Executive Overview

We are the largest equipment rental company in the world with an integrated network of 580 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 3,000 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, equipment rental revenues represented 76 percent of our total revenues.

As we expected, and consistent with the decline in non-residential construction activity over the first nine months of the year, the first nine months of 2009 have been challenging for both our company and the U.S. equipment rental industry. In particular, and as discussed elsewhere in this report, because of this environment, we have experienced deterioration in the prices we charge our customers ("rental rates"), the utilization of our equipment, and the gross margins we realize from the sale of used equipment. As a consequence, our revenues and profitability have deteriorated. In anticipation of the challenges related to the current environment, however, we have undertaken a number of cost saving and other initiatives. These initiatives include the closure or consolidation of 126 branches, or 18 percent of our branch network, since the beginning of 2008, and headcount reductions of over 2,400 employees, or 22 percent, over the same period. Although the savings that we have realized as a result of these initiatives have not fully offset the loss in profitability related to lower revenues and gross profits, 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 second 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 income (loss) available to common stockholders. Net income (loss) available
to common stockholders and diluted earnings (loss) per share for the three and
nine months ended September 30, 2009 and 2008 were as follows:



                                                      Three Months Ended         Nine Months Ended
                                                        September 30,              September 30,
                                                     2009         2008          2009           2008
Net income (loss) available to common
stockholders                                        $    -     $        76    $     (36 )     $   (90 )
Diluted earnings (loss) per share (inclusive of
preferred stock redemption charge)                  $    -     $      0.98    $   (0.60 )     $ (1.12 )

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

                                                          Three Months Ended                                             Nine Months Ended
                                                            September 30,                                                  September 30,
                                                  2009                          2008                             2009                            2008
                                                                                                      Net          Diluted (loss)
                                         Net       Diluted loss        Net       Diluted loss        (loss)         earnings per         Net       Diluted loss
                                        loss         per share        loss         per share         income            share            loss        per share
Restructuring charge (1)                $  -       $          -       $  (1 )    $       (0.01 )    $    (15 )    $          (0.24 )    $  (4 )           (0.04 )
Gains (losses) on
repurchase/retirement of debt
securities and subordinated
convertible debentures                     (1 )            (0.01 )       (2 )            (0.03 )          18                  0.28         (2 )           (0.03 )
Asset impairment charge (2)                -                  -          -                  -             (6 )               (0.09 )       -                 -
Charge related to settlement of SEC
inquiry                                    -                  -          -                  -             -                     -         (14 )           (0.18 )
Preferred stock redemption charge
(3)                                        -                  -          -                  -             -                     -          -              (2.99 )
Foreign tax credit valuation
allowance and other (4)                    -                  -          -                  -             -                     -          (8 )           (0.10 )

(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 non-cash charge relates to the impact of impairing certain rental equipment and leasehold improvement write-offs.

(3) This charge, which relates to the June 2008 repurchase of our Series C and Series D Preferred Stock, reduces income available to common stockholders for earnings per share purposes, but does not affect net income (loss).

(4) Primarily relates to the establishment of a valuation allowance related to certain foreign tax credits that, as a result of the preferred stock redemption, were no longer expected to be realized.

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 net income (loss), provision (benefit) for income taxes, interest expense, net, interest expense-subordinated convertible debentures, net, depreciation-rental equipment and non-rental depreciation and amortization. Adjusted EBITDA represents EBITDA plus the sum of the restructuring charge, the charge related to the settlement of the SEC inquiry and stock compensation expense, net. These items are excluded from adjusted EBITDA internally when evaluating our operating performance and allow investors to make a more meaningful comparison between our core business operating results over different periods of time, as well as with those of other similar companies. Management believes that EBITDA and adjusted EBITDA, when viewed with the Company's GAAP results and the accompanying reconciliation, provide useful information about operating performance and period-over-period growth, and provide additional information that is useful for evaluating the operating performance of our core business without regard to potential distortions. Additionally, management believes that EBITDA and adjusted EBITDA permit investors to gain an understanding of the factors and trends affecting our ongoing cash earnings, from which capital investments are made and debt is serviced. 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 net income (loss) and EBITDA and adjusted EBITDA.

