Executive Overview

We are the largest equipment rental company in the world with an integrated network of 618 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 2,800 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. In 2008, rental equipment revenues represented 76 percent of our total revenues.

As we expected, the first quarter of 2009 has 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. The U.S. Attorney's office has also requested information from the Company about matters related to the SEC inquiry. As previously reported, in the third quarter of 2008, we consented, without admitting or denying the allegations in the SEC's complaint, 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 provisions of the federal securities laws in the future. We cannot predict the outcome or other consequences of these matters to the Company 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 reported In re United Rentals, Inc. Securities Litigation, 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) income. Net (loss) income and diluted (loss) earnings per share for
the three months ended March 31, 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

The first quarter of 2009 net 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 months ended March 31, 2009 and 2008 include after-tax restructuring charges of $3, or $0.04 per diluted share, and $2, or $0.02 per diluted share, respectively, related to branch closure and severance costs. The decline in profitability reflects lower equipment rental revenue and gross profit in a very challenging construction environment, partially offset by savings realized from our ongoing initiatives to reduce operating costs.

EBITDA GAAP Reconciliation. EBITDA represents the sum of (loss) income before (benefit) provision for income taxes, interest expense, net, interest expense-subordinated convertible debentures, depreciation-rental equipment, non-rental depreciation and amortization and stock compensation expense. Adjusted EBITDA represents EBITDA plus the restructuring charge. 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 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,
                                                               2009            2008
 (Loss) income before (benefit) provision for income taxes   $     (33 )     $      59
 Interest expense, net                                              50              41
 Interest expense-subordinated convertible debentures                2               2
 Depreciation-rental equipment                                     106             108
 Non-rental depreciation and amortization                           14              15
 Stock compensation expense                                          2               1

 EBITDA                                                      $     141       $     226
 Restructuring charge                                                4               3

 Adjusted EBITDA                                             $     145       $     229

For the three months ended March 31, 2009, EBITDA decreased $85, or 37.6 percent, primarily reflecting lower equipment rental revenue and gross profit, 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     Trench safety,
                                             rentals     pump and power    Total
        Three months ended March 31, 2009
        Equipment rentals                   $     418   $             30   $  448
        Sales of rental equipment                  64                  3       67
        New equipment sales                        21                  2       23
        Contractor supplies sales                  31                  1       32
        Service and other revenues                 24                 -        24

        Total revenues                      $     558   $             36   $  594

        Three months ended March 31, 2008
        Equipment rentals                   $     542   $             36   $  578
        Sales of rental equipment                  63                  3       66
        New equipment sales                        40                  2       42
        Contractor supplies sales                  54                  2       56
        Service and other revenues                 28                  2       30

        Total revenues                      $     727   $             45   $  772

Equipment rentals. 2009 equipment rentals of $448 decreased $130, or 22.5 percent, reflecting an 11.5 percent rate decline and a 2.4 percentage point decrease in time utilization on a smaller fleet. Equipment rentals represented 75 percent of total revenues for the three months ended March 31, 2009 and 2008. On a segment basis, equipment rentals represented 75 percent and 83 percent of total revenues for general rentals and trench safety, pump and power, respectively. General rentals equipment rentals decreased $124, or 22.9 percent, reflecting a 20.4 percent decrease in same-store rental revenues. Trench safety, pump and power equipment rentals decreased $6, or 16.7 percent, reflecting a 14.6 percent decrease in same-store rental revenues.

Sales of rental equipment. For the three months ended March 31, 2009 and 2008, sales of rental equipment represented 11 and 9 percent of our total revenues, respectively, and our general rentals segment accounted for substantially all of these sales. For the three months ended March 31, 2009, sales of rental equipment increased 1.5 percent as compared to the same period in 2008.

New equipment sales. For the three months ended March 31, 2009 and 2008, sales of new equipment represented 4 and 5 percent of our total revenues, respectively. Our general rentals segment accounted for substantially all of these sales. For the three months ended March 31, 2009, sales of new equipment declined $19, or 45.2 percent, as compared to the same period in 2008, 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 months ended March 31, 2009, contractor supplies sales declined 42.9 percent as compared to the same period in 2008. The decline reflects 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 months ended March 31, 2009, service and other revenues declined 20.0 percent as compared to the same period in 2008, primarily reflecting decreased revenues from service labor and parts sales.

