 31, 2007 to 628 at December 31, 2008. In 2009, we have continued to reduce our headcount and branch network. In the first half of 2009, we reduced our headcount by approximately 1,300 employees, or 13 percent, and closed 48 of our least profitable branches. The restructuring charges for the three and six months ended June 30, 2009 and 2008 include severance costs associated with our headcount reductions, as well as branch closure charges, the latter of which principally relates to continuing lease obligations at vacant facilities.

The table below provides certain information concerning our restructuring charges:

Description

  Reserve Balance at
December 31, 2008 (1)
  Charged to
Costs and
Expenses(1) (2)
  Payments
and Other
  Reserve Balance at
June 30, 2009 (1)

Branch closure charges

  $11  $20  $(8) $23

Severance costs

   2   4   (4)  2
                

Total

  $13  $24  $(12) $25
                

(1)All charges and reserve balances have been reflected in our general rentals segment.
(2)Reflected in our condensed consolidated statements of operations as “Restructuring charge.”

We adoptedhave incurred total restructuring charges between January 1, 2008 and June 30, 2009 of $44, comprised of $34 of branch closure charges and $10 of severance costs. We expect that the restructuring activity will be substantially completed by the end of 2009.

In addition to the restructuring charges discussed above, during the three and six months ended June 30, 2009, the company recorded asset impairment charges of $9. These asset impairment charges include a charge of $7 related to certain rental equipment that has been classified as “held for sale” in accordance with the provisions of Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. We did not record any unrecognized income tax benefits as a result144, “Accounting for the Impairment or Disposal of the implementationLong-Lived Assets”. This non-cash impairment charge has been reflected in depreciation of FIN 48. As of January 1 and December 31, 2008, we had $7 of unrecognized tax benefits, all of which would impact our effective tax rate if recognized. For the three months ended March 31, 2009, there was no change to our unrecognized tax benefits. We include interest accrued on the underpayment of income taxes in interest expense and penalties, if any, related to unrecognized tax benefits in selling, general and administrative expense.

We file income tax returnsrental equipment in the United Statesaccompanying condensed consolidated statements of operations. Additionally, in connection with the consolidation of our branch network discussed above, we recognized leasehold improvement write-offs of $2. The leasehold improvement write-offs are reflected in non-rental depreciation and in several foreign jurisdictions. With few exceptions, we have completed our domestic and international income tax examinations, or the statute of limitations has expiredamortization in the respective jurisdictions, for years prior to 2004. The Internal Revenue Service has completed audits for periods prior to 2006. Canadian authorities have concluded income tax audits for periods prior to 2006, and the Company has agreed to the findings; however, 2003 through 2005 remain open to transfer pricing audit adjustments. The Company anticipates a cash settlement relating to the 2003 through 2005 Canadian transfer pricing adjustments which would reduce the previously recorded uncertain tax positions by $4. Included in the balanceaccompanying condensed consolidated statements of unrecognized tax benefits at March 31, 2009 are certain tax positions for which it is reasonably possible that the total amounts of the unrecognized tax benefits for those tax positions could significantly change during the next 12 months. However, based on the status of the ongoing audit examinations and alternative options available to the Company for certain of these tax positions, which could include legal proceedings, it is not possible to estimate the amount of the change, if any, to the previously recorded uncertain tax positions.operations.

4. Goodwill and Other Intangible Assets

The carrying amount of ourthe Company’s goodwill was $189$192 and $190 at March 31,June 30, 2009 and December 31, 2008, respectively. We are required to review our goodwill for impairment annually as of a scheduled review date. However, if events or circumstances suggest that goodwill could be impaired, we may be required to conduct an earlier review. The scheduled review date is October 1 of each year.

Other intangible assets consist of customer relationships and non-compete agreements and are amortized over periods ranging from one to 12 years. Amortization expense for other intangible assets was $2 for the three months ended March 31,June 30, 2009 and 2008 and $4 for the six months ended June 30, 2009 and 2008. The cost of other intangible assets and the related accumulated amortization as of March 31,June 30, 2009 was as follows:

 

   March 31,
2009
 

Gross carrying amount

  $85 

Accumulated amortization

   (45)
     

Net amount

  $40 
     

   June 30,
2009
 

Gross carrying amount

  $85  

Accumulated amortization

   (47
     

Net amount

  $38  
     

5. Debt and Subordinated Convertible Debentures

Long-term debt consists of the following:

 

  March 31,
2009
 December 31,
2008
   June 30,
2009
 December 31,
2008
 

URNA and subsidiaries:

      

$1.285 billion ABL Facility (1)

  $634  $689   $452   $689  

Accounts Receivable Securitization Facility (1)

   227   259    199    259  

6 1/2 percent Senior Notes

   755    980  

10 7/8 percent Senior Notes

   485    —    

7 3/4 percent Senior Subordinated Notes

   521   521    484    521  

7 percent Senior Subordinated Notes

   269   269    261    269  

6 1/2 percent Senior Notes

   958   980 

1 7/8 percent Convertible Senior Subordinated Notes

   144   144    115    144  

Other debt, including capital leases

   41   45    37    45  
              

Total URNA and subsidiaries debt

   2,794   2,907    2,788    2,907  

Less current portion

   (11)  (13)   (9  (13
              

Long-term URNA and subsidiaries debt

   2,783   2,894    2,779    2,894  
              

Holdings:

      

14 percent Senior Notes

   292   292    263    292  
              

Total long-term debt (2)

  $3,075  $3,186   $3,042   $3,186  
              

 

(1)$561764 and $0$26 were available under our senior secured asset-based revolving credit facility (the “ABL facility”) and accounts receivable securitization facility, respectively, at March 31,June 30, 2009.

(2)

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. The initial conversion rate was 1.146 shares of common stock per preferred security (equivalent to an initial conversion price of $43.63 per share). In July 2008, following the completion of a modified “Dutch auction” tender offer pursuant to which we purchased shares of our common stock, the conversion price of the QUIPS was adjusted to $41.02 and, accordingly, each $50 (fifty dollars) in liquidation preference is now convertible into 1.219 shares of common stock. Total long-term debt at March 31,June 30, 2009 and December 31, 2008 excludes $124 and $146, 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.

10 7/8 percent Senior Notes. In June 2009, URNA issued $500 aggregate principal amount of 10 7/8 percent Senior Notes (the “10 7/8 percent Notes”), which are due June 15, 2016. The net proceeds from the sale of the 10 7/8 percent Notes were $471 (after deducting the initial purchasers’ discount and offering expenses). The 10 7/8 percent Notes are unsecured and are guaranteed by Holdings and, subject to limited exceptions, URNA’s domestic subsidiaries. The 10 7/8 percent Notes may be redeemed on or after June 15, 2013 at specified redemption prices that range from 105.438 percent in 2013 to 100.0 percent in 2015 and thereafter. The indenture governing the 10 7/8 percent Notes contains certain restrictive covenants, including, among others, limitations on (i) indebtedness; (ii) restricted payments; (iii) liens; (iv) asset sales; (v) issuance of preferred stock of restricted subsidiaries; (vi) transactions with affiliates; (vii) dividend and other payment restrictions affecting restricted subsidiaries; (viii) designations of unrestricted subsidiaries; (ix) additional subsidiary guarantees and (x) mergers, consolidations or sales of substantially all of its assets. The indenture also requires that, in the event of a change of control (as defined in the indenture), URNA must make an offer to purchase all of the then outstanding 10 7/8 percent Notes tendered at a purchase price in cash equal to 101 percent of the principal amount thereof plus accrued and unpaid interest, if any, thereon. The difference between the June 30, 2009 carrying value of the 10 7/8 percent Notes and the $500 principal amount relates to a $15 original issue discount initially recognized in conjunction with the issuance of these notes.

Retirement of Debt and Subordinated Convertible Debentures.During the first quarter ofthree and six months ended June 30, 2009, URNAwe repurchased and retired certain of our outstanding debt securities. In connection with these repurchases, we recognized gains based on the difference between the net carrying amounts of the repurchased securities and the repurchase prices. A summary of our debt repurchase activity for the three and six months ended June 30, 2009 is as follows:

   Three months ended June 30, 2009  Six months ended June 30, 2009
   Repurchase
price
  Principal  Gain (1)  Repurchase
price
  Principal  Gain (1)

7 3/4 percent Senior Subordinated Notes

  $31  $37  $5  $31  $37  $5

7 percent Senior Subordinated Notes

   6   8   1   6   8   1

6 1/2 percent Senior Notes

   196   203   5   214   225   9

1 7/8 percent Convertible Senior Subordinated Notes

   26   29   2   26   29   2

14 percent Senior Notes

   28   29   —     28   29   —  
                        

Total

  $287  $306  $13  $305  $328  $17

(1)The amount of the gain is calculated as the difference between the net carrying amount of the related security and the repurchase price. The net carrying amounts of the securities are less than the principal amounts due to capitalized debt issuance costs and any original issue discount, which were written off in connection with the repurchases. An aggregate of $6 of debt issuance costs and original issue discount were written off in the three and six months ended June 30, 2009. The gains are reflected in interest expense, net in our condensed consolidated statements of operations

In addition to the above debt repurchases, during the three and six months ended June 30, 2009, we purchased an aggregate of $22 of QUIPS for $9. In connection with this transaction, we retired $22 principal amount of our outstanding 6 1/2 percent Senior Notes due 2012subordinated convertible debentures, and recognized a gain of $4. The$13. This gain which is reflected in interest expense,expense-subordinated convertible debentures, net, in our condensed consolidated statements of operations, representsoperations.

Loan Covenants and Compliance.As of June 30, 2009, we were in compliance with the difference betweencovenants and other provisions of our ABL facility, the net carrying amountsenior notes, the subordinated convertible debentures and our accounts receivables securitization facility. Any failure to be in compliance with any material provision or covenant of these securitiesagreements could have a material adverse effect on our liquidity and operations. The only financial covenants which currently exist relate to the fixed charge coverage ratio and the total purchase pricesenior secured leverage ratio under the ABL facility. Both of $18.these covenants “sprung off” on June 9, 2009 because our availability, as defined, had exceeded the necessary 20 percent threshold. Since the June 9, 2009 spring off date and through June 30, 2009, availability under the ABL facility has exceeded the 10 percent threshold and, as a result, these maintenance covenants were not applicable. Subject to certain limited exceptions specified in the credit agreement governing the ABL facility, these covenants will only apply in the future if availability under the ABL facility falls below 10 percent.