                                                        Three Months Ended        Nine Months Ended
                                                          September 30,             September 30,
                                                        2009         2008         2009           2008
Net income (loss)                                     $      -     $      74    $     (36 )     $  149
Provision (benefit) for income taxes                          4           43          (22 )        103
Interest expense, net                                        62           70          154          159
Interest expense - subordinated convertible
debentures, net                                               2            2           (6 )          7
Depreciation - rental equipment                             100          115          316          334
Non-rental depreciation and amortization                     13           14           42           44

EBITDA                                                $     181    $     318    $     448       $  796
Restructuring charge (1)                                      1            2           25            6
Charge related to settlement of SEC inquiry                  -            -            -            14
Stock compensation expense, net (2)                           2            2            6            4

Adjusted EBITDA                                       $     184    $     322    $     479       $  820

(1) As discussed below (see "Restructuring charge"), this relates to branch closure charges and severance costs.

(2) Represents non-cash, share-based payments associated with the granting of equity instruments.

For the three and nine months ended September 30, 2009, adjusted EBITDA decreased $138, or 42.9 percent, and $341, or 41.6 percent, respectively, primarily reflecting lower gross profits from equipment rentals and from the sale of rental equipment, partially offset by cost reductions.

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with GAAP. In applying many accounting principles, we make assumptions, estimates and/or judgments. These assumptions, estimates and judgments are often subjective and may change based on changing circumstances or changes in our analysis. Material changes in these assumptions, estimates and/or judgments have the potential to materially alter our results of operations. We have identified below our accounting policies that we believe could potentially produce materially different results were we to change underlying assumptions, estimates and/or judgments. Although actual results may differ from those estimates, we believe the estimates are reasonable and appropriate.

Revenue Recognition. We recognize equipment rental revenue on a straight-line basis. Our rental contract periods are daily, weekly or monthly. By way of example, if a customer were to rent a piece of equipment and the daily, weekly and monthly rental rates for that particular piece were (in actual dollars) $100, $300 and $900, respectively, we would recognize revenue of $32.14 per day. The daily rate for recognition purposes is calculated by dividing the monthly rate of $900 by the monthly term of 28 days. As part of this straight-line methodology, when the equipment is returned, we recognize as incremental revenue the excess, if any, between the amount the customer is contractually required to pay over the cumulative amount of revenue recognized to date. In any given accounting period, we will have customers return equipment and be contractually required to pay us more than the cumulative amount of revenue recognized to date. For instance, continuing the above example, if the above customer rented a piece of equipment on March 29 and returned it at the close of business on April 1, we would recognize incremental revenue on April 1 of $171.44 (in actual dollars, representing the difference between the amount the customer is contractually required to pay and the cumulative amount recognized to date on a straight-line basis). We record amounts billed to customers in excess of recognizable revenue as deferred revenue on our balance sheet. We had deferred revenue of $13 and $11 as of September 30, 2009 and December 31, 2008, respectively. Revenues from the sale of rental equipment and new equipment are recognized at the time of delivery to, or pick-up by, the customer and when collectibility is reasonably assured. Sales of contractor supplies are also recognized at the time of delivery to, or pick-up by, the customer.

Allowance for Doubtful Accounts. We maintain allowances for doubtful accounts. These allowances reflect our estimate of the amount of our receivables that we will be unable to collect based on historical write-off experience. Our estimate could require change based on changing circumstances, including changes in the economy or in the particular circumstances of individual customers. Accordingly, we may be required to increase or decrease our allowance.

Useful Lives of Rental Equipment and Property and Equipment. We depreciate rental equipment and property and equipment over their estimated useful lives, after giving effect to an estimated salvage value which ranges from zero percent to ten percent of cost. Costs we incur in connection with refurbishment programs that extend the life of our equipment are capitalized and amortized over the remaining useful life of the related equipment. The costs incurred under these refurbishment programs were $29 and $22 for the nine months ended September 30, 2009 and 2008, respectively, and are included in purchases of rental equipment in our condensed consolidated statements of cash flows.

The useful life of an asset is determined based on our estimate of the period over which the asset will generate revenues; such periods are periodically reviewed for reasonableness. In addition, the salvage value, an amount which is also reviewed periodically for reasonableness, is determined based on our estimate of the minimum value we will realize from the asset after such period. We may be required to change these estimates based on changes in our industry or other changing circumstances. If these estimates change in the future, we may be required to recognize increased or decreased depreciation expense for these assets.

