Executive Overview

We are the largest equipment rental company in the world with an integrated network of 582 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 2,700 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 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 half of the year, the first six months of 2009 have 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 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 disclosed 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 contribution toward the settlement of the In 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 available to common stockholders. Net loss available to common
stockholders and diluted loss per share for the three and six months ended
June 30, 2009 and 2008 were as follows:



                                                      Three Months Ended           Six Months Ended
                                                           June 30,                    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 )

Net (loss) income and diluted loss per share for the three and six months ended June 30, 2009 and 2008 include the impacts of the following special items (amounts presented on an after-tax basis):

                                                                  Three Months Ended                                                       Six Months Ended
                                                                       June 30,                                                                June 30,
                                                       2009                                 2008                                2009                                2008
                                            Net           Diluted (loss)          Net                                Net           Diluted (loss)          Net
                                           (loss)          earnings per          (loss)        Diluted loss         (loss)          earnings per          (loss)        Diluted loss
                                           income             share              income          per share          income             share              income         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 the matters discussed above, our 2009 performance reflects lower gross profit from equipment rental revenues and from 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. 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, net. Adjusted EBITDA represents EBITDA plus the sum of the restructuring 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         Six Months Ended
                                                             June 30,                  June 30,
                                                        2009            2008       2009          2008
(Loss) income before (benefit) provision for
income taxes                                          $    (29 )       $   76    $    (62 )      $ 135
Interest expense, net                                       42             48          92           89
Interest expense - subordinated convertible
debentures, net                                            (10 )            3          (8 )          5
Depreciation - rental equipment                            110            111         216          219
Non-rental depreciation and amortization                    15             15          29           30
Stock compensation expense, net                              2              1           4            2

EBITDA                                                $    130         $  254    $    271        $ 480
Restructuring charge                                        20              1          24            4
Charge related to settlement of SEC inquiry                 -              14          -            14

Adjusted EBITDA                                       $    150         $  269    $    295        $ 498

For the three and six months ended June 30, 2009, adjusted EBITDA decreased $119, or 44.2 percent, and $203, or 40.8 percent, respectively, primarily reflecting lower gross profits from equipment rentals and from the sale of rental 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.

Revenues by segment were as follows:

                                           General     Trench safety,
                                           rentals     pump and power     Total
        Three months ended June 30, 2009
        Equipment rentals                  $    423   $             31   $   454
        Sales of rental equipment                82                  2        84
        Sales of new equipment                   19                  1        20
        Contractor supplies sales                30                  3        33
        Service and other revenues               22                  2        24

        Total revenue                      $    576   $             39   $   615

        Three months ended June 30, 2008
        Equipment rentals                  $    587   $             41   $   628
        Sales of rental equipment                64                  4        68
        Sales of new equipment                   44                  2        46
        Contractor supplies sales                56                  3        59
        Service and other revenues               30                 -         30

        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

Three months ended June 30, 2009 and 2008. 2009 equipment rentals of $454 decreased $174, or 27.7 percent, reflecting a 14.0 percent decrease 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 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 74 percent of total revenues for the three months ended June 30, 2009. On a segment basis, equipment rentals represented 73 percent and 79 percent of total revenues for general rentals and trench safety, pump and power, respectively. General rentals equipment rentals decreased $164, or 27.9 percent, reflecting a 24.2 percent decrease in same-store rental revenues. Trench safety, pump and power equipment rentals decreased $10, or 24.4 percent, reflecting a 21.6 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 June 30, 2009, sales of rental equipment represented 14 and 12 percent, respectively, of our total revenues and our general rentals segment accounted for approximately 97 percent of these sales. Sales of rental equipment for trench safety, pump and power were insignificant. For the three and six months ended June 30, 2009, sales of rental equipment increased 23.5 and 12.7 percent, respectively, primarily reflecting our focus on reducing our fleet size and generating strong free cash flow in a challenging construction environment.

New equipment sales. For the three and six months ended June 30, 2009, new equipment sales represented approximately 3 percent of our total revenues and our general rentals segment accounted for approximately 94 percent of these sales. Sales of new equipment for trench safety, pump and power were insignificant. For the three and six months ended June 30, 2009, sales of new equipment decreased 56.5 and 51.1 percent, 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 June 30, 2009, contractor supplies sales decreased 44.1 and 43.5 percent, respectively, 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 June 30, 2009, service and other revenues decreased 20 percent, primarily reflecting reduced revenues from service labor and parts sales.

Segment Operating (Loss) Income

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

                                        General          Trench safety,
                                        rentals          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. For the three and six months ended June 30, 2009, operating
(loss) income decreased $117 and $195, respectively, and operating margin decreased 15.0 and 12.7 percentage points, respectively, primarily reflecting reduced gross profit from equipment rentals and sales of rental equipment, partially offset by cost 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          Six Months Ended
                                          June 30,                   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 from equipment rentals and sales of rental equipment. Equipment rentals gross margin decreased 9.0 percentage points, primarily reflecting a 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. Equipment rentals gross margin for 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 operations. 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 proportion of auction-related sales which tend to yield lower margins. The average 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 margin decreased 9.8 percentage points, primarily reflecting 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 rental rates and 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 June 30, 2009 and 2008 was as follows:

                                        Three Months Ended           Six Months Ended
                                             June 30,                    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, professional fees, management salaries and clerical and administrative overhead. For the three months ended June 30, 2009, SG&A expense of $101 decreased $27 as compared to 2008 and increased by 1.0 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 the combination of rental rate pressure and lower utilization levels in a weak construction environment.

Restructuring charge. For the three months ended June 30, 2009 and 2008, restructuring charges of $20 and $1 relate to the closure of 38 and 6 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 1,300 and 400, respectively. See note 3 to our unaudited condensed consolidated financial statements for additional information.

Charge related to 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 June 30, 2009 and 2008 was as follows:

Three Months Ended Six Months Ended June 30, June 30, 2009 2008 2009 2008 Interest expense, net $ 42 $ 48 $ 92 $ 89

Interest expense, net for the three and six months ended June 30, 2009 decreased by $6 and increased by $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 three and six months ended June 30, 2009, respectively. Excluding the impact of these gains, interest expense, net increased primarily due 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- subordinated convertible debentures, netfor the three and six months ended June 30, 2009 and 2008 was as follows:

                                                      Three Months Ended         Six Months Ended
                                                           June 30,                  June 30,
                                                      2009            2008      2009           2008
Interest expense- subordinated convertible

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 decreased by $13 due to a $13 gain we recognized in connection with the simultaneous purchase of $22 of QUIPS and retirement of $22 principal amount of our subordinated convertible debentures.

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

. . .