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 convertible senior subordinated notes approximate their book values as of June 30, 2009 and December 31, 2008. The estimated fair values of our other financial instruments at June 30, 2009 and December 31, 2008 have been calculated based upon available market information and are as follows:

   June 30, 2009  December 31, 2008
   Carrying
Amount
  Fair
Value
  Carrying
Amount
  Fair
Value

Subordinated convertible debentures

  $124  $47  $146  $48

Senior and senior subordinated notes

   1,985   1,839   1,770   1,280

Other debt

   37   31   45   40

6. Legal and Regulatory Matters

AsThe Company is subject to certain ongoing class action and derivative lawsuits, and settled an SEC inquiry in September 2008. The U.S. Attorney’s office has also requested information from the Company about matters related to the SEC inquiry. Other than the previously reported, subsequentdisclosed charges we recognized in the third quarter of 2008 related to the settlement of the SEC inquiry and in the fourth quarter of 2008 related to our November 14, 2007 announcement that affiliatescontribution toward the settlement of Cerberus Capital Management, L.P. (“Cerberus”) had notified us that they weretheIn re United Rentals, Inc. Securities Litigation, which became final in May 2009, we have not preparedaccrued any amounts related to proceedtheir ultimate disposition. Any liabilities resulting from an adverse judgment or settlement of these matters may be material to our results of operations and cash flows during the period incurred. Other costs associated with the purchase ofSEC inquiry, the Company onU.S. Attorney’s office inquiry and the terms set forth in the merger agreement, three putative class action lawsuits wereand derivative suits, including advancement or reimbursement of attorneys’ fees incurred by indemnified officers and directors, are expensed as incurred.

The following information is limited to recent developments concerning certain legal proceedings in which we are involved, and supplements the discussions of these proceedings included in Note 13 to our consolidated financial statements for the year ended December 31, 2008, filed againston Form 10-K on February 26, 2009.

In the Company inIn re United Rentals, Inc. Securities Litigation matter, on May 27, 2009, the United States District Court for the District of Connecticut. The plaintiff in eachConnecticut entered a Final Judgment and Order of Dismissal with Prejudice approving the settlement of the lawsuits sought to sue on behalf of a purported class of persons who purchased or otherwise acquired our securities between August 29, 2007action as fair, reasonable and November 14, 2007. The lawsuits named as defendants the Company, our directors and certain of our officers and alleged, among other things, that the named plaintiff and members of the purported class suffered damages when they purchased or otherwise acquired securities issued by the Company as a result of false and misleading statements and/or material omissions relating to the contemplated merger with affiliates of Cerberus contained in proxy materials that the Company disseminated and/or filed with the SEC in anticipation of the October 19, 2007 special meeting of stockholders and/or certain of the Company’s filings with the SEC and other public statements. On the basis of those allegations, plaintiff in each action asserted: (i) claims under Sections 10(b) and 14(a) of the Exchange Act and Rules 10b-5 and 14a-9 thereunder; and (ii) claims against the individual defendants under Section 20(a) of the Exchange Act. The complaints in these actions sought unspecified compensatory damages, costs, expenses and fees. The Court subsequently entered an order consolidating the three actions and appointing the Institutional Investor Group, consisting of First New York Securities, L.L.C. and Omni Partners LLP, as lead plaintiffs for the purported class.

On March 24, 2008, pursuant to a schedule approved by the Court, lead plaintiffs filed a consolidated amended complaint, which, among other things, (i) amended the purported class period to include purchasers of our publicly traded securities from July 23, 2007 to November 14, 2007; (ii) dropped as defendants one of our officers and all but one of our directors; (iii) named as additional defendants Cerberus, certain of its affiliates, its chief executive officer and one of its managing directors; and (iv) withdrew the previously asserted claim under Section 14(a) of the Exchange Act and Rule 14a-9 thereunder. On May 16, 2008, all defendants filed motions to dismiss the consolidated amended complaint in this action.adequate.

OnIn theBrundridge v. Black , et al. matter, by notice dated June 11, 2009, plaintiff withdrew its action against all defendants.

In theDeCicco v. United Rentals, Inc., et al. matter, on March 10, 2009, the Court rendered an opinion and ruling granting defendants’ motions to dismiss and dismissing the consolidated amended complaint without prejudice. The ruling granted lead plaintiffs leave to move to reopen the case within 30 days and to file a proposed amended complaint. On April 9, 2009, lead plaintiffs filed a motion to reopen judgment and filed a second consolidated amended complaint. The second consolidated amended complaint continues to assert claims under Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder and, among other things: (i) amends the purported class period to include purchasers of our publicly traded securities from August 30, 2007 to November 14, 2007, and (ii) drops as defendants one of our directors and the Cerberus related defendants. The actions are now consolidated under the captionFirst New York Securities, L.L.C., et al. v. United Rentals, Inc. et al. We intend to moveOn May 14, 2009, defendants moved to dismiss the second consolidated amended complaint and briefing on the motion is now complete. We intend to continue to defend against the action vigorously.

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 the current status or stage of such proceeding, and taking into account accruals for matters where we have established them, we currently believe that any liabilities ultimately resulting from these ordinary coursesuch 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.

7. EarningsLoss Per Share

Basic (loss) earningsloss per share is computed by dividing net (loss) incomeloss by the weighted-average number of common shares outstanding and, if dilutive, the Series C and Series D preferred shares as if converted to common shares since such shares are participating securities. As previously reported and as discussed in our 2008 Form 10-K, in June 2008, we repurchased all of our outstanding Series C and Series D preferred stock.outstanding. Diluted earningsloss per share for the three and six months ended March 31,June 30, 2008 includeexcludes the impact of other dilutive securities, but exclude 3.3approximately 10.9 million common stock equivalents associated with our QUIPS as their impactsince the effect of including these securities would be anti-dilutive. Diluted loss per share for the three and six months ended March 31,June 30, 2009 excludes the impact of approximately 10.39.6 million and 10.0 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 (loss) earningsloss per share (shares in thousands):

 

   Three Months Ended
March 31,
   2009  2008

Numerator:

   

Net (loss) income

  $(19) $38

Convertible debt interest

   —     —  
        

Net (loss) income

  $(19) $38
        

Denominator:

   

Weighted-average common shares

   59,986   86,332

Series C preferred stock

   —     12,000

Series D preferred stock

   —     5,000
        

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

   59,986   103,332

Effect of dilutive securities:

   

Employee stock options and warrants

   —     575

Convertible shares

   —     6,461

Restricted stock units and other

   —     397
        

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

   59,986   110,765
        

(Loss) earnings per share:

   

Basic (loss) earnings per share

  $(0.32) $0.37

Diluted (loss) earnings per share

  $(0.32) $0.34
   Three Months Ended
June 30,
  Six Months Ended
June 30,
 
   2009  2008  2009  2008 

Numerator:

     

Net (loss) income

  $(17) $37   $(36) $75  

Preferred stock redemption charge

   —      (239  —      (239
                 

Net loss available to common stockholders

  $(17 $(202 $(36 $(164

Denominator:

     

Weighted-average common shares- basic and diluted

   60,124    86,419    60,055    86,375  

Loss per share available to common stockholders:

     

Basic and diluted loss per share (inclusive of preferred stock redemption charge)

  $(0.28 $(2.33 $(0.60 $(1.89

8. 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 entity (the “SPV”) which holds receivable assets relating to the Company’s accounts receivable securitization facility, 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 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 the Company and its subsidiaries is as follows:

CONDENSED CONSOLIDATING BALANCE SHEETSSHEET

March 31,June 30, 2009

 

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

ASSETS

                     

Cash and cash equivalents

  $—    $2  $10  $84  $—    $—    $96   $—     $5   $4  $116   $—    $—     $125  

Accounts receivable, net

   —     —     —     51   308   —     359    —      —      —     51    324   —      375  

Intercompany receivable (payable)

   282   (771)  486   3   —     —     —      170    (719  666   (117)  —     —      —    

Inventory

   —     28   25   6   —     —     59    —      26    22   7    —     —      55  

Prepaid expenses and other assets

   —     6   24   3   —     —     33    —      12    21   3    —     —      36  

Deferred taxes

   —     75   —     —     —     —     75    —      71    —     3    —     —      74  
                                            

Total current assets

   282   (660)  545   147   308   —     622    170    (605  713   63    324   —      665  
                                            

Rental equipment, net

   —     1,507   864   249   —     —     2,620    —      1,452    818   252    —     —      2,522  

Property and equipment, net

   58   213   148   25   —     —     444    59    210    140   25    —     —      434  

Investments in subsidiaries

   131   1,901   —     —     —     (2,032)  —      190    1,970    —     —      —     (2,160  —    

Goodwill and other intangibles, net

   —     104   88   37   —     —     229    —      103    87   40    —     —      230  

Other long-term assets

   7   52   2   —     1   —     62    6    51    9   —      1   —      67  
                                            

Total assets

  $478  $3,117  $1,647  $458  $309  $(2,032) $3,977   $425   $3,181   $1,767  $380   $325  $(2,160 $3,918  
                                            

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

          

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

           

Current maturities of long-term debt

  $—    $11  $—    $—    $—    $—    $11   $—     $9   $—    $—     $—    $—     $9  

Accounts payable

   —     64   77   13   —     —     154    —      61    65   18    —     —      144  

Accrued expenses and other liabilities

   52   79   52   8   —     —     191    42    83    62   9    —     —      196  
                                            

Total current liabilities

   52   154   129   21   —     —     356    42    153    127   27    —     —      349  

Long-term debt

   292   2,447   —     109   227   —     3,075    263    2,461    119   —      199   —      3,042  

Subordinated convertible debentures

   146   —     —     —     —     —     146    124    —      —     —      —     —      124  

Deferred taxes

   —     385   —     25   —     —     410    —      377    —     30    —     —      407  

Other long-term liabilities

   44   —     2   —     —     —     46    42    —      —     —      —     —      42  
                                            

Total liabilities

   534   2,986   131   155   227   —     4,033    471    2,991    246   57    199   —      3,964  
                                            

Total stockholders’ equity (deficit)

   (56)  131   1,516   303   82   (2,032)  (56)

Total stockholders’ (deficit) equity

   (46  190    1,521   323    126   (2,160  (46
                                            

Total liabilities and stockholders’ equity (deficit)