To the extent that the useful lives of all of our rental equipment were to increase or decrease by one year, we estimate that our annual depreciation expense would change by approximately $39. Similarly, to the extent the estimated salvage values of all of our rental equipment were to increase or decrease by one percentage point, we estimate that our annual depreciation expense would change by approximately $4. Any change in depreciation expense as a result of a hypothetical change in either useful lives or salvage values would generally result in a proportional increase or decrease in the gross profit we would recognize upon the ultimate sale of the asset. To the extent that the useful lives of all of our depreciable property and equipment were to increase or decrease by one year, we estimate that our annual non-rental depreciation expense would change by approximately $7.

Impairment of Long-lived Assets. We review the recoverability of our long-lived assets, including rental equipment and property and equipment, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted and without interest charges). If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between the estimated fair value and carrying value. During the nine months ended September 30, 2009, we recognized an asset impairment charge of $9 in our general rentals segment. The impairment charge includes $7 reflected in depreciation of rental equipment in the accompanying condensed consolidated statements of operations related to certain rental equipment that had been classified as "held for sale," as well as $2 of leasehold improvement write-offs which are reflected in non-rental depreciation and amortization in the accompanying condensed consolidated statements of operations. Our estimate of the impairment charge for the rental fleet was calculated by comparing the proceeds estimated to be realized from the expected disposition of these rental assets to their carrying values. The impairment of the rental fleet, as well as the leasehold improvement write-offs, followed from our decision to close 38 branches in the second quarter of 2009. There were no impairment charges in the 2008 periods presented. As of September 30, 2009 and December 31, 2008, there were no held for sale assets in our condensed consolidated balance sheets.

In addition to the impairment reviews we conduct in connection with branch consolidations and other changes in the business, each quarter we conduct a review of rental assets that have both time and dollar utilization below a specified threshold. We select these assets, which represented approximately two percent of our total rental assets at September 30, 2009, as we believe they are at the greatest risk of potential impairment. As part of this impairment review, we estimate future rental revenues based on current and expected utilization levels, the age of these assets and their remaining useful lives. Additionally, we estimate when the asset is expected to be removed or retired from our rental fleet as well as the expected proceeds to be realized upon disposition. Based on our most recently completed September 30, 2009 quarterly review, the estimated future undiscounted cash flows substantially exceeded the corresponding net book value of the assets and, as such, there was no impairment.

Purchase Price Allocation. We have made a significant number of acquisitions in the past and may continue to make acquisitions in the future. We allocate the cost of the acquired enterprise to the assets acquired and liabilities assumed based on their respective fair values at the date of acquisition. With the exception of goodwill, long-lived fixed assets generally represent the largest component of our acquisitions. The long-lived fixed assets that we acquire are primarily rental equipment, transportation equipment and real estate. With limited exceptions, virtually all of the rental equipment that we have acquired through purchase business combinations has been classified as "To be Used," rather than as "To be Sold." Equipment that we acquire is recorded at fair value. We use third party valuation experts to help calculate fair value.

In addition to long-lived fixed assets, we also acquire other assets and assume liabilities. These other assets and liabilities typically include, but are not limited to, parts inventory, accounts receivable, accounts payable and other working capital items. Because of their short-term nature, the fair values of these other assets and liabilities generally approximate the book values reflected on the acquired entities' balance sheets. However, when appropriate, we adjust these book values for factors such as collectibility and existence. The intangible assets that we have acquired are primarily goodwill, customer relationships and covenants not-to-compete. Goodwill is calculated as the excess of the cost of the acquired entity over the net of the fair value of the assets acquired and the liabilities assumed. Customer relationships and non-compete agreements are valued based on an excess earnings or income approach with consideration to projected cash flows.