Segment Operating Income

Segment operating income and operating margin were as follows:



                                           General       Trench safety,
                                           rentals       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 %

For the three months ended March 31, 2009, operating income decreased by $84, or 82.4 percent, 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, general and administrative expenses. On a segment basis, our general rentals and trench safety, pump and power operating margins decreased 10.1 percentage points and 11.7 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,     March 31,
                                               2009          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 decreased gross margins from equipment rentals and sales of rental equipment, partially offset by increased gross margins on contractor supplies sales. Equipment rentals gross margin decreased 9.3 percentage points, primarily reflecting an 11.5 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. The gross margin decline on sales of rental equipment of 13.9 percentage points primarily reflects a higher percentage of sales through used equipment auctions which yield lower margins. The increase in gross margins on contractor supplies sales of 6.7 percentage points primarily reflects favorable changes in product mix and pricing as well as reduced infrastructure costs.

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

                                                  Three Months Ended
                                              March 31,        March 31,
                                                 2009             2008
            Total SG&A expenses               $      108       $      129
            SG&A as a percentage of revenue         18.2 %           16.7 %

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, 2009, SG&A expense of $108 declined $21 as compared to 2008 and increased by 1.5 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 revenue in a weak construction environment.

Restructuring charge. For the three months ended March 31, 2009 and 2008, restructuring charges relate to the closure of 10 and 23 branches, respectively, and severance costs associated with reductions in headcount of approximately 500 in both periods. As discussed below under "Second Quarter 2009 Restructuring and Asset Impairment Charge", in the second quarter of 2009, we expect to record additional charges related to branch closures.

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

                                             Three Months Ended
                                          March 31,      March 31,
                                             2009           2008
                  Interest expense, net   $       50     $       41

Interest expense, net for the three months ended March 31, 2009 increased $9 as compared to the same period in 2008, primarily relating 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 expense for the three months ended March 31, 2009 includes a gain of $4 related to the repurchase of $22 of our outstanding senior notes during the quarter.

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

                                                                   Three Months Ended
                                                            March 31,              March 31,
                                                               2009                   2008
(Loss) income before (benefit) provision for
income taxes                                               $        (33 )         $         59
(Benefit) provision for income taxes                                (14 )                   21
Effective tax rate                                                 42.4 %                 35.6 %

The difference between the 2009 effective tax rate of 42.4 percent and the U.S. federal statutory income tax rate of 35 percent primarily relates to the geographical mix of income between foreign and domestic operations. The difference between the 2008 effective tax rate of 35.6 percent and the U.S. federal statutory income tax 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. In the second quarter of 2009, we expect to record 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 component of approximately $14 related to the aggregate impact of impairing certain rental assets and writing off leasehold improvements. The balance of the charge will relate to lease termination and severance costs.

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.

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, 2009, we had (i) $561 of borrowing capacity available under our ABL facility and
(ii) cash and cash equivalents of $96. Cash equivalents at March 31, 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. 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. As discussed above, in the first quarter of 2009, we repurchased and retired an aggregate of $22 principal amount of our outstanding 6 1/2 percent 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.

Loan Covenants and Compliance. As of March 31, 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.

Sources and Uses of Cash-Continuing Operations. During the three months ended March 31, 2009, we (i) generated cash from operating activities of $124 and
(ii) generated cash from the sale of rental and non-rental equipment of $70. We used cash during this period principally to (i) fund payments on debt, net of proceeds, of $106 and (ii) purchase rental and non-rental equipment of $64. During the three months ended March 31, 2008, we (i) generated cash from operating activities of $226 and (ii) generated cash from the sale of rental and non-rental equipment of $68. We used cash during this period principally to purchase rental and non-rental equipment of $151.

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 or cash flow from operating activities as an indicator 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,
                                                                   2009                2008
Net cash provided by operating activities                        $     124          $      226
Purchases of rental equipment                                          (52 )              (136 )
Purchases of non-rental equipment                                      (12 )               (15 )
Proceeds from sales of rental equipment                                 67                  66
Proceeds from sales of non-rental equipment                              3                   2
Excess tax benefits from share-based payment arrangements               (1 )                -

Free cash flow                                                   $     129          $      143

Free cash flow for the three months ended March 31, 2009 was $129, a decrease of $14 as compared to free cash flow of $143 for the three months ended March 31, 2008. The year-over-year decrease in free cash flow reflects lower cash generated from operating activities, partially offset by reduced purchases of rental equipment.

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

                                   Corporate Rating   Outlook
                     Moody's (1)          B2          Negative
                     S&P (1)             BB-          Negative
                     Fitch (1)            B+           Stable

(1) Following the Company's June 2008 announcement of the repurchase 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 charge and in recognition of the deteriorating economic environment, Moody's downgraded the Company to B2, while Standard & Poor's affirmed its BB- rating. Both rating agencies retained a negative outlook. Fitch has retained its B+ rating with a stable 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.

Certain Information Concerning Off-Balance Sheet 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. 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, 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 . . .