  $478  $3,117  $1,647  $458  $309  $(2,032) $3,977 
                      

Total liabilities and stockholders’ (deficit) equity

  $425   $3,181   $1,767  $380   $325  $(2,160 $3,918  
                      

CONDENSED CONSOLIDATING BALANCE SHEETSSHEET

December 31, 2008

 

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

ASSETS

                    

Cash and cash equivalents

  $—    $—    $4  $73  $—    $—    $77   $—     $—     $4  $73   $—    $—     $77  

Accounts receivable, net

   —     —     —     68   386   —     454    —      —      —     68    386   —      454  

Intercompany receivable (payable) (1)

   270   (783)  517   (4)  —     —     —      270    (783  632   (119  —     —      —    

Inventory

   —     25   27   7   —     —     59    —      25    27   7    —     —      59  

Prepaid expenses and other assets

   —     9   25   3   —     —     37    —      9    25   3    —     —      37  

Deferred taxes

   —     76   —     —     —     —     76    —      76    —     —      —     —      76  
                                            

Total current assets

   270   (673)  573   147   386   —     703    270    (673  688   32    386   —      703  

Rental equipment, net

   —     1,568   906   272   —     —     2,746    —      1,568    906   272    —     —      2,746  

Property and equipment, net

   57   215   150   25   —     —     447    57    215    150   25    —     —      447  

Investments in subsidiaries (1)

   161   1,961   —     —     —     (2,122)  —      161    1,961    —     —      —     (2,122  —    

Goodwill and other intangibles, net

   —     105   85   39   —     —     229    —      105    85   39    —     —      229  

Other long-term assets

   7   55   3   —     1   —     66    7    55    3   —      1   —      66  
                                            

Total assets

  $495  $3,231  $1,717  $483  $387  $(2,122) $4,191   $495   $3,231   $1,832  $368   $387  $(2,122 $4,191  
                                            

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

          

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

          

Current maturities of long-term debt

  $—    $13  $—    $—    $—    $—    $13   $—     $13   $—    $—     $—    $—     $13  

Accounts payable

   —     44   96   17   —     —     157    —      44    96   17    —     —      157  

Accrued expenses and other liabilities

   41   103   96   17   —     —     257    41    103    96   17    —     —      257  
                                            

Total current liabilities

   41   160   192   34   —     —     427    41    160    192   34    —     —      427  

Long-term debt

   292   2,523   —     112   259   —     3,186    292    2,523    112   —      259   —      3,186  

Subordinated convertible debentures

   146   —     —     —     —     —     146    146    —      —     —      —     —      146  

Deferred taxes

   —     387   —     27   —     —     414    —      387    —     27    —     —      414  

Other long-term liabilities

   45   —     2   —     —     —     47    45    —      2   —      —     —      47  
                                            

Total liabilities

   524   3,070   194   173   259   —     4,220    524    3,070    306   61    259   —      4,220  
                                            

Total stockholders’ equity (deficit) (1)

   (29)  161   1,523   310   128   (2,122)  (29)

Total stockholders’ (deficit) equity (1)

   (29  161    1,526   307    128   (2,122  (29
                                            

Total liabilities and stockholders’ equity (deficit)

  $495  $3,231  $1,717  $483  $387  $(2,122) $4,191 

Total liabilities and stockholders’ (deficit) equity

  $495   $3,231   $1,832  $368   $387  $(2,122 $4,191  
                                            

 

(1)Reflects a 2008 dividend of $260 from URNA to Parent.

CONDENSED CONSOLIDATING STATEMENTSSTATEMENT OF OPERATIONS

For the Three Months Ended March 31,June 30, 2009

 

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

REVENUES

                   

Equipment rentals

  $—    $238  $161  $49  $—    $—    $448   $—     $238   $163   $53   $—     $—    $454  

Sales of rental equipment

   —     43   17   7   —     —     67    —      45    28    11    —      —     84  

New equipment sales

   —     12   7   4   —     —     23    —      9    7    4    —      —     20  

Contractor supplies sales

   —     13   13   6   —     —     32    —      13    14    6    —      —     33  

Service and other revenues

   —     13   8   3   —     —     24    —      14    7    3    —      —     24  
                                            

Total revenues

   —     319   206   69   —     —     594    —      319    219    77    —      —     615  
                                            

Cost of revenues:

                   

Cost of equipment rentals, excluding depreciation

   —     115   91   27   —     —     233    —      118    78    25    —      —     221  

Depreciation of rental equipment

   —     60   35   11   —     —     106    —      60    39    11    —      —     110  

Cost of rental equipment sales

   —     38   16   5   —     —     59    —      52    29    11    —      —     92  

Cost of new equipment sales

   —     11   6   3   —     —     20    —      7    6    4    —      —     17  

Cost of contractor supplies sales

   —     9   10   4   —     —     23    —      10    10    5    —      —     25  

Cost of service and other revenues

   —     5   3   1   —     —     9    —      5    2    2    —      —     9  
                                            

Total cost of revenues

   —     238   161   51   —     —     450    —      252    164    58    —      —     474  
                                            

Gross profit

   —     81   45   18   —     —     144    —      67    55    19    —      —     141  

Selling, general and administrative expenses

   9   43   38   13   5   —     108    (2  45    39    14    5    —     101  

Restructuring charge

   —     4   —     —     —     —     4    —      18    1    1   —      —     20  

Non-rental depreciation and amortization

   4   5   4   1   —     —     14    7    3    5    —      —      —     15  
                                            

Operating (loss) income

   (13)  29   3   4   (5)  —     18    (5  1    10    4    (5  —     5  

Interest expense, net

   8   37   3   1   1   —     50    8    30    3    (1  2    —     42  

Interest expense-subordinated convertible debentures

   2   —     —     —     —     —     2 

Interest expense-subordinated convertible debentures, net

   (10  —      —      —      —      —     (10)

Other (income) expense, net

   (16)  12   11   2   (10)  —     (1)   (17  16    11    2    (10  —     2  
                                            

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

   (7)  (20)  (11)  1   4   —     (33)

(Benefit) provision for income taxes

   (3)  (8)  (5)  —     2   —     (14)

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

   14    (45  (4  3    3    —     (29

Provision (benefit) for income taxes

   6    (18  (1  —      1    —     (12
                                            

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

   (4)  (12)  (6)  1   2   —     (19)

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

   8    (27  (3  3    2    —     (17

Equity in net (loss) earnings of subsidiaries

   (15)  (3)  —     —     —     18   —      (25  2    —      —      —      23   —    
                                            

Net (loss) income

  $(19) $(15) $(6) $1  $2  $18  $(19)  $(17 $(25 $(3 $3   $2   $23  $(17
                                            

CONDENSED CONSOLIDATING STATEMENTSSTATEMENT OF OPERATIONS

For the Three Months Ended March 31,June 30, 2008

 

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

REVENUES

                     

Equipment rentals

  $—    $280  $225  $73  $—    $—    $578  $—     $303  $248  $77   $—     $—     $628

Sales of rental equipment

   —     35   25   6   —     —     66   —      37   23   8    —      —      68

New equipment sales

   —     20   13   9   —     —     42   —      20   15   11    —      —      46

Contractor supplies sales

   —     20   26   10   —     —     56   —      22   27   10    —      —      59

Service and other revenues

   —     15   11   4   —     —     30   —      17   9   4    —      —      30
                                          

Total revenues

   —     370   300   102   —     —     772   —      399   322   110    —      —      831
                                          

Cost of revenues:

                     

Cost of equipment rentals, excluding depreciation

   —     126   115   35   —     —     276   —      131   121   38    —      —      290

Depreciation of rental equipment

   —     55   40   13   —     —     108   —      56   42   13    —      —      111

Cost of rental equipment sales

   —     27   18   4   —     —     49   —      28   15   5    —      —      48

Cost of new equipment sales

   —     15   11   8   —     —     34   —      19   12   8    —      —      39

Cost of contractor supplies sales

   —     16   20   8   —     —     44   —      16   21   8    —      —      45

Cost of service and other revenues

   —     6   4   2   —     —     12   —      7   4   1    —      —      12
                                          

Total cost of revenues

   —     245   208   70   —     —     523   —      257   215   73    —      —      545
                                          

Gross profit

   —     125   92   32   —     —     249   —      142   107   37    —      —      286

Selling, general and administrative expenses

   —     55   52   18   4   —     129   1    57   42   23    5    —      128

Restructuring charge

   —     3   —     —     —     —     3   —      —     —     1    —      —      1

Charge related to settlement of SEC inquiry

   14    —     —     —      —      —      14

Non-rental depreciation and amortization

   3   6   5   1   —     —     15   4    4   6   1    —      —      15
                                          

Operating (loss) income

   (3)  61   35   13   (4)  —     102   (19  81   59   12    (5  —      128

Interest expense, net

   —     39   —     2   —     —     41   4    43   2   (1  —      —      48

Interest expense-subordinated convertible debentures

   2   —     —     —     —     —     2

Interest expense-subordinated convertible debentures, net

   3    —     —     —      —      —      3

Other (income) expense, net

   (15)  14   13   1   (13)  —     —     (17  17   11   4    (14  —      1
                                          

Income before provision for income taxes

   10   8   22   10   9   —     59

Provision for income taxes

   4   3   8   3   3   —     21

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

   (9  21   46   9    9    —      76

Provision (benefit) for income taxes

   2    9   19   5    4    —      39
                                          

Income before equity in net earnings (loss) of subsidiaries

   6   5   14   7   6   —     38

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

   (11  12   27   4    5    —      37

Equity in net earnings (loss) of subsidiaries

   32   27   —     —     —     (59)  —     48    36   —     —      —      (84)  —  
                                          

Net income (loss)

  $38  $32  $14  $7  $6  $(59) $38  $37   $48  $27  $4   $5   $(84) $37
                                          

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2009

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

REVENUES

         

Equipment rentals

  $—     $476   $324   $102   $—     $—    $902  

Sales of rental equipment

   —      88    45    18    —      —     151  

New equipment sales

   —      21    14    8    —      —     43  

Contractor supplies sales

   —      26    27    12    —      —     65  

Service and other revenues

   —      27    15    6    —      —     48  
                             

Total revenues

   —      638    425    146    —      —     1,209  
                             

Cost of revenues:

         