Evaluation of Goodwill Impairment. We have made numerous acquisitions over the years, principally during the period between 1997 and 2000, which included the recognition of a significant amount of goodwill. Goodwill is tested for impairment annually or more frequently if an event or circumstance indicates that an impairment loss may have been incurred. Application of the goodwill impairment test requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. In 2008, we estimated the fair value of our reporting units (or our regions) using a combination of an income approach based on the present value of estimated future cash flows and a market approach based on market price data of shares of corporations engaged in similar businesses. This approach, which utilizes multiple valuation techniques, yields the most appropriate evidence of fair value and we expect to continue using this approach in connection with our fourth quarter 2009 goodwill impairment testing.

We review goodwill for impairment utilizing a two-step process. The first step of the impairment test requires a comparison of the fair value of each of our reporting units to the respective carrying value. If the carrying value of a reporting unit is less than its fair value, no indication of impairment exists and a second step is not performed. If the carrying amount of a reporting unit is higher than its fair value, there is an indication that an impairment may exist and a second step must be performed. In the second step, the impairment is computed by comparing the implied fair value of the reporting unit's goodwill with the carrying amount of the goodwill. If the carrying amount of the reporting unit's goodwill is greater than the implied fair value of its goodwill, an impairment loss must be recognized for the excess and charged to operations.

Inherent in our development of the present value of future cash flow projections are assumptions and estimates derived from a review of our operating results, business plans, expected growth rates, cost of capital and tax rates. We also make certain assumptions about future economic conditions, interest rates and other market data. Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates can change in future periods. Changes in assumptions or estimates could materially affect the determination of the fair value of a reporting unit, and therefore could affect the amount of potential impairment. The following assumptions are significant to our income approach:

• Business Projections- We make assumptions about the level of equipment rental activity in the marketplace and cost levels. These assumptions drive our planning assumptions for pricing and utilization and also serve as key inputs for developing our cash flow projections. These projections are derived using our internal business plans over a ten-year planning period that are updated at least annually and reviewed by our board of directors;

• Long-term Growth Rates- Beyond the planning period, we also determine an assumed long-term growth rate representing the expected rate at which a reporting unit's earnings stream is projected to grow. These rates are used to calculate the terminal value of our reporting units, and are added to the cash flows projected during our ten-year planning period. In connection with our fourth quarter 2008 goodwill impairment testing, we utilized a long-term growth rate of two percent, which we believe is reasonable; and

• Discount Rates- Our combined future cash flows are then discounted at a rate that is consistent with a weighted average cost of capital that is likely to be used by market participants. The weighted average cost of capital is an estimate of the overall after-tax rate of return required by equity and debt holders of a business enterprise. In connection with our fourth quarter 2008 goodwill impairment testing, we utilized a discount rate of between 10 percent and 11.5 percent, which we believe is reasonable.

The market approach is one of the other primary methods used for estimating fair value of a reporting unit. This assumption relies on the market value (market capitalization) of companies that are engaged in the same or a similar line of business.

During the fourth quarter of 2008, and in connection with the preparation of our year-end financial statements, we recognized an aggregate non-cash goodwill impairment charge of $1.1 billion related to certain reporting units within our general rentals segment. The charge reflects the challenges of the current construction cycle, as well as the broader economic and credit environment, and includes $1.0 billion, reflecting conditions at the time of our annual October 1 testing date, as well as an additional $100 as of December 31, reflecting further deterioration in the economic and credit environment during the fourth quarter. Substantially all of the impairment charge related to goodwill arising from acquisitions made by the Company between 1997 and 2000. Following these goodwill impairment charges, and as of December 31, 2008, we had goodwill on our balance sheet of $190. Further, substantially all of this goodwill related to reporting units which had, as of December 31, 2008, estimated fair values significantly in excess of the corresponding carrying values.

As of September 30, 2009, we had $196 of goodwill on our balance sheet and, of this amount, approximately 96 percent relates to four regions. Although we have not yet conducted our October 1, 2009 goodwill impairment test, there have been no impairments recognized through the first nine months of 2009.

Income Taxes. We recognize deferred tax assets and liabilities for certain future deductible or taxable temporary differences expected to be reported in our income tax returns. These deferred tax assets and liabilities are computed using the tax rates that are expected to apply in the periods when the related future deductible or taxable temporary difference is expected to be settled or realized. In the case of deferred tax assets, the future realization of the deferred tax benefits and carryforwards are determined with consideration to historical profitability, projected future taxable income, the expected timing . . .