Cost of equipment rentals, excluding depreciation

   —      233    169    52    —      —     454  

Depreciation of rental equipment

   —      120    74    22    —      —     216  

Cost of rental equipment sales

   —      90    45    16    —      —     151  

Cost of new equipment sales

   —      18    12    7    —      —     37  

Cost of contractor supplies sales

   —      19    20    9    —      —     48  

Cost of service and other revenues

   —      10    5    3    —      —     18  
                             

Total cost of revenues

   —      490    325    109    —      —     924  
                             

Gross profit

   —      148    100    37    —      —     285  

Selling, general and administrative expenses

   7    88    77    27    10    —     209  

Restructuring charge

   —      22    1   1   —      —     24  

Non-rental depreciation and amortization

   11    8    9    1    —      —     29  
                             

Operating (loss) income

   (18  30    13    8    (10  —     23  

Interest expense, net

   16    67    7    (1  3    —     92  

Interest expense-subordinated convertible debentures, net

   (8)  —      —      —      —      —     (8)

Other (income) expense, net

   (33  28    22    4    (20  —     1  
                             

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

   7    (65  (16  5    7    —     (62

Provision (benefit) for income taxes

   3    (26  (6  —      3    —     (26
                             

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

   4    (39  (10  5    4    —     (36

Equity in net (loss) earnings of subsidiaries

   (40  (1  —      —      —      41   —    
                             

Net (loss) income

  $(36 $(40 $(10 $5   $4   $41  $(36
                             

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2008

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

REVENUES

           

Equipment rentals

  $—     $583  $473  $150  $—     $—     $1,206

Sales of rental equipment

   —      72   48   14   —      —      134

New equipment sales

   —      40   28   20   —      —      88

Contractor supplies sales

   —      42   53   20   —      —      115

Service and other revenues

   —      32   20   8   —      —      60
                            

Total revenues

   —      769   622   212   —      —      1,603
                            

Cost of revenues:

           

Cost of equipment rentals, excluding depreciation

   —      257   236   73   —      —      566

Depreciation of rental equipment

   —      111   82   26   —      —      219

Cost of rental equipment sales

   —      55   33   9   —      —      97

Cost of new equipment sales

   —      34   23   16   —      —      73

Cost of contractor supplies sales

   —      32   41   16   —      —      89

Cost of service and other revenues

   —      13   8   3   —      —      24
                            

Total cost of revenues

   —      502   423   143   —      —      1,068
                            

Gross profit

   —      267   199   69   —      —      535

Selling, general and administrative expenses

   1    112   94   41   9    —      257

Restructuring charge

   —      3   —     1   —      —      4

Charge related to settlement of SEC inquiry

   14    —     —     —     —      —      14

Non-rental depreciation and amortization

   7    10   11   2   —      —      30
                            

Operating (loss) income

   (22  142   94   25   (9  —      230

Interest expense, net

   4    82   3   —     —      —      89

Interest expense-subordinated convertible debentures, net

   5    —     —     —     —      —      5

Other (income) expense, net

   (32  31   24   5   (27  —      1
                            

Income before provision for income taxes

   1    29   67   20   18    —      135

Provision for income taxes

   6    12   27   8   7    —      60
                            

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

   (5  17   40   12   11    —      75

Equity in net earnings (loss) of subsidiaries

   80    63   —     —     —      (143  —  
                            

Net income (loss)

  $75   $80  $40  $12  $11   $(143 $75
                            

CONDENSED CONSOLIDATING CASH FLOW INFORMATION

For the ThreeSix Months Ended March 31,June 30, 2009

 

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

Net cash provided by operating activities

  $1  $39  $8  $7  $69  $—    $124 

Net cash provided by (used in) operating activities

  $4   $69   $(5) $28  $109   $—    $205  

Net cash (used in) provided by investing activities

   (5)  6   (1)  4   —     —     4    (13  (6  3    10   —      —     (6)

Net cash provided by (used in) financing activities

   4   (43)  (1)  2   (69 )  —     (107)   9   (58  2    —     (109  —     (156

Effect of foreign exchange rates

   —     —     —     (2)  —     —     (2)   —      —      —      5   —      —     5  
                                            

Net increase in cash and cash equivalents

   —     2   6   11   —     —     19    —      5    —      43   —      —     48  

Cash and cash equivalents at beginning of period

   —     —     4   73   —     —     77    —      —      4    73   —      —     77  
                                            

Cash and cash equivalents at end of period

  $—    $2  $10  $84  $—    $—    $96   $—     $5   $4   $116  $—     $—    $125  
                                            

CONDENSED CONSOLIDATING CASH FLOW INFORMATION

For the ThreeSix Months Ended March 31,June 30, 2008

 

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

Net cash (used in) provided by operating activities

  $(2) $115  $29  $17  $67  $—    $226   $(11) $298   $147   $23   $(10) $—    $447  

Net cash used in investing activities

   —     (41)  (25)  (17)  —     —     (83)   (2  (161  (149  (18)  —      —     (330)

Net cash provided by (used in) financing activities

   2   56   —     2   (67)  —     (7)   13    (443  4    (1)  10    —     (417

Effect of foreign exchange rates

   —     —     —     (2)  —     —     (2)   —      —      —      (1  —      —     (1
                                            

Net increase in cash and cash equivalents

   —     130   4   —     —     —     134 

Net (decrease) increase in cash and cash equivalents

   —      (306)  2    3    —      —     (301)

Cash and cash equivalents at beginning of period

   —     325   —     56   —     —     381    —      325   —      56    —      —     381  
                                            

Cash and cash equivalents at end of period

  $—    $455  $4  $56  $—    $—    $515   $—     $19   $2   $59   $—     $—    $80  
                                            

9. Subsequent Event

In the second quarterSubsequent to June 30, 2009 and through our financial statement issuance date of July 29, 2009, we expect to recordcompleted the repurchase of an additional $24 principal amount of our outstanding 6 1/2 percent senior notes. Additionally, on July 21, 2009, we announced that we had acquired the operating assets of Leasco Equipment Services, Inc., a charge of between $25 and $30 principally related to the planned closure of 39 branches. The charge is expected to include a non-cash componentMarietta, Ohio-based rental company with annual revenues of approximately $14 relatedthat serves the industrial sector with a focus on power generation, petroleum, chemical, and pulp and paper companies. Except as it relates to the aggregate impact of impairing certain rental assets and writing off leasehold improvements.these matters, there were no other subsequent events during this period.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars(Dollars in millions, except per share data and unless otherwise indicated)

Executive Overview

We are the largest equipment rental company in the world with an integrated network of 618582 rental locations in the United States, Canada and Mexico. Although the equipment rental industry is highly fragmented and diverse, we believe we are well positioned to take advantage of this environment because as a larger company we have more resources and certain competitive advantages over smaller competitors. These advantages include greater purchasing power, the ability to provide customers with a broader range of equipment and services as well as with better maintained equipment, and greater flexibility to transfer equipment among branches.

We offer for rent approximately 2,8002,700 classes of rental equipment, including construction equipment, industrial and heavy machinery, aerial work platforms, trench safety equipment and homeowner items. Our revenues are derived from the following sources: equipment rentals, sales of used rental equipment, sales of new equipment, contractor supplies sales and service and other.other revenues. In 2008, rental equipment revenues represented 76 percent of our total revenues.

As we expected, and consistent with the decline in non-residential construction activity over the first quarterhalf of the year, the first six months of 2009 hashave been challenging for both our company and the U.S. equipment rental industry. Despite these challenges, we believe our strategy- which includes a continued focus on our core rental business, optimization of fleet management, disciplined cost controls, and free cash flow generation- will position us to weather the economic downturn, enable us to strengthen our leadership position and improve our returns to stockholders once economic conditions improve.

As previously reported, the Company is subject to certain ongoing class action and derivative lawsuits, and recently settled an SEC inquiry.inquiry in September 2008. The U.S. Attorney’s office has also requested information from the Company about matters related to the SEC inquiry. AsOther than the previously reported,disclosed charges we recognized in the third quarter of 2008 we consented, without admitting or denying the allegations in the SEC’s complaint,related to the entry of a judgment requiring us to pay a civil penalty of $14 and disgorgement of one dollar and enjoining us from violations of certain provisionssettlement of the federal securities laws in the future. We cannot predict the outcome or other consequences of these matters to the CompanySEC inquiry and other than the previously disclosed charge we recognized in the fourth quarter of 2008 related to our contribution toward the settlement of the previously reportedIn re United Rentals, Inc. Securities Litigation, which became final in May 2009, we have not accrued any amounts related to their ultimate disposition. Any liabilities resulting from an adverse judgment or settlement of these matters may be material to our results of operations and cash flows during the period incurred. Other costs associated with the SEC inquiry, the U.S. Attorney’s office inquiry and the class action and derivative suits, including advancement or reimbursement of attorneys’ fees incurred by indemnified officers and directors, are expensed as incurred.

Financial Overview

Net (loss) incomeloss available to common stockholders. Net (loss) incomeloss available to common stockholders and diluted (loss) earningsloss per share for the three and six months ended March 31,June 30, 2009 and 2008 were as follows:

 

   Three Months Ended
March 31,
   2009  2008

Net (loss) income

  $(19) $38

Diluted (loss) earnings per share

  $(0.32) $0.34

   Three Months Ended
June 30,
  Six Months Ended
June 30,
 
   2009  2008  2009  2008 

Net loss available to common stockholders

  $(17) $(202) $(36) $(164

Diluted loss per share (inclusive of preferred stock redemption charge)

  $(0.28 $(2.33 $(0.60 $(1.89

The first quarter of 2009 netNet (loss) income and diluted loss of $19, or $(0.32) per diluted share compares with net income of $38, or $0.34 per diluted share, in the first quarter of 2008. Our results for the three and six months ended March 31,June 30, 2009 and 2008 include the impacts of the following special items (amounts presented on an after-tax restructuring charges of $3, or $0.04 per diluted share, and $2, or $0.02 per diluted share, respectively, relatedbasis):

   Three Months Ended
June 30,
  Six Months Ended
June 30,
 
   2009  2008  2009  2008 
   Net
(loss)
income
  Diluted (loss)
earnings per
share
  Net
(loss)
income
  Diluted loss
per share
  Net
(loss)
income
  Diluted (loss)
earnings per
share
  Net
(loss)
income
  Diluted loss
per share
 

Restructuring charge (1)

  $(13 $(0.22 $(1 $(0.01 $(15 $(0.25 $(3 (0.03

Gains on repurchases of debt securities and retirement of subordinated convertible debentures

   16    0.27    —      —      19    0.31    —     —    

Asset impairment charge (2)

   (5  (0.09  —      —      (6  (0.10  —     —    

Charge related to settlement of SEC inquiry

   —      —      (14  (0.16  —      —      (14 (0.16

Preferred stock redemption charge (3)

   —      —      —      (2.76  —      —      —     (2.76

Foreign tax credit valuation allowance and other

   —      —      (8  (0.09  —      —      (8 (0.09

(1)As discussed below (see “Restructuring charge”), this relates to branch closure charges and severance costs.
(2)As discussed in note 3 to the unaudited condensed consolidated financial statements, this charge includes the impact of impairing certain rental equipment and leasehold improvement write-offs.
(3)Reduces income available to common stockholders for earnings per share purposes, but does not affect net (loss) income.

In addition to branch closure and severance costs. The decline in profitabilitythe matters discussed above, our 2009 performance reflects lower gross profit from equipment rental revenuerevenues and gross profitfrom the sale of rental equipment in a very challenging construction environment, partially offset by savings realized from our ongoing initiatives to reduce operating costs.

EBITDA GAAP Reconciliation.Reconciliation. EBITDA represents the sum of (loss) income before (benefit) provision for income taxes, interest expense, net, interest expense-subordinated convertible debentures, net, depreciation-rental equipment, non-rental depreciation and amortization and stock compensation expense.expense, net. Adjusted EBITDA represents EBITDA plus the sum of the restructuring charge.charge and the charge related to the settlement of the SEC inquiry. Management believes that EBITDA and adjusted EBITDA provide useful information about operating performance and period-over-period growth. However, EBITDA and adjusted EBITDA are not measures of financial performance or liquidity under GAAP and, accordingly, should not be considered as alternatives to net income (loss) or cash flow from operating activities as indicators of operating performance or liquidity. The table below provides a reconciliation between (loss) income before (benefit) provision for income taxes and EBITDA and adjusted EBITDA.

 

  Three Months Ended
March 31,
  Three Months Ended
June 30,
  Six Months Ended
June 30,
  2009 2008  2009 2008  2009 2008

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

  $(33) $59  $(29 $76  $(62 $135

Interest expense, net

   50   41   42    48   92    89

Interest expense—subordinated convertible debentures

   2   2

Depreciation—rental equipment

   106   108

Interest expense – subordinated convertible debentures, net

   (10  3   (8  5

Depreciation – rental equipment

   110    111   216    219

Non-rental depreciation and amortization

   14   15   15    15   29    30

Stock compensation expense

   2   1

Stock compensation expense, net

   2    1   4    2
                  

EBITDA

  $141  $226  $130   $254  $271   $480

Restructuring charge

   4   3   20    1   24    4

Charge related to settlement of SEC inquiry

   —      14   —      14
                  

Adjusted EBITDA

  $145  $229  $150   $269  $295   $498
                  

For the three and six months ended March 31,June 30, 2009, adjusted EBITDA decreased $85,$119, or 37.644.2 percent, and $203, or 40.8 percent, respectively, primarily reflecting lower gross profits from equipment rentals and from the sale of rental revenue and gross profit,equipment, partially offset by cost reductions.

Results of Operations

As discussed in note 2 to our unaudited condensed consolidated financial statements, our reportable segments are general rentals and trench safety, pump and power. The general rentals segment includes the rental of construction, aerial, industrial and homeowner equipment and related services and activities. The general rentals segment’s customers include construction and industrial companies, manufacturers, utilities, municipalities and homeowners. The general rentals segment operates throughout the United States and Canada and has one location in Mexico. The trench safety, pump and power segment includes the rental of specialty construction products and related services. The trench safety, pump and power segment’s customers include construction companies involved in infrastructure projects, municipalities and industrial companies. This segment operates in the United States and has one location 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. Our revenues, operating results, and financial condition fluctuate from quarter to quarter reflecting the seasonal rental patterns of our customers, with rental activity tending to be lower in the winter. The balance of accounts receivable, net decreased $95, or 20.9 percent, as compared to December 31, 2008, consistent with the sequential decline in total revenues over that same period.

Revenues by segment were as follows:

 

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

Three months ended March 31, 2009

      

Three months ended June 30, 2009

      

Equipment rentals

  $418  $30  $448  $423  $31  $454

Sales of rental equipment

   64   3   67   82   2   84

New equipment sales

   21   2   23

Sales of new equipment

   19   1   20

Contractor supplies sales

   31   1   32   30   3   33

Service and other revenues

   24   —     24   22   2   24
                  

Total revenues

  $558  $36  $594

Total revenue

  $576  $39  $615
                  

Three months ended March 31, 2008

      

Three months ended June 30, 2008

      

Equipment rentals

  $542  $36  $578  $587  $41  $628

Sales of rental equipment

   63   3   66   64   4   68

New equipment sales

   40   2   42

Sales of new equipment

   44   2   46

Contractor supplies sales

   54   2   56   56   3   59

Service and other revenues

   28   2   30   30   —     30
                  

Total revenues

  $727  $45  $772

Total revenue

  $781  $50  $831
                  

Six months ended June 30, 2009

      

Equipment rentals

  $841  $61  $902

Sales of rental equipment

   146   5   151

Sales of new equipment

   40   3   43

Contractor supplies sales

   61   4   65

Service and other revenues

   46   2   48
         

Total revenue

  $1,134  $75  $1,209
         

Six months ended June 30, 2008

      

Equipment rentals

  $1,129  $77  $1,206

Sales of rental equipment

   127   7   134

Sales of new equipment

   84   4   88

Contractor supplies sales

   110   5   115

Service and other revenues

   58   2   60
         

Total revenue

  $1,508  $95  $1,603
         

Equipment rentalsThree months ended June 30, 2009 and 2008. 2009 equipment rentals of $448$454 decreased $130,$174, or 22.527.7 percent, reflecting an 11.5a 14.0 percent rate decline anddecrease in rental rates, a 2.4 percentage point decrease in time utilization, and a change in mix. Dollar utilization, which reflects the impact of both rental rates and time utilization, and is calculated based on a smaller fleet.annualized rental revenue divided by the average original equipment cost of our fleet, decreased 12.5 percentage points to 44.9 percent. Equipment rentals represented 7574 percent of total revenues for the three months ended March 31, 2009 and 2008.June 30, 2009. On a segment basis, equipment rentals represented 7573 percent and 8379 percent of total revenues for general rentals and trench safety, pump and power, respectively. General rentals equipment rentals decreased $124,$164, or 22.927.9 percent, reflecting a 20.424.2 percent decrease in same-store rental revenues. Trench safety, pump and power equipment rentals decreased $6,$10, or 16.724.4 percent, reflecting a 14.621.6 percent decrease in same-store rental revenues.

Six months ended June 30, 2009 and 2008. 2009 equipment rentals of $902 decreased $304, or 25.2 percent, reflecting a 12.8 percent decline in rental rates, a 2.5 percentage point decrease in time utilization, and a change in mix. Dollar utilization decreased 11.6 percentage points to 43.9 percent. Equipment rentals represented 75 percent of total revenues for the six months ended June 30, 2009. On a segment basis, equipment rentals represented 74 percent and 81 percent of total revenues for general rentals and trench safety, pump and power, respectively. General rentals equipment rentals decreased $288, or 25.5 percent, reflecting a 22.3 percent decrease in same-store rental revenues. Trench safety, pump and power equipment rentals decreased $16, or 20.8 percent, reflecting an 18.3 percent decrease in same-store rental revenues.

Sales of rental equipment. For the three and six months ended March 31,June 30, 2009, and 2008, sales of rental equipment represented 1114 and 912 percent, respectively, of our total revenues respectively, and our general rentals segment accounted for substantially allapproximately 97 percent of these sales. Sales of rental equipment for trench safety, pump and power were insignificant. For the three and six months ended March 31,June 30, 2009, sales of rental equipment increased 1.523.5 and 12.7 percent, as compared to the same periodrespectively, primarily reflecting our focus on reducing our fleet size and generating strong free cash flow in 2008.a challenging construction environment.

New equipment sales. For the three and six months ended March 31,June 30, 2009, and 2008, sales of new equipment sales represented 4 and 5approximately 3 percent of our total revenues respectively. Ourand our general rentals segment accounted for substantially allapproximately 94 percent of these sales. Sales of new equipment for trench safety, pump and power were insignificant. For the three and six months ended March 31,June 30, 2009, sales of new equipment declined $19, or 45.2decreased 56.5 and 51.1 percent, as compared to the same period in 2008,respectively, primarily reflecting a decline in the volume of equipment sold.

Contractor supplies sales.Contractor supplies sales represent our revenues associated with selling a variety of supplies including construction consumables, tools, small equipment and safety supplies. Consistent with sales of rental and new equipment, general rentals accounts for substantially all of our contractor supplies sales. For the three and six months ended March 31,June 30, 2009, contractor supplies sales declined 42.9decreased 44.1 and 43.5 percent, as compared to the same period in 2008. The decline reflectsrespectively, reflecting a reduction in the volume of supplies sold, consistent with a weak construction environment, partially offset by improved pricing and product mix.

Service and other revenues. Service and other revenues primarily represent our revenues earned from providing repair and maintenance services (including parts sales). Consistent with sales of rental and new equipment as well as sales of contractor supplies, general rentals accounts for substantially all of our service and other revenues. For the three and six months ended March 31,June 30, 2009, service and other revenues declined 20.0decreased 20 percent, as compared to the same period in 2008, primarily reflecting decreasedreduced revenues from service labor and parts sales.

Segment Operating (Loss) Income

Segment operating (loss) income and operating margin were as follows:

   General
rentals
  Trench safety,
pump and power
  Total 

Three months ended June 30, 2009

    

Operating (Loss) Income

  $(2) $7   $5  

Operating Margin

   (0.3) %   17.9  0.8

Three months ended June 30, 2008

    

Operating Income

  $115   $13   $128  

Operating Margin

   14.7  26.0  15.4

Six months ended June 30, 2009

    

Operating Income

  $13   $10   $23  

Operating Margin

   1.1  13.3  1.9

Six months ended June 30, 2008

    

Operating Income

  $208   $22   $230  

Operating Margin

   13.8  23.2  14.3

   General
rentals
  Trench safety,
pump and power
  Total 

Three months ended March 31, 2009

    

Operating Income

  $15  $3  $18 

Operating Margin

   2.7%  8.3%  3.0%

Three months ended March 31, 2008

    

Operating Income

  $93  $9  $102 

Operating Margin

   12.8%  20.0%  13.2%

General rentals. For the three and six months ended March 31,June 30, 2009, operating (loss) income decreased by $84, or 82.4 percent,$117 and $195, respectively, and operating margin decreased 10.2 percentage points to 3.0 percent, reflecting a decline in gross profit in a weak construction environment, partially offset by a $21 reduction in selling, general15.0 and administrative expenses. On a segment basis, our general rentals and trench safety, pump and power operating margins decreased 10.1 percentage points and 11.712.7 percentage points, respectively, reflecting continued pervasive weakness in non-residential construction.

Gross Margin. Gross margins by revenue classification were as follows:

   Three Months Ended 
   March 31,
2009
  March 31,
2008
 

Total gross margin

  24.2% 32.3%

Equipment rentals

  24.3% 33.6%

Sales of rental equipment

  11.9% 25.8%

New equipment sales

  13.0% 19.0%

Contractor supplies sales

  28.1% 21.4%

Service and other revenues

  62.5% 60.0%

For the three months ended March 31, 2009, total gross margin decreased 8.1 percentage points as compared to the same period in 2008, primarily reflecting decreasedreduced gross marginsprofit from equipment rentals and sales of rental equipment, partially offset by increasedcost reductions and the 2008 impact of the $14 charge associated with the settlement of the SEC inquiry. Additionally, operating (loss) income for the three and six months ended June 30, 2009 included aggregate restructuring and asset impairment charges of $29 and $33, respectively, as compared to restructuring charges for the three and six months ended June 30, 2008 of $1 and $4, respectively.

Trench safety, pump and power. For the three and six months ended June 30, 2009, operating income decreased by $6 and $12, respectively, and operating margin decreased by 8.1 and 9.9 percentage points, respectively, reflecting weakness in non-residential construction activity, partially offset by cost reductions.

Gross Margin. Gross margins by revenue classification were as follows:

   Three Months Ended
June 30,
  Six Months Ended
June 30,
 
   2009  2008  2009  2008 

Total gross margin

  22.9 34.4 23.6 33.4

Equipment rentals

  27.1 36.1 25.7 34.9

Sales of rental equipment

  (9.5)%  29.4 —   27.6

New equipment sales

  15.0 15.2 14.0 17.0

Contractor supplies sales

  24.2 23.7 26.2 22.6

Service and other revenues

  62.5 60.0 62.5 60.0

For the three months ended June 30, 2009, total gross margin decreased 11.5 percentage points, primarily reflecting reduced gross margins on contractor supplies sales.from equipment rentals and sales of rental equipment. Equipment rentals gross margin decreased 9.39.0 percentage points, primarily reflecting an 11.5a 14.0 percent decrease in rental rates and a 2.4 percentage point decrease in time utilization on a smaller fleet, partially offset by savings realized from ongoing cost saving initiatives. TheEquipment rentals gross margin decline on salesfor the three months ended June 30, 2009 also includes the impact of a $7 impairment charge which was recorded in depreciation of rental equipment in the condensed consolidated statements of 13.9operations. Sales of rental equipment gross margin decreased 38.9 percentage points to (9.5) percent, primarily reflecting lower pricing. The lower pricing reflects deflationary pressures created by the current construction environment and a higher percentageproportion of auction-related sales through used equipment auctions which tend to yield lower margins. The increaseaverage age of rental equipment sold in the three months ended June 30, 2009 was 78 months, as compared to 80 months in the same period last year.

For the six months ended June 30, 2009, total gross margins on contractor supplies sales of 6.7margin decreased 9.8 percentage points, primarily reflects favorable changesreflecting reduced gross margin from equipment rentals and sales of rental equipment. Equipment rentals gross margin decreased 9.2 percentage points, primarily reflecting a 12.8 percent decrease in product mixrental rates and pricing as well as reduced infrastructure costs.a 2.5 percentage point decrease in time utilization on a smaller fleet, partially offset by savings realized from ongoing cost saving initiatives. Sales of rental equipment gross margin decreased 27.6 percentage points, primarily reflecting lower pricing.

Selling, general and administrative expenses (SG&A). SG&A expense information for the three and six months ended March 31,June 30, 2009 and 2008 was as follows:

   Three Months Ended 
   March 31,
2009
  March 31,
2008
 

Total SG&A expenses

  $108  $129 

SG&A as a percentage of revenue

   18.2%  16.7%

   Three Months Ended
June 30,
  Six Months Ended
June 30,
 
   2009  2008  2009  2008 

Total SG&A expenses

  $101   $128   $209   $257  

SG&A as a percentage of revenue

   16.4  15.4  17.3  16.0

SG&A expense primarily includes sales force compensation, bad debt expense, information technology costs, advertising and marketing expenses, third-party professional fees, management salaries and clerical and administrative overhead. For the three months ended March 31,June 30, 2009, SG&A expense of $108 declined $21$101 decreased $27 as compared to 2008 and increased by 1.51.0 percentage point as a percentage of revenue. The decline in the absolute level of our SG&A reflects the benefits we are realizing from our cost-saving initiatives, including reduced compensation costs, partially offset by normal inflationary increases. The deterioration in our SG&A ratio reflects the combination of rental rate pressure and lower utilization levels in a weak construction environment.

For the six months ended June 30, 2009, SG&A expense of $209 decreased $48 as compared to 2008 and increased by 1.3 percentage points as a percentage of revenue. The decline in the absolute level of our SG&A reflects the benefits we are realizing from our cost-saving initiatives, including reduced compensation costs, partially offset by normal inflationary increases. The deterioration in our SG&A ratio reflects a substantial reduction in revenuethe combination of rental rate pressure and lower utilization levels in a weak construction environment.

Restructuring charge.For the three months ended March 31,June 30, 2009 and 2008, restructuring charges of $20 and $1 relate to the closure of 1038 and 236 branches, respectively. Additionally, restructuring charges for the three months ended June 30, 2009 include severance costs associated with reductions in headcount of approximately 800. For the six months ended June 30, 2009 and 2008, restructuring charges of $24 and $4 relate to the closure of 48 and 29 branches, respectively, and severance costs associated with reductions in headcount of approximately 500 in both periods. As discussed below under “Second Quarter 2009 Restructuring1,300 and Asset Impairment Charge”, in the second quarter of 2009, we expect400, respectively. See note 3 to recordour unaudited condensed consolidated financial statements for additional chargesinformation.

Charge related to branch closures.settlement of SEC inquiry. Our results for the three and six months ended June 30, 2008 include a $14 charge, which represented our best estimate for the liability associated with the SEC inquiry. In September 2008, we announced that we had reached a final settlement with the SEC and we paid a civil penalty of $14.

Interest expense, net for the three and six months ended March 31,June 30, 2009 and 2008 was as follows:

 

   Three Months Ended
   March 31,
2009
  March 31,
2008

Interest expense, net

  $50  $41
   Three Months Ended
June 30,
  Six Months Ended
June 30,
   2009  2008  2009  2008

Interest expense, net

  $42  $48  $92  $89

Interest expense, net for the three and six months ended March 31,June 30, 2009 decreased by $6 and increased $9 as comparedby $3, respectively. Interest expense, net for the three and six months ended June 30, 2009 includes gains of $13 and $17, respectively, related to repurchases of $306 and $328 principal amounts of our outstanding debt during the same period in 2008,three and six months ended June 30, 2009, respectively. Excluding the impact of these gains, interest expense, net increased primarily relatingdue to increased debt following the preferred stock repurchase and the modified “Dutch auction” tender offer completed in the second and third quarters of 2008.

Interest expenseexpense- subordinated convertible debentures, net for the three and six months ended MarchJune 30, 2009 and 2008 was as follows:

   Three Months Ended
June 30,
  Six Months Ended
June 30,
   2009  2008  2009  2008

Interest expense- subordinated convertible debentures, net

  $(10 $3  $(8 $5

As discussed in note 5 to our unaudited condensed consolidated financial statements, the subordinated convertible debentures included in our consolidated balance sheets reflect the obligation to our subsidiary trust that has issued Quarterly Income Preferred Securities (“QUIPS”). This subsidiary is not consolidated in our financial statements because we are not the primary beneficiary of the trust. As of June 30, 2009 and December 31, 2008, the aggregate amount of subordinated convertible debentures outstanding was $124 and $146, respectively. Interest expense-subordinated convertible debentures, net for the three and six months ended June 30, 2009 includesdecreased by $13 due to a $13 gain of $4 related towe recognized in connection with the repurchasesimultaneous purchase of $22 of QUIPS and retirement of $22 principal amount of our outstanding senior notes during the quarter.subordinated convertible debentures.

Income taxes. The following table summarizes our (benefit) provision for income taxes and the related effective tax raterates for the three and six months ended March 31,June 30, 2009 and 2008:

 

  Three Months Ended   Three Months Ended
June 30,
 Six Months Ended
June 30,
 
  March 31,
2009
 March 31,
2008
   2009 2008 2009 2008 

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

  $(33) $59   $(29 $76   $(62 $135  

(Benefit) provision for income taxes

   (14)  21    (12  39    (26  60  

Effective tax rate

   42.4%  35.6%   41.4  51.3  41.9  44.4

The difference between the 2009 effective tax rate of 42.4 percentrates and the U.S. federal statutory income tax rate of 35 percent primarily relates to the geographical mix of income between U.S. and foreign and domesticstate operations. The difference between the 2008 effective tax rate of 35.6 percentrates and the U.S. federal statutory income tax rate primarily relates to state income taxes partially offset by fuel tax credits, tax on foreign earnings and the release of state tax valuation allowances.

Second Quarter 2009 Restructuring and Asset Impairment Charge.Inas well as certain non-deductible charges. During the second quarter of 2009,2008, we expect to recordestablished a chargevaluation allowance of between $25 and $30 principally$6 related to foreign tax credits that, as a result of the planned closure of 39 branches. Thepreferred stock redemption, are no longer expected to be realized. This charge is expected to includenet of the federal tax benefit that results from a non-cash componentdeduction for the foreign taxes. Additionally, during the second quarter of approximately2008, no tax benefit was provided for the $14 relatedprovision relating to the aggregate impactSEC inquiry.

Our effective tax rate is based on recurring factors including the geographical mix of impairing certain rental assetsincome before taxes and writing off leasehold improvements. The balance of the chargerelated tax rates in those jurisdictions. In addition, our effective tax rate will relate to lease termination and severance costs.change based on discrete or other nonrecurring events (such as audit settlements) that may not be predictable.

Liquidity and Capital Resources

Liquidity. We manage our liquidity using internal cash management practices, which are subject to (i) the policies and cooperation of the financial institutions we utilize to maintain and provide cash management services, (ii) the terms and other requirements of the agreements to which we are a party and (iii) the statutes, regulations and practices of each of the local jurisdictions in which we operate.

In June 2009, URNA issued $500 aggregate principal amount of 10 7/8 percent Senior Notes (the “10 7/8 percent Notes”), which are due June 15, 2016. We received $471 in net proceeds from the issuance of the notes, after underwriting discounts and commissions, fees and expenses. Of the net proceeds received from the offering, $196 was spent in the month of June to repurchase outstanding 6 1/2 percent Senior Notes. The balance of the proceeds was used to repay amounts borrowed under our ABL facility. In the second half of 2009, we expect to draw down some or all of these amounts to repurchase outstanding senior indebtedness.

Our principal existing sources of cash are cash generated from operations, including from the sale of rental equipment, and borrowings available under our ABL facility and accounts receivable securitization facility. As of March 31,June 30, 2009, we had (i) $561$764 of borrowing capacity available under our ABL facility, (ii) $26 of borrowing capacity available under our accounts receivable securitization facility and (ii)(iii) cash and cash equivalents of $96.$125. Cash equivalents at March 31,June 30, 2009 consist of high quality, low risk investments. We believe that our existing sources of cash will be sufficient to support our existing operations over the next 12 months.

We expect that our principal needs for cash relating to our existing operations over the next 12 months will be to fund (i) operating activities and working capital, (ii) the purchase of rental equipment and inventory items offered for sale and (iii) debt service.service and retirement. We plan to fund such cash requirements from our existing sources of cash. In addition, we may seek additional financing through the securitization of some of our equipment or real estate or through the use of additional operating leases.

Retirement of Senior Notes.Debt and Subordinated Convertible Debentures. As discussed above and in the first quarter of 2009,note 5 to our unaudited condensed consolidated financial statements, we repurchased and retired an aggregate$306 and $328 principal amounts of our outstanding debt during the three and six months ended June 30, 2009, respectively. In addition, during the three and six months ended June 30, 2009, we purchased $22 of QUIPS and retired $22 principal amount of our outstanding 6 1/2percent Senior Notes. Interest expense for the three months ended March 31, 2009 includes a gain of $4, representing the difference between the net carrying amount of the securities and the purchase price of $18.subordinated convertible debentures.

Loan Covenants and Compliance. As of March 31,June 30, 2009, we were in compliance with the covenants and other provisions of our ABL facility, the senior notes, the subordinated convertible debentures and our accounts receivables securitization facility. Any failure to be in compliance with any material provision or covenant of these agreements could have a material adverse effect on our liquidity and operations.

The only financial covenants which currently exist relate to the fixed charge coverage ratio and the senior secured leverage ratio in the ABL facility. Both of these covenants “sprung off” on June 9, 2009 because our availability, as defined, had exceeded the necessary 20 percent threshold. Since the June 9, 2009 spring off date and through June 30, 2009, availability under the ABL facility has exceeded the 10 percent threshold and, as a result, these maintenance covenants were not applicable. Subject to certain limited exceptions specified in the credit agreement governing the ABL facility, these covenants will only apply in the future if availability under the ABL facility falls below 10 percent.

Sources and Uses of Cash—Continuing OperationsCash. During the threesix months ended March 31,June 30, 2009, we (i) generated cash from operating activities of $124$205 and (ii) generated cash from the sale of rental and non-rental equipment of $70.$151. The balance of accounts receivable, net decreased $79, or 17.4 percent, as compared to December 31, 2008, primarily due to a decline in total revenues. We used cash during this period principally to (i) purchase rental equipment of $138, (ii) purchase other property and equipment of $26 and (iii) fund payments, on debt, net of proceeds, on debt of $106 and (ii) purchase rental and non-rental equipment of $64.$141. During the threesix months ended March 31,June 30, 2008, we (i) generated cash from operating activities of $226$447 and (ii) generated cash from the sale of rental and non-rental equipment of $68.$134. We used cash during this period principally to (i) purchase rental and non-rental equipment of $151.$437, (ii) purchase other property and equipment of $32, (iii) redeem our preferred stock of $254 and (iv) fund payments, net of proceeds, on debt of $133.

Free Cash Flow GAAP Reconciliation. We define free cash flow as (i) net cash provided by operating activities less (ii) purchases of rental and non-rental equipment plus (iii) proceeds from sales of rental and non-rental equipment and excess tax benefits from share-based payment arrangements. Management believes free cash flow provides useful additional information concerning cash flow available to meet future debt service obligations and working capital requirements. However, free cash flow is not a measure of financial performance or liquidity under GAAP. Accordingly, free cash flow should not be considered an alternative to net income (loss) or cash flow from operating activities as an indicatorindicators of operating performance or liquidity. The table below provides a reconciliation between net cash provided by operating activities and free cash flow.

 

  Three Months Ended
March 31,
   Six Months Ended
June 30,
 
      2009         2008       2009 2008 

Net cash provided by operating activities

  $124  $226   $205   $447  

Purchases of rental equipment

   (52)  (136)   (138  (437

Purchases of non-rental equipment

   (12)  (15)   (26  (32

Proceeds from sales of rental equipment

   67   66    151    134  

Proceeds from sales of non-rental equipment

   3   2    8    5  

Excess tax benefits from share-based payment arrangements

   (1)  —      (1)  —    
              

Free cash flow

  $129  $143   $199   $117  
              

Free cash flow generation for the threesix months ended March 31,June 30, 2009 was $129, a decrease$199, an increase of $14$82 as compared to free cash flow generation of $143 for$117 in the threesix months ended March 31,June 30, 2008. The year-over-year decreaseincrease in free cash flow reflectswas primarily the result of a $299 reduction in purchases of rental equipment, partially offset by lower cash generated from operating activities, partially offset by reduced purchases of rental equipment.activities.

Our credit ratings as of AprilJuly 24, 2009 were as follows:

 

   

Corporate Rating

  

Outlook

Moody’s (1)

  B2  Negative

S&P (1)

  BB-B  Negative

Fitch (1)

  B+B  StableNegative

 

(1)

Following the Company’s June 20082009 announcement of the repurchaseissuance of its Series C and D preferred stock and modified “Dutch auction” tender offer for its common stock, both Moody’s and Standard & Poor’s placed the Company on negative outlook (the corporate rating at the time was B1 and BB-, respectively) and Fitch downgraded the Company from BB- to B+ with a stable outlook. In January 2009, after the Company announced its goodwill impairment chargeURNA’s 10 7/8 percent Senior Notes, and in recognition of the deteriorating economic environment, Moody’sStandard & Poor’s and Fitch downgraded the Company to B2, whilea corporate rating of B. Standard & Poor’s affirmed its BB- rating. Both rating agencies retained aalso placed the Company on negative outlook. FitchMoody’s has retained its B+B2 rating with a stableand negative outlook.

Both our ability to obtain financing and the related cost of borrowing are affected by our credit ratings, which are periodically reviewed by these rating agencies. Our current credit ratings are below investment grade and we expect our access to the public debt markets to be limited to the non-investment grade segment.

A security rating is not a recommendation to buy, sell or hold securities insofar as such ratings do not comment as to market price or suitability for a particular investor. There is no assurance that any rating will remain in effect for a given period of time or that any rating will not be revised or withdrawn entirely by a rating agency in the future if in its judgment circumstances warrant.

Certain Information Concerning Contractual Obligations. The table below provides certain information concerning the payments coming due under certain categories of our existing contractual obligations as of June 30, 2009:

   2009  2010  2011  2012  2013  Thereafter  Total

Debt and capital leases (1)

  $5  $9  $207  $762  $939  $1,157  $3,079

Interest due on debt (2)

   110   219   217   171   152   178   1,047

Operating leases (1):

              

Real estate

   40   73   64   55   45   138   415

Non-rental equipment

   33   38   25   15   9   10   130

Service agreements (3)

   —     1   1   2   —     —     4

Purchase obligations (4)

   33   3   —     —     —     —     36

Subordinated convertible debentures (5)

   4   8   8   8   8   241   277
                            

Total (6)

  $225  $351  $522  $1,013  $1,153  $1,724  $4,988
                            

(1)The payments due with respect to a period represent (i) in the case of debt and capital leases, the scheduled principal payments due in such period, and (ii) in the case of operating leases, the minimum lease payments due in such period under non-cancelable operating leases plus the maximum potential guarantee amounts associated with some of our non-rental equipment operating leases for which we guarantee that the value of the equipment at the end of the lease term will not be less than a specified projected residual value.
(2)Estimated interest payments have been calculated based on the principal amount of debt and the effective interest rates as of June 30, 2009.
(3)These represent service agreements with third parties to refurbish our aerial equipment and to operate the distribution centers associated with contractor supplies.
(4)As of June 30, 2009, we had outstanding purchase orders with our equipment and inventory suppliers. These purchase orders, which were negotiated in the ordinary course of business, represent obligations of approximately $36 in the aggregate. These purchase commitments can be cancelled by us, generally with 30 days notice and without cancellation penalties. The equipment and inventory receipts from the suppliers for these purchases and related payments to the suppliers are expected to be completed throughout 2009 and 2010.
(5)Includes interest payments.
(6)This information excludes $7 of unrecognized tax benefits. $4 is expected to be paid in 2009, and it is not possible to estimate the time period during which the remaining amounts may be paid to tax authorities.

Certain Information Concerning Off-Balance Sheet Arrangements.Arrangements. We lease real estate and non-rental equipment under operating leases as a regular business activity. As part of some of our non-rental equipment operating leases, we guarantee that the value of the equipment at the end of the lease term will not be less than a specified projected residual value. If the actual residual value for all equipment subject to such guarantees were to be zero, then our maximum potential liability under these guarantees would be approximately $16.$17. Under current circumstances we do not anticipate paying significant amounts under these guarantees; however, we cannot be certain that changes in market conditions or other factors will not cause the actual residual values to be lower than those currently anticipated. In accordance with Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” this potential liability was not reflected on our balance sheet as of March 31,June 30, 2009 or December 31, 2008 as we believe that proceeds from the sale of the equipment under these operating leases would approximate the payment obligation.

Relationship between Holdings and URNA.Holdings is principally a holding company and primarily conducts its operations through its wholly owned subsidiary, URNA, and subsidiaries of URNA. Holdings licenses its tradename and other intangibles and provides certain services to URNA in connection with its operations. These services principally include: (i) senior management services; (ii) finance and tax-related services and support; (iii) information technology systems and support; (iv) acquisition-related services; (v) legal services; and (vi) human resource support. In addition, Holdings leases certain equipment and real property that are made available for use by URNA and its subsidiaries.

Item 3.Quantitative and Qualitative Disclosures about Market Risk

Our exposure to market risk primarily consists of (1) interest rate risk associated with our variable rate debt and (2) foreign currency exchange rate risk primarily associated with our Canadian operations.

Interest Rate Risk.Risk. As of March 31,June 30, 2009, we had an aggregate of $861$651 of indebtedness that bears interest at variable rates. As of March 31,June 30, 2009, the variable rate debt included $634$452 of borrowings under our ABL facility and $227$199 of borrowings under our accounts receivable securitization facility. The interest rates applicable to our variable rate debt on March 31,June 30, 2009 were (i) 3.33.1 percent for the ABL facility and (ii) 1.71.6 percent for the accounts receivable securitization facility. As of March 31,June 30, 2009, based upon the amount of our variable rate debt outstanding, our annual after-tax earnings would decrease by approximately $5$4 for each one percentage point increase in the interest rates applicable to our variable rate debt.

The amount of our variable rate indebtedness may fluctuate significantly as a result of changes in the amount of indebtedness outstanding under our ABL facility and accounts receivable securitization facility.

Currency Exchange RiskRisk.. The functional currency for our Canadian operations is the Canadian dollar. As a result, our future earnings could be affected by fluctuations in the exchange rate between the U.S. and Canadian dollars. Based upon the level of our Canadian operations during 2008 relative to the Company as a whole, a 10 percent change in this exchange rate would not have a material impact on our earnings. We had no outstanding foreign exchange contracts as of March 31,June 30, 2009. We do not engage in purchasing forward exchange contracts for speculative purposes.

 

Item 4.Controls and Procedures

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company’s management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a–15(e) and 15d–15(e) of the Exchange Act, as of March 31,June 30, 2009. Based on the evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of March 31,June 30, 2009.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended March 31,June 30, 2009 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

 

Item 1.Legal Proceedings

The information set forth under note 6 to our unaudited condensed consolidated financial statements of this quarterly report on Form 10-Q is incorporated by reference in answer to this item. Such information is limited to certain recent developments and should be read in conjunction with note 13 to our consolidated financial statements for the year ended December 31, 2008 filed on Form 10-K on February 26, 2009.

The U.S. Environmental Protection Agency (the “EPA”) has notified the Company that we are a potential responsible party (“PRP”) at a former waste disposal facility included on the National Priorities List of contaminated sites. Under the federal Comprehensive Environmental Response, Compensation and Liability Act, also known as the Superfund law, persons identified as PRPs may be subject to strict, joint and several liability for the costs of cleaning up environmental contamination resulting from releases of hazardous substances at National Priorities List sites. We were identified by the EPA as a PRP at the Operating Industries, Inc. Superfund site in Monterey Park, California. The EPA has submitted a settlement offer to us in return for which we would be recognized as a de minimis party in regard to this site. These proceedings involve potential monetary sanctions of $100,000 or more. Although the Company cannot predict the outcome of this proceeding, it does not expect any such outcome to have a material adverse effect on its consolidated financial condition or results of operations.

Item 1A.Risk Factors

Our results of operations and financial condition are subject to numerous risks and uncertainties described in our 2008 Form 10-K, which risk factors are incorporated herein by reference. You should carefully consider these risk factors in conjunction with the other information contained in this report. Should any of these risks materialize, our business, financial condition and future prospects could be negatively impacted.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

(c)The following table provides information about purchases of Holdings’ common stock by the Holdings during the firstsecond quarter of 2009:

 

Period

  Total Number of
Shares Purchased
  Average Price
Paid Per Share

January 1, 2009 to January 31, 2009

  —    $—  

February 1, 2009 to February 28, 2009

  44,972  $5.51

March 1, 2009 to March 31, 2009

  60,854  $3.31
     

Total (1)

  105,826  
     

Period

  Total Number of
Shares Purchased
  Average Price
Paid Per Share

April 1, 2009 to April 30, 2009

  787  $4.20

May 1, 2009 to May 31, 2009

  25,990  $5.17

June 1, 2009 to June 30, 2009

  2,302  $6.37
     

Total (1)

  29,079  
     

 

(1)The shares were withheld by Holdings either to satisfy tax withholding obligations upon the vesting of restricted stock or restricted stock unit awards or to pay the exercise price upon the exercise of stock option or warrant grants. These shares were not acquired pursuant to any repurchase plan or program.

Item 4.Submission of Matters to a Vote of Security Holders

The Company’s Annual Meeting of Stockholders was held on June 11, 2009. The following directors were elected by holders of shares of our common stock as follows:

   For  Against  Abstain

José B. Alvarez

  50,963,481  1,264,367  66,145

Jenne K. Britell

  39,544,188  12,676,825  72,983

Bobby J. Griffin

  50,971,332  1,256,736  65,927

Michael J. Kneeland

  48,876,716  3,367,461  49,813

Singleton B. McAllister

  48,799,854  3,426,119  68,017

Brian D. McAuley

  48,921,009  3,306,970  66,010

John S. McKinney

  47,641,754  4,593,184  59,052

Jason D. Papastavrou

  48,790,428  3,442,824  60,736

Filippo Passerini

  49,289,905  2,943,633  60,453

Each of the above-named directors was elected for a one-year term expiring in 2010.

In accordance with the continuing de-classification of our Board of Directors that was approved at our 2007 Annual Meeting, Howard L. Clark, Jr. and L. Keith Wimbush, our Class Three directors, have one year of their three-year terms remaining. Messrs. Clark and Wimbush are the only members of our board currently serving a term lasting more than one year. Upon expiration of the terms of Messrs. Clark and Wimbush in 2010, our transition to a de-classified Board of Directors will be complete and all directors will be elected annually for one-year terms.

The other matters voted upon at the 2009 Annual Meeting of Stockholders are as follows:

To approve the 2009 Annual Incentive Compensation Plan:

For Against Abstain
48,012,762 3,232,507 1,048,719

To ratify the appointment of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending December 31, 2009:

For Against Abstain
50,212,793 2,026,879 54,318

There were no additional matters voted upon at the 2009 Annual Meeting of Stockholders.

Item 6.Exhibits

 

3(a) Restated Certificate of Incorporation of United Rentals, Inc., dated March 16, 2009 (incorporated by reference to Exhibit 3.1 of the United Rentals, Inc. Report on Form 8-K filed on March 17, 2009)
3(b) By-laws of United Rentals, Inc., amended as of January 16, 2009 (incorporated by reference to Exhibit 3.1 of the United Rentals, Inc. Report on Form 8-K filed on January 20, 2009)
10(a)  4.1 First (renumbered Second) Amendment,Indenture, dated January 15,as of June 9, 2009, among United Rentals (North America), Inc., United Rentals, Inc., the Subsidiaries named in Schedule A thereto and The Bank of New York Mellon, as Trustee (including the Form of Note) (incorporated by reference to Exhibit 4.1 of the Employment Agreement between United Rentals, Inc. Report on Form 8-K filed on June 12, 2009)
10.1Registration Rights Agreement, dated as of June 9, 2009, among United Rentals (North America), Inc., United Rentals, Inc., the Subsidiaries named therein and Michael J. Kneelandthe Purchasers named therein (incorporated by reference to Exhibit 10.1 of the United Rentals, Inc. Report on Form 8-K filed on January 15,June 12, 2009)
10(b)10.2 Third Amendment, dated March 13, 2009, to the Employment Agreement, dated as of August 22, 2008, between United Rentals, Inc. and Michael J. Kneeland2009 Annual Incentive Compensation Plan (incorporated by reference to Exhibit 10.1Annex A of the United Rentals, Inc. ReportProxy Statement on Form 8-KSchedule 14A filed on January 20,April 30, 2009)
10(c)10.3* Separation Agreement and General Release, dated February 5, 2009, betweenForm of United Rentals, Inc. and Roger E. Schwed (incorporated by reference to Exhibit 10.1 of the United Rentals, Inc. Report on Form 8-K filed on February 6, 2009)Restricted Stock Unit Agreement for Senior Management
10(d)10.4* Employment Agreement, dated asForm of February 2, 2009, between United Rentals, Inc. and Jonathan Gottsegen (incorporated by reference to Exhibit 10(gg) to the United Rentals, Inc. Report on Form 10-KStock Option Agreement for the year ended December 31, 2008)
10(e)Indemnification Agreement, dated as of February 2, 2009, between United Rentals, Inc. and Jonathan Gottsegen (incorporated by reference to Exhibit 10(pp) to the United Rentals, Inc. Report on Form 10-K for the year ended December 31, 2008)
10(f)*Employment Agreement, last dated September 3, 2008, between United Rentals, Inc. and Ken DeWitt
10(g)Master Exchange Agreement, dated as of January 1, 2009, among United Rentals Exchange, LLC, IPX1031 LLC, United Rentals (North America), Inc. and United Rentals Northwest, Inc. (incorporated by reference to Exhibit 10.3 of the United Rentals, Inc. Report on Form 8-K filed January 7, 2009)Senior Management
31(a)* Rule 13a-14(a) Certification by Chief Executive Officer
31(b)* Rule 13a-14(a) Certification by Chief Financial Officer
32(a)** Section 1350 Certification by Chief Executive Officer
32(b)** Section 1350 Certification by Chief Financial Officer

 

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 UNITED RENTALS, INC.
Dated: AprilJuly 29, 2009 By: 

/S/s/ JOHN J. FAHEY

  John J. Fahey
  

Vice President, Controller

and Principal Accounting Officer

 UNITED RENTALS (NORTH AMERICA), INC.
Dated: AprilJuly 29, 2009 By: 

/S/s/ JOHN J. FAHEY

  John J. Fahey
  

Vice President, Controller

and Principal Accounting Officer

 

3032